Tax Return Problems
Tax Return Problem 5.1
Tony (age 41) and Tatyana (age 32) Harding have brought you the following information regarding their income, expenses, and withholding for the year. They are unsure which of these items must be used to calculate taxable income.
| Item | Amount ($) |
|---|---|
| Tony’s salary (salesman) | 43,600 |
| Tatyana’s wages (home health nurse) | 28,300 |
| Insurance reimbursement for auto accident repairs | 1,254 |
| Inheritance | 6,000 |
| Washington Mutual Savings Bank dividends on savings account | 160 |
| Proctor & Gamble dividends (qualifying) | 240 |
| Enterprise Corp. dividends (qualifying) | 130 |
| Slot machine winnings from Thunder Valley | 2,600 |
| Federal income tax withheld (Tony and Tatyana) | 6,810 |
| California income tax withheld (Tony and Tatyana) | 2,140 |
| Tony’s unreimbursed business expenses | 1,580 |
| Tatyana’s professional dues for nursing organization | 200 |
| Northgate Country Club dues (Tony takes clients golfing—30% business) | 2,200 |
| Home mortgage interest ($11,100) and real estate taxes ($4,200) | 15,300 |
| Automobile registrations (both cars, includes $60 flat fee) | 750 |
| Other miscellaneous itemized deductions (before 2% limitation), includes gambling losses of $920 | 1,690 |
| Health insurance premiums | 3,540 |
| Cash contributions (supported by checks written) | 720 |
The Hardings live at 8724 San Clemente Avenue, Rocklin, California 95765. Their Social Security numbers are 524-68-2692 (Tony) and 625-88-6541 (Tatyana).
Required: Complete the Harding’s federal income tax return for 2008. Use Form 1040 and Schedule A. Do not complete Form 2106 for the employee business expenses; just record in Schedule A.
Tax Return Problem 5.2
Trisha Harrison (age 32) is a single taxpayer living at 474 King Street, Overland Park, Kansas 66213. Her Social Security number is 925-29-4958. Trisha’s earnings and withholding as the publicity manager for the Kansas City Chiefs are as follows:
| Item | Amount ($) |
|---|---|
| Earnings | 184,000 |
| Federal income tax withheld | 24,560 |
| State income tax withheld | 15,380 |
| Estimated tax payments for 2008 | 16,000 |
Trisha’s other income includes qualifying dividends on Bank of America stock of $3,500 and interest on a savings account at the OP National Bank of $2,575. Trisha received alimony of $3,100 per month for the entire year from her ex-husband, Ronald (Social Security number 449-25-1456).
During the year, Trisha paid the following amounts (all of which can be substantiated):
| Item | Amount ($) |
|---|---|
| Home mortgage interest | 21,520 |
| Credit card interest | 1,365 |
| Auto loan interest | 3,650 |
| Auto insurance | 840 |
| Property taxes on personal residence | 4,500 |
| State and local sales taxes | 360 |
| Blue Cross insurance premiums | 3,970 |
| Other medical expenses | 1,368 |
| Income tax preparation fee | 395 |
| Charitable contributions: | |
| Redeemer Baptist Church | 14,000 |
| St. Agnes Church | 450 |
| U. of Kansas | 3,900 |
| Kansas Democratic Party | 2,000 |
| Fund-raising dinner for the Art Gallery (value of dinner is $50) | 250 |
In her spare time, Trisha wants to become a children’s book illustrator. She set up a business to pursue her dream. During the year, she incurs the following expenses related to this activity:
| Item | Amount ($) |
|---|---|
| Depreciation on computer equipment | 620 |
| Art supplies | 470 |
| Travel to locations used in the illustrations | 1,800 |
During the year Trisha illustrated one book and was paid $750. Trisha has had similar results from this activity for the last five years.
Required: Complete Trisha’s federal tax return for 2008. Use Form 1040, Schedule A, Schedule B, and any necessary worksheets to complete this tax return. Make realistic assumptions about any missing data.
Tax Return Problem 5.3
Paul and Jane Grimm are married and have three children: Anne, Brad, and Cory. They live at 589 Ballston Lake Road, Ballston Spa, New York 12020. Paul is a lawyer working for the State of New York and Jane works part-time at a GE research lab. The Grimm’s Social Security numbers, ages, receipts, and expenditures follow:
| Name | Social Security Number | Age |
|---|---|---|
| Paul | 691-11-1111 | 43 |
| Jane | 791-11-2222 | 44 |
| Anne | 891-11-3333 | 16 |
| Brad | 091-11-4444 | 15 |
| Cory | 191-11-5555 | 14 |
| Receipts and Expenditures | |
|---|---|
| Paul’s salary | $83,000 |
| Jane’s salary | 26,000 |
| Interest income on municipal bonds | 2,650 |
| Interest income on certificate of deposit (Saratoga Savings) | 3,300 |
| Dividends on GE stock | 2,500 |
| Eyeglasses and exam for Anne | 700 |
| Orthodontic work for Brad to correct a congenital defect | 3,400 |
| Medical insurance premiums | 3,100 |
| Withholding for state income taxes | 7,600 |
| Withholding for federal income taxes | 17,250 |
| State income taxes paid with last year’s tax return (paid when the return was filed in the current year) | 700 |
| Property taxes on home | 8,800 |
| Property taxes on automobile | 400 |
| Interest on home | 10,400 |
| Interest on credit cards | 420 |
| Cash contribution to church | 4,200 |
In addition to the above, on August 1, Paul and Jane donate some JDS Uniphase stock to the Hamilton County Community College. JDS Uniphase is publicly traded and the FMV of the stock on August 1 is $1,100. Paul and Jane had purchased the stock on March 4, 2003, for $400.
Required: Prepare the Grimm’s current year federal income tax return, using Form 1040, Schedules A and B, and Form 8283, if necessary.
