Robert and Susan (both 39) are married & have 2 children. Their son Dylan is 8 and daughter, Harper is 3. Susan sells pharmaceuticals for the Bendingo drug Co. Robert is a teacher at a local junior high school. In the summer, he earns extra money as a self-employed house painter. Their income from their jobs is as follows:
Salary Fed Tax Withheld State Tax Withheld
Susan: $80,000 $6,000 $5,400
Robert: 45,000 6,100 3,150
Bendigo has a cafeteria benefits plan that lets employees select benefits equal to as much as 10% of their annual salary or receive the cash equivalent. Susan selects dental insurance, $160,000 in group term life insurance, disability insurance, and company-provided day care. The total cost to Bendigo of these benefits is $6,600. Susan takes the remaining benefits to which she is entitle in cash. Because Bendigo does not have an employee pension plan, Robert and Susan each contribute $5,000 to their individual retirement accounts.
The school district gives Robert medical insurance and group term life insurance equal to 100% of his annual salary. He pays an additional $125 a month to cover Susan and the children under his medical plan. The school district also has a qualified contributory pension plan to which it contributes 5% of Robert's annual salary; he is required to contribute 3%. Robert is allowed to make additional contributions of up to 2% of his salary, and he contributes the maximum.
In addition to the life insurance coverage provide by their employers, Robert and Susan Purchase $100,000 in whole life insurance on each other, along with a disability insurance policy for Robert. The checkbook analysis that follows shows the costs of these policies.
Susan's job requires her to travel throughout her six-state region. Bendigo has an accountable reimbursement plan from which Susan receives $8,500 for the following expenses:
In April, Susan and Robert go to the racetrack with Susan's client Annie and her husband. After wagering $170 without winning, Susan wins $2,600 on the last race. The racetrack withholds $780 for federal income taxes and $260 for state income taxes.
Robert hires college students to help him paint houses. This year, he is able to hire 8 students (two 4-person crews). Robert shuttles between sites, supervising the jobs, talking to prospective clients, and painting. He treats the college students as independent contractors. His business generates the following income and expenses:
Other material 6,100
Payment to student 48,400
During the year, Robert and Susan receive the following portfolio income:
Interest on saving account $1,900
Interest on U.S. Treasury bills 400
Cash dividends on stock 1,750
Interest on city of Buffalo bonds 600
Interest on Puerto Rico government bonds 400
Robert and Susan own 3,000 shares of qualified small business stock that they purchased in 1999 for $37,000. Early in 2008 they sell all the shares for $16,800.
Robert and Susan also sell 100 shares of Sobey co. stock for a short-term capital gain of $3,500 and 250 shares of the Bristol co. for a long-term capital loss of $7,250. They pay investment interest of $550 during the year.
Robert and Susan own 4% interest in a limited partnership. The limited partnership reports the following information to them:
Ordinary loss $2,100
Long-term capital gain 600
Charitable contribution 300
Cash distribution 2,400
During the year, the family spends 20 days at its summer home; they rent it to vacationers for 80 days. Information pertaining to the rental is as follows:
Renal income $6,500
Interest on mortgage 4,450
Property taxes 1,600
Management fee 380
Depreciation (unallocated) 7,000
One night, while returning home from a parent-teacher conference at school, Robert is involved in an accident and is hospitalized for 7 days. He incurs $14,000 in medical expenses. His employer-provided policy reimburses him $11,800 of the costs. In addition, his disability policy pays him $3,200 for the time he misses from school.
The car is totally destroyed. It was purchased in 2006 for $19,500, and Robert finds a similar car selling for $8,000. The insurance company reimburses him $6,700.
An analysis of Susan and Robert's checkbook reveals the following payments in 2008:
Automobile insurance $1,200
Homeowner's insurance 420
Life insurance 750
Disability insurance 180
Country club dues 2,400
Health club dues 600
Prescription drugs 175
Over-the-counter medicine 320
Chamber of commerce contribution 150
Contribution to candidate for Congress 500
United Way 260
St Philip's Church 750
Randolph University 520
Auto registration on automobiles ($130 of which is a license fee) 390
Tax preparation 375
During 2008, Robert and Susan take out $33,000 home equity loan that they use to pay off $8,000 in credit card debt. The remaining loan proceed go to renovating the house. Interest paid on this loan totals $1,950 during 2008. Robert and Susan purchase their current home by paying $16,000 down and signing a $160,000 mortgage note, secured by the home. The home is worth $225,000 and the balance on the original mortgage is $134,000. They pay interest on their home mortgage of $14,700 during 2008. They also pay $310 in interest in their personal credit cards and $1,720 in property taxes on their home during 2008.
Compute Robert and Susan's taxable income for 2008, the tax of this income, and the amount of any refund or additional tax due. You should provide a summary schedule of these calculations (in proper form). Use the following form and schedules:
Form 1040, Schedules A, B, C, D and E.
Forms 2106, 4684 and 8606.
The information given in this problem is complex. When working on a problem like this it is helpful to have an idea of where it will go to. I will attach the 2005 Turbotax return that I have generated for a reference only.
When attempting to start a tax return it is necessary to know how the program works. It can be easier at times to prepare a pencil and paper tax return for a problem like this.
Most of the professional software is set up so the preparer can communicate with ...
This solution is a complex individual tax return with self-employment issues and travel, transpotation and entertainment.
Form 1040, Schedules A, B, C, D and E.
Forms 2106, 4684 and 8606.
Lyle and Kaye James are married, have two minor children, Jessica age 8 and Jerron age 4, and are filing a joint tax return in the current year.
1. Lyle and Kaye James are married, have two minor children, Jessica age 8 and Jerron age 4, and are filing a joint tax return in the current year. They are both employed. Lyle and Kaye, ages 38 and 37, respectively, have combined salaries of $240,000, from which $42,000 of federal income tax and $10,000 of state income tax are withheld. Lyle and Kaye own two homes. Their primary residence is located at 11620 N. Mount Ave., New Haven, Connecticut 22222, and their vacation home is on the beach in Fort Lauderdale, Florida. They often rent their vacation home to supplement their income. The following items are related to the James' ownership of the two homes:
Item New Haven Fort Lauderdale
Rental income $ ? $15,000
Qualified residence interest 7,200 5,000
Property taxes 1,400 1,000
Utilities 1,000 1,300
Repairs 200 300
Depreciation 0 3,500
Advertising 0 200
Insurance 1,500 1,500
The James family used their Fort Lauderdale home 20 days during the year. They rented the vacation home 60 days during the year. Lyle and Kaye jointly purchase stock in various corporations and make the following transactions in the current year. (None of the stock qualifies as small business stock.)
Date Transaction Price Paid/Sold
2/15 Bought 50 shares of Lake common stock (they own no other Lake stock) $1,000
5/14 Bought 100 shares of Bass common stock (they own no other Bass stock) 3,000
5/24 Sold 25 shares of Lake common stock 250
5/27 Bought 50 shares of Lake common stock 900
Sold 50 shares of Bass common stock 1,750
7/12 Bought 100 shares of Bass common stock 2,800
The James' have no other income or expense items. Lyle and Kaye's Social Security numbers are 111-22-3333 and 444-55-6666, respectively. Jessica and Jerron's Social Security numbers are 123-45-6789 and 888-99-1010. The James' use the IRS method of allocating all expenses between personal and rental use.
File the James' income tax return Form 1040, Schedules A, D, and E using the currently available forms and rates. Disregard any tax credits for which they may be eligible.