Addison Parker (Social Security number 123-45-6785), single and age 32, lives at 3218 Columbia Drive, Spokane, WA 99210. She is employed as a regional sales manager by VITA Corporation, a manufacturer and distributor of vitamins and food supplements. Addison is paid an annual salary of $83,000 and a separate travel allowance of $30,000. In order to access the travel allowance, VITA requires adequate accounting by Addison.

* Addison participates in VITAs contributory health and 401(k) plans. During 2020, she paid $4,500 for her share of the medical insurance and contributed $11,000 to the 401(k) retirement plan.

* Addison uses her automobile 70% for business and 30% for personal. The auto-mobile, a Toyota Avalon, was purchased new on June 30, 2018, for $37,000 (no trade-in was involved). Depreciation has been claimed using the MACRS 200% declining-balance method, and no 179 election was made in the year of purchase. (For depreciation information, see text Section 8-3d.) During 2020, Addison drove 15,000 miles and incurred and paid the following expenses relating to the automobile:

Gasoline $3100

Insurance 2900

Auto Club dues 240

Interest on car loan 1100

Repairs and Maintenance 1200

parking (during business use) 600

Traffic fine (during business use) 500

Because VITA does not have an office in Spokane, the company expects Addi-son to maintain one in her home. Out of 1,500 square feet of living space in her apartment, Addison has set aside 300 square feet as an office. Expenses for 2020 relating to the office are listed below.

Rent $18,000

Utilities 4,000

Insurance (renters casualty and theft coverage) 1,600

Carpet replacement (office area only) 1,200

Addisons employment-related expenses (except for the trip to Korea) for 2020 are summarized below.

Airfare $4,100

Lodging 3,200

Meals 2,800

Transportation (taxis and airport limos) 300

Business gifts 540

Continuing education 400

Professional journals 140

• Most of Addisons business trips involve visits to retail outlets in her region. Store managers and their key employees, as well as some suppliers, were the parties entertained. The business gifts were boxes of candy costing $30 ($25 each plus $5 for wrapping and shipping) sent to 18 store managers at Christmas. The continuing education was a noncredit course dealing with improving management skills that Addison took online.
• In July 2020, Addison traveled to Korea to investigate a new process that is being developed to convert fish parts to a solid consumable tablet form. She spent one week checking out the process and then took a one-week vacation tour of the country. The round-trip airfare was $3,600, and her expenses relating to business were $2,100 for lodging ($300 each night), $1,470 for meals, and $350 for transportation. Upon returning to the United States, Addison sent her findings about the process to her employer. VITA was so pleased with her report that it gave her an employee achievement award of $10,000. The award was sent to Addison in January 2021.
• Besides the items already mentioned, Addison had the following receipts in 2020:

Interest income

City of Tacoma general purpose bonds $350

Olympia State Bank 400 $750

Proceeds from property sales

City lot $13,000

Sailboat 18,000 31,000

Cash found at airport 5,000

Regarding the city lot (located in Vancouver), Addison purchased the property in 2005 for $16,000 and held it as an investment. Unfortunately, the neighborhood where the lot was located deteriorated, and property values declined. In 2020, Addison decided to cut her losses and sold the property for $13,000. The sailboat was used for pleasure and was purchased in 2016 for $16,500. Addison sold the boat because she purchased a new and larger model (see below). While at the Spokane airport, Addison found an unmarked envelope containing $5,000 in $50 bills. Because no mention of any lost funds was noted in the media, Addison kept the money.

• Addisons expenditures for 2020 (not previously noted) are summarized below.

Medical (not covered by insurance) $6,000

State and local general sales tax 3,300

Church pledge (2020 and 2021) 5,600

Fee paid for preparation of 2019 income tax return 500

Contribution to mayors reelection campaign fund 200

Contribution to a Coverdell education savings account

(on behalf of a favorite nephew) 2,000

Addison keeps careful records regarding sales taxes. In 2020, the sales tax total was unusually high due to the purchase of a new sailboat. In 2020, Addison decided to pay her church pledge for both 2020 and 2021. The insurance premium was on a policy covering her fathers life. (Addison is the designated beneficiary under the policy.)

Addisons employer withheld $8,600 for Federal income tax purposes, and she applied her $800 overpayment for 2019 toward the 2020 tax liability. In making the calculation, use the Tax Rate Schedule and disregard the application of the alternative minimum tax (AMT), which is not discussed until Chapter 12.

Need to calculate

• AGI
• Taxable Income
• Net Balance due (Refund)