ACC INDIVIDUAL TAX RETURN PROBLEM - Paige Turners
Question # 00033298
Posted By:
Updated on: 11/25/2014 07:26 AM Due on: 11/25/2014
INDIVIDUAL TAX RETURN PROBLEM
Use the following information to complete Paige Turners 2012 federal income tax return. If information is missing, use reasonable assumptions to fill in the gaps.
Any required forms, schedules, and instructions can be found at the IRS Web site (www.irs.gov).
The instructions can be helpful in completing the forms.
Facts:
1. Paige Turner is single and has two children from her previous marriage. Ali lives with Paige,
and Paige provides more than half of her support. Leif lives with his father; Will (Lief lived with
Will for all of 2012). Will provides more than half of Leifs support. Paige pays alimony of
$400 per month to Will. The payments are to continue until Leif reaches age 18, when they will
be reduced to $150. Paige provides you with the following additional information:
She uses the cash method of accounting and a calendar year for reporting.
She wishes to contribute to the presidential election campaign.
Paige lives at 523 Essex Street, Bangor, ME 04401.
Paiges birthday is May 31, 1974.
Alis birthday is October 5, 2003.
Leifs birthday is December 1, 2001.
Paiges Social Security number is 007-16-4727.
Alis Social Security number is 005-61-7232.
Leifs Social Security number is 004-23-3419.
Wills Social Security number is 006-45-6333.
She does not have any foreign bank accounts or trusts.
2. Paige is employed as a nuclear engineer with Atom Systems Consultants, Inc.
(ASCI). ASCIs federal employer identification number is 79-1234466. Paiges
pay stubs indicate that she had $7,230 withheld in federal taxes, $4,987 in state
taxes, $4,495 in Social Security taxes, and $1,051 in Medicare taxes. ASCI has
an extensive fringe benefits program for its employees.
3. Paige earned salary of $70,000 (before subtracting her 401(k) and flexible
spending plan contributions). She contributed $7,000 to her 401(k) account, and she
contributed $3,600 to her flexible spending account.
4. Taking advantage of ASCIs educational assistance program, during the fall
Paige enrolled in two graduate engineering classes at a local college. ASCI paid
her tuition, fees, and other course-related costs of $2,300.
5. Paige received free parking in the companys security garage that would normally
cost $200 per month.
6. On January 15, 2012, Paiges father died. From her fathers estate, she received
stock valued at $30,000 (his basis was $12,000) and her fathers house valued at
$90,000 (his basis in the house was $55,000).
7. Paige owns several other investments and in February 2013 received a statement from her
brokerage firm reporting the interest and dividends earned on the investments for 2012. (See
page 3.)
8. In addition to the investments discussed above, Paige owns 1,000 shares of Grubstake Mining
& Development common stock. Grubstake is organized as an S corporation and has 100,000
shares outstanding (S corp. ID number 45-4567890). Grubstake reported taxable income of
$200,000 and paid a distribution of $1.00 per share during the current year. Paige tells you that
Grubstake typically does not send out its K-1 reports until late April. However, its preliminary
report has been consistent with the K- 1 for many years. (See page 3.) Paige does not materially
participate in Grubstakes activities.
9. Paige slipped on a wet spot in front of a computer store last July. She broke her ankle and was
unable to work for two weeks. She incurred $1,300 in medical costs, all of which were paid by
the owner of the store. The store also gave her $1,000 for pain and suffering resulting from the
injury. ASCI continued to pay her salary during the two weeks she missed because of the
accident. ASCIs plan also paid her $1,200 in disability pay for the time she was unable to work.
Under this plan ASCI pays the premiums for the disability insurance as a taxable fringe benefit.
Forms 1099 and 1098
This is important tax information and is being furnished to the Internal Revenue Service.
1099-Div Dividends & Distributions
Entity
Description
Amount
General Dynamics
Gross ordinary & qualified dividends
$300
1099-Int Interest
Entity
Description
Amount
New Jersey Economic Development bonds Gross interest
$300
IBM bonds
Gross interest
700
State of Nebraska bonds
Gross interest
200
1098-Mortgage Interest Statement
Entity
Description
Amount
Sunbelt Credit Union
Mortgage interest
$7,100
Northeast Bank
Home-equity loan interest
435
Grubstake Mining & Development: preliminary report (preliminary K-1) to Paige for the 2012
tax year
Distribution to shareholder
$1,000
Ordinary income (1% of $200,000)
$2,000
10. Paige received a Form 1099-B from her broker for the sale of the following securities during
2012. The adjusted basis amounts were reported to the IRS.
Sale Date
Purchase Date
Sales Price
Her
Basis
Nebraska state bonds
03/14/12
10/22/06
$2,300
$1,890
$8,500
$9,760
Cassill Corp (500 shares)
10/20/12
02/19/11
11. In addition to the taxes withheld from her salary, she also made timely estimated federal tax
payments of $175 per quarter. Paige would like to receive a refund for any overpayment.
12. Paige found a renter for her fathers house on February 1, 2012. The monthly rent is $400,
and the lease agreement is for one year. The lease requires the tenant to pay the first and last
months rent and a $400 security deposit. The security deposit is to be returned at the end of the
lease if the property is in good condition. On February 1 2012, Paige received $1,200 from the
tenant per the terms of the lease agreement. In November, the plumbing froze and several pipes
burst. The tenant had the repairs made and paid the $300 bill. In December, he reduced his rental
payment to $100 to compensate for the plumbing repairs. Paige provides you with the following
additional information for the rental in 2012.
Property taxes
$770
Other maintenance expenses
285
Insurance expense
495
Management fee
350
Depreciation
2,760
The rental property is located at 35 Harvest Street, Orono, ME 04473. Local practice is to
allocate 12 percent of the fair market value of the property to the land. (See #6.) Paige makes all
decisions with respect to the property.
13. Paige paid $2,050 in real estate taxes on her principal residence. The real estate tax is used to
pay for town schools and other municipal services.
14. Paige drives a 2011 Acura TL. Her car registration fee (based on the car year) is $50 and
covers the period 1/1/12 through 12/31/12. In addition, she paid $280 in property tax to the state
based on the book value of the car.
15. In addition to the medical costs presented in #9, Paige incurred the following unreimbursed
medical costs:
Dentist
$ 310
Doctor
390
Prescription drugs
215
Over-the-counter drugs
140
Optometrist
125
Emergency room charges
440
LASIK eye surgery
Chiropractor
2,000
265
16. On March 1, Paige took advantage of low interest rates and refinanced her $75,000 home
mortgage with her original lender. The new home loan is for 15 years. She paid $215 in closing
costs and $1,500 in discount points (prepaid interest) to obtain the loan. The house is worth
$155,000, and Paiges basis in the house is $90,000. As part of the refinancing arrangement, she
also obtained a $10,000 home-equity loan. She used the proceeds from the home-equity loan to
reduce the balance due on her credit cards. Paige received several Form 1098 statements from
her bank for interest paid by her in 2012. Details appear below. (See also on page 3.)
Primary home mortgage
$7,100
Home-equity loan
435
Credit cards
498
Car loan
390
17. On May 14, 2012, Paige contributed clothing to the Salvation Army. The original cost of the
clothing was $740. She has substantiation valuing the donation at $360. The Salvation Army is
located at 350 Stone Ridge Road, Bangor, ME 04401. In addition, she made the following cash
contributions and received a statement from each of the following organizations acknowledging
her contribution:
Larkin College
$850
United Way
125
First Methodist Church
790
Amos House (homeless shelter)
200
Local Chamber of Commerce
100
18. On April 1, 2012, Paiges house was robbed. She apparently interrupted the burglar because
all thats missing is an antique brooch she inherited from her grandmother (June 12, 2004) and
$300 in cash. Unfortunately, she didnt have a separate rider on her insurance policy covering the
jewelry. Therefore, the insurance company reimbursed her only $500 for the brooch. Her basis in
the brooch was $6,000, and its fair market value was $7,500. Her insurance policy also limits to
$100 the amount of cash that can be claimed in a theft.
19. During 2012, Paige paid a local CPA $350 to prepare her 2011 tax return.
Use the following information to complete Paige Turners 2012 federal income tax return. If information is missing, use reasonable assumptions to fill in the gaps.
Any required forms, schedules, and instructions can be found at the IRS Web site (www.irs.gov).
The instructions can be helpful in completing the forms.
Facts:
1. Paige Turner is single and has two children from her previous marriage. Ali lives with Paige,
and Paige provides more than half of her support. Leif lives with his father; Will (Lief lived with
Will for all of 2012). Will provides more than half of Leifs support. Paige pays alimony of
$400 per month to Will. The payments are to continue until Leif reaches age 18, when they will
be reduced to $150. Paige provides you with the following additional information:
She uses the cash method of accounting and a calendar year for reporting.
She wishes to contribute to the presidential election campaign.
Paige lives at 523 Essex Street, Bangor, ME 04401.
Paiges birthday is May 31, 1974.
Alis birthday is October 5, 2003.
Leifs birthday is December 1, 2001.
Paiges Social Security number is 007-16-4727.
Alis Social Security number is 005-61-7232.
Leifs Social Security number is 004-23-3419.
Wills Social Security number is 006-45-6333.
She does not have any foreign bank accounts or trusts.
2. Paige is employed as a nuclear engineer with Atom Systems Consultants, Inc.
(ASCI). ASCIs federal employer identification number is 79-1234466. Paiges
pay stubs indicate that she had $7,230 withheld in federal taxes, $4,987 in state
taxes, $4,495 in Social Security taxes, and $1,051 in Medicare taxes. ASCI has
an extensive fringe benefits program for its employees.
3. Paige earned salary of $70,000 (before subtracting her 401(k) and flexible
spending plan contributions). She contributed $7,000 to her 401(k) account, and she
contributed $3,600 to her flexible spending account.
4. Taking advantage of ASCIs educational assistance program, during the fall
Paige enrolled in two graduate engineering classes at a local college. ASCI paid
her tuition, fees, and other course-related costs of $2,300.
5. Paige received free parking in the companys security garage that would normally
cost $200 per month.
6. On January 15, 2012, Paiges father died. From her fathers estate, she received
stock valued at $30,000 (his basis was $12,000) and her fathers house valued at
$90,000 (his basis in the house was $55,000).
7. Paige owns several other investments and in February 2013 received a statement from her
brokerage firm reporting the interest and dividends earned on the investments for 2012. (See
page 3.)
8. In addition to the investments discussed above, Paige owns 1,000 shares of Grubstake Mining
& Development common stock. Grubstake is organized as an S corporation and has 100,000
shares outstanding (S corp. ID number 45-4567890). Grubstake reported taxable income of
$200,000 and paid a distribution of $1.00 per share during the current year. Paige tells you that
Grubstake typically does not send out its K-1 reports until late April. However, its preliminary
report has been consistent with the K- 1 for many years. (See page 3.) Paige does not materially
participate in Grubstakes activities.
9. Paige slipped on a wet spot in front of a computer store last July. She broke her ankle and was
unable to work for two weeks. She incurred $1,300 in medical costs, all of which were paid by
the owner of the store. The store also gave her $1,000 for pain and suffering resulting from the
injury. ASCI continued to pay her salary during the two weeks she missed because of the
accident. ASCIs plan also paid her $1,200 in disability pay for the time she was unable to work.
Under this plan ASCI pays the premiums for the disability insurance as a taxable fringe benefit.
Forms 1099 and 1098
This is important tax information and is being furnished to the Internal Revenue Service.
1099-Div Dividends & Distributions
Entity
Description
Amount
General Dynamics
Gross ordinary & qualified dividends
$300
1099-Int Interest
Entity
Description
Amount
New Jersey Economic Development bonds Gross interest
$300
IBM bonds
Gross interest
700
State of Nebraska bonds
Gross interest
200
1098-Mortgage Interest Statement
Entity
Description
Amount
Sunbelt Credit Union
Mortgage interest
$7,100
Northeast Bank
Home-equity loan interest
435
Grubstake Mining & Development: preliminary report (preliminary K-1) to Paige for the 2012
tax year
Distribution to shareholder
$1,000
Ordinary income (1% of $200,000)
$2,000
10. Paige received a Form 1099-B from her broker for the sale of the following securities during
2012. The adjusted basis amounts were reported to the IRS.
Sale Date
Purchase Date
Sales Price
Her
Basis
Nebraska state bonds
03/14/12
10/22/06
$2,300
$1,890
$8,500
$9,760
Cassill Corp (500 shares)
10/20/12
02/19/11
11. In addition to the taxes withheld from her salary, she also made timely estimated federal tax
payments of $175 per quarter. Paige would like to receive a refund for any overpayment.
12. Paige found a renter for her fathers house on February 1, 2012. The monthly rent is $400,
and the lease agreement is for one year. The lease requires the tenant to pay the first and last
months rent and a $400 security deposit. The security deposit is to be returned at the end of the
lease if the property is in good condition. On February 1 2012, Paige received $1,200 from the
tenant per the terms of the lease agreement. In November, the plumbing froze and several pipes
burst. The tenant had the repairs made and paid the $300 bill. In December, he reduced his rental
payment to $100 to compensate for the plumbing repairs. Paige provides you with the following
additional information for the rental in 2012.
Property taxes
$770
Other maintenance expenses
285
Insurance expense
495
Management fee
350
Depreciation
2,760
The rental property is located at 35 Harvest Street, Orono, ME 04473. Local practice is to
allocate 12 percent of the fair market value of the property to the land. (See #6.) Paige makes all
decisions with respect to the property.
13. Paige paid $2,050 in real estate taxes on her principal residence. The real estate tax is used to
pay for town schools and other municipal services.
14. Paige drives a 2011 Acura TL. Her car registration fee (based on the car year) is $50 and
covers the period 1/1/12 through 12/31/12. In addition, she paid $280 in property tax to the state
based on the book value of the car.
15. In addition to the medical costs presented in #9, Paige incurred the following unreimbursed
medical costs:
Dentist
$ 310
Doctor
390
Prescription drugs
215
Over-the-counter drugs
140
Optometrist
125
Emergency room charges
440
LASIK eye surgery
Chiropractor
2,000
265
16. On March 1, Paige took advantage of low interest rates and refinanced her $75,000 home
mortgage with her original lender. The new home loan is for 15 years. She paid $215 in closing
costs and $1,500 in discount points (prepaid interest) to obtain the loan. The house is worth
$155,000, and Paiges basis in the house is $90,000. As part of the refinancing arrangement, she
also obtained a $10,000 home-equity loan. She used the proceeds from the home-equity loan to
reduce the balance due on her credit cards. Paige received several Form 1098 statements from
her bank for interest paid by her in 2012. Details appear below. (See also on page 3.)
Primary home mortgage
$7,100
Home-equity loan
435
Credit cards
498
Car loan
390
17. On May 14, 2012, Paige contributed clothing to the Salvation Army. The original cost of the
clothing was $740. She has substantiation valuing the donation at $360. The Salvation Army is
located at 350 Stone Ridge Road, Bangor, ME 04401. In addition, she made the following cash
contributions and received a statement from each of the following organizations acknowledging
her contribution:
Larkin College
$850
United Way
125
First Methodist Church
790
Amos House (homeless shelter)
200
Local Chamber of Commerce
100
18. On April 1, 2012, Paiges house was robbed. She apparently interrupted the burglar because
all thats missing is an antique brooch she inherited from her grandmother (June 12, 2004) and
$300 in cash. Unfortunately, she didnt have a separate rider on her insurance policy covering the
jewelry. Therefore, the insurance company reimbursed her only $500 for the brooch. Her basis in
the brooch was $6,000, and its fair market value was $7,500. Her insurance policy also limits to
$100 the amount of cash that can be claimed in a theft.
19. During 2012, Paige paid a local CPA $350 to prepare her 2011 tax return.
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Rating:
/5
Solution: ACC INDIVIDUAL TAX RETURN PROBLEM - Paige Turners (Solution)