chapter 8 tax 2 questions.

Problem 62

Janice Morgan, age 32, is single and has no dependents. She is a freelance writer. In January 2013, Janice opened her own office located at 22751 Waldham Road, Pleasant Hill, NM 88135. She called her business Writers Anonymous. Janice is a cash basis taxpayer. She lives at 132 Stone Avenue, Pleasant Hill, NM 88135. Her Social Security number is 123-45-6789. Janice wants to contribute to the Presidential Election Campaign Fund. During 2013, Janice had the following income and expense items connected with her business:

Income from sale of articles $85,000

Rent 16,500

Utilities 7,900

Supplies 1,800

Insurance 5,000

Travel (including meals of $1,200) 3,500

Janice purchased and placed in service the following fixed assets for her business:

Furniture and fixtures (new) costing $21,000 on January 10.

Computer equipment (new) costing $12,400 on July 28.

Janice elected immediate expending under Section 179.

Janice's itemized deductions are as follows:

State income tax $3,000

Home mortgage interest 6,000

Property taxes on home 1,500

Charitable contributions 1,200

Janice did not keep a record of the sales tax she paid. The amount from the sales tax table is $437

Janice has interest income of $20,000 on certificates of deposit at Second Bank. Janice makes estimated tax payments of $3,00 for 2013.

Compute Janice Morgan's 2012 Federal income tax payable (or refund due).

Problem 63

John Smith, age 31, is single and has no dependents. At the beginning of 2014, John started his own excavation business and named it Earth Movers. John lives at 1045 Center
Street, Lindon, UT, and his business is located at 381 State Street, Lindon, UT. The
ZIP Code for both addresses is 84042. John’s Social Security number is 111-11-1111, and the business identification number is 11-1111111. John is a cash basis taxpayer. During 2014, John had the following items in connection with his business:
Fees for services $460,000
Building rental expense 36,000
Office furniture and equipment rental expense 9,000
Office supplies 2,500
Utilities 4,000
Salary for secretary 34,000
Salary for equipment operators 42,000
Payroll taxes 7,000
Fuel and oil for the equipment 21,000
Purchase of three new front-end loaders on January 15, 2014, for $550,000. John made the election under § 179. 550,000
Purchase of a new dump truck on January 18, 2014 80,000
During 2014, John had the following additional items:
Interest income from First National Bank $10,000
Dividends from ExxonMobil 9,500
Quarterly estimated tax payments 11,500
John does not take additional first-year depreciation.
On October 8, 2014, John inherited IBM stock from his Aunt Mildred. John had been her favorite nephew. According to the data provided by the executor of Aunt Mildred’s estate, the stock was valued for estate tax purposes at $110,000. John is considering selling the IBM stock for $125,000 on December 29, 2014, and using $75,000 of the proceeds to purchase an Acura ZDX. He would use the car 100% for business. John wants to know what effect these transactions would have on his 2014 adjusted gross income.
Write a letter to John in which you present your calculations. Also prepare a memo for the tax files