Prepare a complex tax return
Please prepare the enclosed family’s complex tax return.
Spring 2019 ACC320 Tax Problem.
Some hints:
- How many exemptions?
- How much do they have in rental income?
- How much do they have in business income?
- What is NOT included in their income? Go through the info and determine what is included and what is not included!
- Figure out their income and do a tax return using 2018 tax forms.
- They had medical insurance the whole year. No penalty!
Yes everything happened is listed, but NOT everything goes on their tax return.
Mark Smith (1/1/1975) and Sally Smith (1/2/1974) have hired you to do their 2018 income tax return. They live at 10210 Old Main Street in Mount Olive. His social security number is 111-11-1111 and hers is 222-22-2222. They have several people they take care of: Joshua (1/3/1998), their son, is 20 and a full time college student-a junior; His social security number is 333-33-3333 and he earned $2,700 last year. He lives on campus but he paid for that himself, but his parents paid for his tuition at UMO. Benjamin (1/4/1993), their son, is 25 and fully disabled and his social security number is 444-44-4444. He earned $5,000 and lives with the Jackson’s. Their daughter Rachel (1/5/2013) is 5 and her social security number is 555-55-5555. They paid The ABC Day Care in Mount Olive $6,000 to help watch and care for Rachel while they work. Their Federal tax id is 52-9876543. They also take care of and fully support Mark’s mother-Melanie Smith (1/10/1950) in Florida and her social security number is 666-66-6666. They also fully support Sally’s cousin, Monica Jackson (1/9/1980), which lives in California. Her social security number is 777-77-7777. You must figure out the number of dependents!(DOB in parentheses)
Mark has a salary job working at the University of Mount Olive as a professor making $85,000 and they withheld $8,000 in federal income taxes and $4,000 in state income taxes. Mark paid alimony of $12,000 and child support of $6,000. Sally received alimony of $6,000. Both of them have pre-2018 alimony agreements (This should tell you something!) Mark and Sally have rental property and Sally is a local Business owner.
The family had health insurance coverage the entire year. No penalty to calculate.
The rental info is:
- House in Florida. They have rented the house in 9 previous years (began 1/1/2010) and they rented in out all year. The house is worth $100,000 and the land is $50,000 for a total of $150,000. Income and Expenses listed below.
- They have a 2nd rental in South Carolina that only rented for 13 days and the income was $5,000 with no expenses. They have rented this property for 7 years and it was purchased for $100,000 with land valued at $25,000.
Income from FL: $20,000
Advertising $1,200
Mortgage interest paid $6,000
Real estate taxes $2,400
Utilities $1,400
Insurance $1,800
Repairs $2,300
Management fees $1,200
Business Information on Sally
Sally’s business income for the year was $40,000. She had the following expenses:
Liability insurance $1,800
Software rental $9,500
Journals $1,250
Training $1,500
Advertising $2,400
Supplies $3,400
Postage $1,200
Cellphone $2,400
Website $2,000
Her purchases in January 1, 2018 of property are as follows:
- Computer 5 year $2,000
- Office Furniture 7 year $5,000
- Also, she brought an office condo on January 1, 2012. She brought it for $100,000, $70,000 for the building and $30,000 for the land.
She elected: NO BONUS and NO Section 179.
Here are some other events that happened in the life of the Smith’s this year:
Reminder everything happened is listed, but NOT everything goes on their tax return!
Hint-Go through the information and delete out what does apply to their tax return! Then input everything else!
- Received interest from Bank of America of $1,800.
- Received tax exempt interest of $1,700 from the State of North Carolina.
- Received dividends from Ford Motor Co. of $2,400.
- Mark did jury duty and received $50.
- Mark’s uncle died and the insurance company left him $500,000.
- When his uncle died he also left Mark some ABC co. stock which he purchase for $2,000 back in 1988. The stock had a FMV of $20,000 on the date of death 7/1/18. Mark sold it for $30,000 on 12/31/18.
- Mark purchase some stock in February 28, for $17,000 and it was going south, so he sold it in October 31, for $1,000.
- Mark sold one old car for a loss of $2,000.
- Sally had gambling winning s of $7,000. She also has gambling losses of $9,500.
- Medical insurance premiums paid were $12,000 by Mark on his job.
- Therapist bills for Benjamin were $500
- Other Doctor and dentist bills were $3,000
- Over the counter medicine purchased was $2,800
- Mortgage interest paid on their home was $6,000
- They paid $8,000 interest on their personal auto loan.
- They paid $1,800 for prescriptions.
- Real Estate taxes paid on their home was $3,800
- The paid personal property taxes of $500 and it was based on value of property so include it.
- They gave $12,500 to charity/church and have a statement.
- They paid credit card finance charges of $3,000
- They made political donations of $5,000
- They paid $1,000 for tax preparation last year. $600 was for Sally’s business.
- Mark paid union dues of $1,500
- Mark also had job expenses of $3,000 that he paid out of pocket-not reimbursed.
- Mark helped out a friend at work by giving him $3,500. He wants to know if its charity?
- Sally paid for the medical expenses of a close friend $5,000.
- Mark gave another old car to charity. FMV was $500 on 1098C.
- Mark elected to put $5,000 in a Traditional IRA. Sally elected to put $5,000 into a ROTH IRA. Neither has a retirement plan thru an employer.
- Mark paid $4,000 to Sallie Mae for student loan interest.
- They withdrew a bank CD and paid an early withdrawal penalty of $75.
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