Tax Return Problems
Tax Return Problem 4.1
Karl and Kate Clinton are married and file a joint return. They live at 3142 South Leyden Street, Denver, Colorado 80210. Karl works for Gates Rubber Co. and Kate works for Gart Bros. Sporting Goods. Kate’s Social Security number is 363-25-7912 and Karl’s is 535-29-5623. Karl and Kate’s earnings and income tax withheld for 2008 are:
Karl: Earnings from Gates $38,200
Federal income tax withheld $4,150
State income tax withheld $200
Kate: Earnings from Gart Bros. $57,725
Federal income tax withheld $6,520
State income tax withheld $400
Karl and Kate have interest income of $883 from a savings account at World Savings and Loan. Kate owns stock in Wrigleys, which paid $125 in nonqualified dividends in 2008.
Kate is divorced and her ex-husband (Kris Kraft) pays her alimony. Pursuant to their divorce decree, Kris pays her $525 per month in alimony for five years after Kate’s remarriage. Kate and Karl were married in 2007. All payments were made on time.
In June, Kate’s father died. Under a life insurance policy owned and paid for by her father, Kate was paid death benefits of $75,000.
Kate made payments on her student loans during the year. She paid $1,240 in interest on those student loans. Karl was a student for part of the year and paid Metropolitan State College $850 in tuition, $75 in fees and $240 for books. Assume Karl’s payments do not qualify for the Hope or lifetime learning credits.
Gart Bros. does not have a retirement program so Kate established her own traditional IRA account and invested $3,000 during the year. Karl does have a retirement program at Gates but he also established a traditional IRA account and contributed $1,500.
Required: Complete Karl and Kate’s federal tax return for 2008. Make realistic assumptions about any missing data.
Tax Return Problem 4.2
Sheba Jersey, Social Security number 555-55-7777, is the vice president for Right Coast Enterprises. Sheba is single and lives at 1142 Grant Street, Princeton, New Jersey 27895. She recently accepted a new position in Right Coast’s Honolulu, Hawaii, office. Her new office meets the 50 mile requirement for moving expense deduction. Her employer paid $23,400 to move Sheba’s household goods and paid $3,400 for her personal transportation expenses including $890 for meals. Other relevant information regarding Sheba’s 2008 federal income tax return follows.
Received a gift of 500 shares of American Gas Corporation stock with a $60,000 FMV from her father. She also received $2,000 of cash dividends from the American Gas Corporation. The dividends are not qualified dividends.
Received a $120,000 salary from her employer, who withheld $22,300 federal income tax.
Received $1,000 of interest income on Princeton City bonds.
Received a regular stock dividend of 50 shares of American Gas Corporation.
Sheba’s employer paid $4,300 of medical and health insurance premiums on her behalf.
Total itemized deductions are $8,000.
Sheba’s employer offers a contributory 401(k) retirement plan in which she contributes 5% and her employer contributes 3% of her salary up to the maximum allowed.
Required: Complete Form 1040 and accompanying schedules for Sheba Jersey’s federal income tax return for the current year.
