- 22. Paige has used her Acura TL in her business since July 1, 2020. During 2020, she properly documented 6,000 business miles (1,000 miles each month). The total mileage on her car (i.e., for both business and personal use) during the year was 15,000 miles (including 200 miles commuting to and from the real estate office). In 2020, Paige elects to use the standard mileage method to calculate her car expenses. She spent $45 on tolls and $135 on parking related to the real estate business. (These vehicle expenses go on Schedule C line 9.)
- Dont forget the business mileage and the checkboxes on Schedule C about the vehicle!
- Dont forget about the personal property tax paid on her vehicle from Note 17. When you enter the total car tax through Schedule C line 9, the software will deduct the business portion (40%) from the amount on Schedule A. Therefore, you will just enter the total $280 tax in Schedule A and Schedule C entry screens, and the software will divvy it up for you.
- The car and truck expenses deduction line is made up of mileage, property tax, loan interest, tolls, and parking.
- If you are having trouble getting the check figures, it is ok to override line 9 of Schedule C in order to make a total amount of expenses on line 28 = $12,923.
- 23. Paige did not buy, sell, exchange, or otherwise acquire any financial interest in a virtual currency.
- See the Basic Information Worksheet.
- 24. Paige received two Economic Impact Payments (stimulus checks) in the full amount before filing their 2020 tax return.
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 (Leif lived with Will for all of 2020). Will provides more than half of Leif's support. Paige provides you with the following additional information: . . She uses the cash method of accounting and a calendar year for reporting. She does not wish to contribute to the presidential election campaign. Paige lives at 523 Essex Street, Bangor, Maine 04401. Paige's birthday is May 31, 1982. Ali's birthday is October 5, 2011. Leif s birthday is December 1, 2009. Paige's Social Security number is 007-55-4727. Ali's Social Security number is 005-22-7232. Leif's Social Security number is 004-33-3419. Will's Social Security number is 006-44-6333. She does not have any foreign bank accounts or trusts. Filing status and dependents should be researched in Chapter 4... . . . 2. TIPS FOR NOTES 2-4: Enter the W-2 wages using the following formula: Salary (from Note 3) 401(k) contributions (from Note 3) deductible amount of flexible spending plan contributions (from Note 3) + whole life insurance premiums paid by employer (from Note 4) + health club dues paid by employer (from Note 4) + disability pay from her employer (from Note 11). Paige is employed as a nuclear engineer with Atom Systems Consultants, Inc. (ASCI). ASCI's federal employer identification number is 79-1234466. Paige's pay stubs indicate that she had $4,230 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 $2,500 to her flexible spending account. 4. ASCI paid $397 of whole life insurance premiumsto cover Paige's personal whole life insurance policy. ASCI also paid health club dues of $900 to a nearby health club on Paige's behalf. 5. Taking advantage of ASCI's 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. (See Chapter 12.) 6. Paige received free parking in the company's security garage that would normally cost $200 per month. (See Chapter 12.) 7. Paige manages the safety program for ASCI. In recognition of her superior handling of three potential crises during the year, Paige was awarded the Employee Safety Award on December 15. The cash award was $500. (Because it is cash, the award is considered Other Income.) 8. On January 15, 2020, Paige's father died. From her father's estate, she received stock valued at $30,000 (his basis was $12,000) and her father's house valued at $90,000 (his basis in the house was $55,000). (See Chapter 5 to find out if beneficiariespay taxes on inheritances. You won't do anything yet for this inheritance.) 9. Paige owns several other investments and in February 2021 received a statement from her brokerage firm reporting the interest and dividends earned on the investments for 2020. (See Exhibit A below for 1099-INT and 1099-DIV information to enter regarding interest income and dividend income, respectively. Notice that some of the interest income is tax- exempt.) EXHIBIT A 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 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 700 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 2020 tax year: Distribution to shareholder $1,000 Ordinary income (1% of $200,000) 2,000 10. 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 Exhibit A.) Paige does not materially participate in Grubstake's activities. O O 10. 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 Exhibit A.) Paige does not materially participate in Grubstake's activities. Enter the Grubstake information through Documents Received/S-Corporation K-1. Do your best. We will be preparing Schedule K-1s next semester! If you have to override this, it is fine. She owns 1% of the S-Corporation, so her shore of the income is $2,000. Enter her ownership percentage (K-1 Line F), her share of the income (K-1 Line 1), and then the distribution (on Schedule K-1 Line 16 D). You do not need any more of the information given in Note 10. 11. 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. ASCI's plan also paid her $1,200 in disability pay for the 0 0 0 time she was unable to work. Under this plan ASCI pays the premiums for the disability insurance as a taxable fringe benefit. The only thing you need on this note is the disability pay that was already entered per Notes 3 and 4 above, so move on to Note 12 if you've already taken care of Form 1040 Line 1. Hint: you will include disability pay in her Line 1 salary. 12. Paige received a Form 1099-B from her broker for the sale of the following securities during 2020. The adjusted basis amounts were reported to the IRS. Enter both sale transactions through Form 8949. The Schedule D will summarize the gains/tosses. Make sure you check the box at the top of the 8949 entry screen to force the Form 8949 to print. O O Security Sales Date Purchase Date Sales Price Her Basis Nebraska state bonds 03/14/2020 10/22/2014 $2,300 $1,890 Cassill Corp (500 shares) 10/20/2020 02/19/2018 8,500 9,760 13. In addition to the taxes withheld from her salary, Paige also made timely estimated federal tax payments of $175 per quarter and timely estimated state income tax payments of $150 for the first three quarters. The $150 fourth-quarter state payment was made on December 28, 2020. Paige would like to receive a refund for any overpayment. Enter federat estimates through Form 1040 Line 26. You may scroll down to add state payments, or... Enter state estimates through Schedule A. Notice the 4th quarter estimate payment 0 0 date. date. 14. Because of her busy work schedule, Paige was unable to provide her accountant with the tax documents necessary for filing her 2019 state and federal income tax returns by the due date (July 17, 2020). In filing her extension on July 13, 2020, she made a federal tax payment of $750. Her return was eventually filed on September 25, 2020. In November 2020, she received a federal refund of $180 and a state tax refund of $60. She took the standard deduction in 2019. Remember that federal tax payments related to the prior year's tax return are not deductible on the current year's tax return. Revisit the tax benefit rule related to state income tax refunds to determine if the refund is taxable or not. 15. Paige found a renter for her father's house on August 1. 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 August 1, 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. 0 0 O 0 Reference Note 8. Enter the number of fair rental days on Schedule E. Do not enter personal use days. Big hints: The rents received should be $2,400 total, and you should have $300 in repairs expense. The rental property is located at 35 Harvest Street, Orono, Maine 04473. Paige makes all decisions with respect to the property. o Paige provides you with the following additional information for the rental in 2020: 0 Property taxes $770 Other maintenance expenses 285 Insurance expense 495 Management fee 350 Depreciation (override) 1,080 The rental property is located at 35 Harvest Street, Orono, Maine 04473. o Paige makes all decisions with respect to the property. 16. 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. 17. Paige drives a 2018 Acura TL. Her car registration fee (based on the car year) is $50 and covers the period 1/1/2020 through 12/31/2020. In addition, she paid $280 in property tax to the state based on the book value of the car. (Personal property taxes are entered on Schedule A. You will revisit this note when you get to Note 21.) 18. In addition to the medical costs presented in item #11, Paige incurred the following unreimbursed medical costs: (Use Chapter 6 to figure out which one of these is not deductible.) Dentist $ 310 Doctor 390 Prescription drugs 215 Over-the-counter drugs 140 Optometrist 125 Emergency room charges 440 LASIK eye surgery 6,000 Chiropractor 265 19. On March 1, Paige took advantage of low interest rates and refinancedher $75,000 home mortgage with her original lender. Paige purchased the home in 2018. 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 Paige's basis in the house is $90,000. As part of the refinancing arrangement, she also obtained a $10,000 home- O 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 2020. Details appear below. (See also Exhibit A.) o Primary home mortgage interest goes on Line 80 of Schedule A. (See Exhibit A.) o Notice what the home equity loan was used for to evaluate its interest deductibility. The discount points amortization will be reported on Line 8c of Schedule A. You will go through the Line 8c entry screen to enter the total points, the loan date, and the length (life) of the new loon. The system will calculate the amortizable points for this tax return year. Partial months round up to the nearest number of whole months. This is what happens behind the scenes in the software: $1,500 / 180 months = $8.33/month x 10 months, but it will round up instead of down. If you've got all your checkboxes correct, you should see $84 for points deducted. O 0 Primary home mortgage $7,100 Home-equity loan 435 Credit cards 498 Car loan 390 20. On May 14, 2020, 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, Maine 04401. In addition, she made the following cash contributions and received a statement from each of the following organizations acknowledging her contribution: o There is one non-deductible charitable contribution listed below. Also, don't forget the noncash contribution described above. Larkin College $850 United Way 125 First Methodist Church 790 Amos House (homeless shelter) 200 Local Chamber of Commerce 100 21. Paige sells real estate in the evening and on weekends (considered an active trade or business). She runs her business from a rental office she shares with several other realtors (692 River Road, Bangor, Maine 04401). The name of her business is Turner Real Estate and the federal identification number is 05-8799561. Her business code is 531210. Paige has been operating in a business-like way since 2008 and has always shown a profit. She had the following income and expenses from her business: $21,250 Commissions earned Expenses: Advertising 2,200 Telephone Real estate license Rent Utilities 95 130 6,000 600 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 (Leif lived with Will for all of 2020). Will provides more than half of Leif's support. Paige provides you with the following additional information: . . She uses the cash method of accounting and a calendar year for reporting. She does not wish to contribute to the presidential election campaign. Paige lives at 523 Essex Street, Bangor, Maine 04401. Paige's birthday is May 31, 1982. Ali's birthday is October 5, 2011. Leif s birthday is December 1, 2009. Paige's Social Security number is 007-55-4727. Ali's Social Security number is 005-22-7232. Leif's Social Security number is 004-33-3419. Will's Social Security number is 006-44-6333. She does not have any foreign bank accounts or trusts. Filing status and dependents should be researched in Chapter 4... . . . 2. TIPS FOR NOTES 2-4: Enter the W-2 wages using the following formula: Salary (from Note 3) 401(k) contributions (from Note 3) deductible amount of flexible spending plan contributions (from Note 3) + whole life insurance premiums paid by employer (from Note 4) + health club dues paid by employer (from Note 4) + disability pay from her employer (from Note 11). Paige is employed as a nuclear engineer with Atom Systems Consultants, Inc. (ASCI). ASCI's federal employer identification number is 79-1234466. Paige's pay stubs indicate that she had $4,230 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 $2,500 to her flexible spending account. 4. ASCI paid $397 of whole life insurance premiumsto cover Paige's personal whole life insurance policy. ASCI also paid health club dues of $900 to a nearby health club on Paige's behalf. 5. Taking advantage of ASCI's 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. (See Chapter 12.) 6. Paige received free parking in the company's security garage that would normally cost $200 per month. (See Chapter 12.) 7. Paige manages the safety program for ASCI. In recognition of her superior handling of three potential crises during the year, Paige was awarded the Employee Safety Award on December 15. The cash award was $500. (Because it is cash, the award is considered Other Income.) 8. On January 15, 2020, Paige's father died. From her father's estate, she received stock valued at $30,000 (his basis was $12,000) and her father's house valued at $90,000 (his basis in the house was $55,000). (See Chapter 5 to find out if beneficiariespay taxes on inheritances. You won't do anything yet for this inheritance.) 9. Paige owns several other investments and in February 2021 received a statement from her brokerage firm reporting the interest and dividends earned on the investments for 2020. (See Exhibit A below for 1099-INT and 1099-DIV information to enter regarding interest income and dividend income, respectively. Notice that some of the interest income is tax- exempt.) EXHIBIT A 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 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 700 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 2020 tax year: Distribution to shareholder $1,000 Ordinary income (1% of $200,000) 2,000 10. 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 Exhibit A.) Paige does not materially participate in Grubstake's activities. O O 10. 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 Exhibit A.) Paige does not materially participate in Grubstake's activities. Enter the Grubstake information through Documents Received/S-Corporation K-1. Do your best. We will be preparing Schedule K-1s next semester! If you have to override this, it is fine. She owns 1% of the S-Corporation, so her shore of the income is $2,000. Enter her ownership percentage (K-1 Line F), her share of the income (K-1 Line 1), and then the distribution (on Schedule K-1 Line 16 D). You do not need any more of the information given in Note 10. 11. 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. ASCI's plan also paid her $1,200 in disability pay for the 0 0 0 time she was unable to work. Under this plan ASCI pays the premiums for the disability insurance as a taxable fringe benefit. The only thing you need on this note is the disability pay that was already entered per Notes 3 and 4 above, so move on to Note 12 if you've already taken care of Form 1040 Line 1. Hint: you will include disability pay in her Line 1 salary. 12. Paige received a Form 1099-B from her broker for the sale of the following securities during 2020. The adjusted basis amounts were reported to the IRS. Enter both sale transactions through Form 8949. The Schedule D will summarize the gains/tosses. Make sure you check the box at the top of the 8949 entry screen to force the Form 8949 to print. O O Security Sales Date Purchase Date Sales Price Her Basis Nebraska state bonds 03/14/2020 10/22/2014 $2,300 $1,890 Cassill Corp (500 shares) 10/20/2020 02/19/2018 8,500 9,760 13. In addition to the taxes withheld from her salary, Paige also made timely estimated federal tax payments of $175 per quarter and timely estimated state income tax payments of $150 for the first three quarters. The $150 fourth-quarter state payment was made on December 28, 2020. Paige would like to receive a refund for any overpayment. Enter federat estimates through Form 1040 Line 26. You may scroll down to add state payments, or... Enter state estimates through Schedule A. Notice the 4th quarter estimate payment 0 0 date. date. 14. Because of her busy work schedule, Paige was unable to provide her accountant with the tax documents necessary for filing her 2019 state and federal income tax returns by the due date (July 17, 2020). In filing her extension on July 13, 2020, she made a federal tax payment of $750. Her return was eventually filed on September 25, 2020. In November 2020, she received a federal refund of $180 and a state tax refund of $60. She took the standard deduction in 2019. Remember that federal tax payments related to the prior year's tax return are not deductible on the current year's tax return. Revisit the tax benefit rule related to state income tax refunds to determine if the refund is taxable or not. 15. Paige found a renter for her father's house on August 1. 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 August 1, 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. 0 0 O 0 Reference Note 8. Enter the number of fair rental days on Schedule E. Do not enter personal use days. Big hints: The rents received should be $2,400 total, and you should have $300 in repairs expense. The rental property is located at 35 Harvest Street, Orono, Maine 04473. Paige makes all decisions with respect to the property. o Paige provides you with the following additional information for the rental in 2020: 0 Property taxes $770 Other maintenance expenses 285 Insurance expense 495 Management fee 350 Depreciation (override) 1,080 The rental property is located at 35 Harvest Street, Orono, Maine 04473. o Paige makes all decisions with respect to the property. 16. 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. 17. Paige drives a 2018 Acura TL. Her car registration fee (based on the car year) is $50 and covers the period 1/1/2020 through 12/31/2020. In addition, she paid $280 in property tax to the state based on the book value of the car. (Personal property taxes are entered on Schedule A. You will revisit this note when you get to Note 21.) 18. In addition to the medical costs presented in item #11, Paige incurred the following unreimbursed medical costs: (Use Chapter 6 to figure out which one of these is not deductible.) Dentist $ 310 Doctor 390 Prescription drugs 215 Over-the-counter drugs 140 Optometrist 125 Emergency room charges 440 LASIK eye surgery 6,000 Chiropractor 265 19. On March 1, Paige took advantage of low interest rates and refinancedher $75,000 home mortgage with her original lender. Paige purchased the home in 2018. 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 Paige's basis in the house is $90,000. As part of the refinancing arrangement, she also obtained a $10,000 home- O 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 2020. Details appear below. (See also Exhibit A.) o Primary home mortgage interest goes on Line 80 of Schedule A. (See Exhibit A.) o Notice what the home equity loan was used for to evaluate its interest deductibility. The discount points amortization will be reported on Line 8c of Schedule A. You will go through the Line 8c entry screen to enter the total points, the loan date, and the length (life) of the new loon. The system will calculate the amortizable points for this tax return year. Partial months round up to the nearest number of whole months. This is what happens behind the scenes in the software: $1,500 / 180 months = $8.33/month x 10 months, but it will round up instead of down. If you've got all your checkboxes correct, you should see $84 for points deducted. O 0 Primary home mortgage $7,100 Home-equity loan 435 Credit cards 498 Car loan 390 20. On May 14, 2020, 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, Maine 04401. In addition, she made the following cash contributions and received a statement from each of the following organizations acknowledging her contribution: o There is one non-deductible charitable contribution listed below. Also, don't forget the noncash contribution described above. Larkin College $850 United Way 125 First Methodist Church 790 Amos House (homeless shelter) 200 Local Chamber of Commerce 100 21. Paige sells real estate in the evening and on weekends (considered an active trade or business). She runs her business from a rental office she shares with several other realtors (692 River Road, Bangor, Maine 04401). The name of her business is Turner Real Estate and the federal identification number is 05-8799561. Her business code is 531210. Paige has been operating in a business-like way since 2008 and has always shown a profit. She had the following income and expenses from her business: $21,250 Commissions earned Expenses: Advertising 2,200 Telephone Real estate license Rent Utilities 95 130 6,000 600
