Comprehensive Tax Project:

Using the scenario outlined in the Comprehensive Tax Return, prepare a letter for your clients explaining the reasons you are taking certain deductions and omitting others. You may reference the Internal Revenue Code if you desire.

Also in this letter you must reference the following:

Filing status

Number of exemptions

The amount of interest income to be reported

The amount of self-employment income

The amount of medical deductions before the limitation

The amount of charitable contributions which can be deducted

Which unreimbursed employee expenses can be deducted.

How much child care expense did the Staples incur

Comprehensive Tax Return:

Alex and Rhonda Staple (SS #363-20-8145 and 281-45-1011) are married and file a joint return. They have three children. Alan (SS #412-64-1802) is age 3. Brenda (SS #480-29-6104) is 12 and Ralph (SS #312-68-8111) is age 17. All live at home (3800 W. Elm, Elvira, MA 01245).

Also living in the home is Rhondas mother Naomi Britner (SS #610-29-1704). She is 81, disabled and legally blind. She has social security income of $3,800 and interest income of $4875. Alex and Rhonda calculate their support of Naomi at $10,200.

Alex has a child by a previous marriage, Rudy Staple (SS #112-44-6894) age 19. He is a full-time student and has no income. Rudy lived with his mother the entire year.

Alex works as an analyst at a retail firm. His salary was $41,950. This does not include a $500 award for employee of the month and a Christmas gift of a turkey, which had a value of $25. His employer withheld federal income tax of $3,800 and state tax of $1,925.

Alex has a good benefit package. His employer pays $300 a month for his health insurance and $20 a month for his dental insurance. Alex only had to contribute $440 for the entire year toward his health insurance. His employer also paid 60% toward his disability premium, which amounted to $320. Alex is also an active participant in his employers retirement plan.

Rhonda is a sole proprietor specializing in psychological consulting. The bulk of her clients are students who take courses in income tax. The name of her firm is Students Anonymous. Her office is located at 121 N. Jackson, Elvira, MA 01245. She is a cash basis taxpayer.

Her books revealed the following for 2013:

Fees Earned $ 101,400

Salaries 31,300

Payroll Taxes 2,420

Rent 12,000

Utilities 6,211

Telephone 1,455

Supplies 2,920

Depreciation 4,515

Accounting Fees 2,100

Bad debt expense 3,000

Subscriptions to psychology

journals 920

Estimated taxes paid for her

federal income tax 1,800 per quarter

Estimated taxes paid for her

state income tax 600 per quarter

She made her payments on April 15, June 15, September 15 (2013) and January 15, 2014.

To help save for retirement Rhonda contributed $2500 to a traditional IRA.

In year 2012, Alex and Rhonda had itemized deductions of $13,590 but they expect to have more itemized deductions this year.

In 2013 Rhonda was the recipient of life insurance proceeds. Her uncle tragically died when he tried to fill out his own income taxes. Unfortunately he was a CPA. The policy was to pay $12000. Rhonda is going to receive $3035 a year for 4 years.

On Jan 2, 1995 they bought a single family residential rental property at 1200 W 7^th Street in Elvira.. In 2013 they had the following revenues and expenses:

Rent revenues $12,500

Mortgage interest $3,200

Property taxes 2,260

Insurance 845

Utilities 1880

Repairs 742

Advertising 275

Cleaning 850

Depreciation 3875

On July 1, 2013 they had to put on a new roof which cost $7389. This amount is not included in the depreciation expense of $3875.

Alex and Rhonda also like to trade stocks. They started investing when Alexs mother gave them 100 shares of IBM on September 15, 1981 when the stock traded at $120 per share. She had purchased the shares on October 10, 1974, when she paid $45 per share. Alex and Rhonda sold 50 shares on November 12, 2013 for $3,000.

On April 2, 2013 they bought 200 shares of Intel for $7,000 and sold the shares on December 21, 2013 for $11,145.

On March 3, 1999 they bought 100 shares of Sun Microsystems for $12,200 and sold the shares on June 7, 2013 for $16,825.

On November 4, 2013 they sold 50 shares of Wal-Mart for $3,180. Alex inherited these shares from his grandfather who died September 8, 1997 when the shares were worth $2,142. He had purchased them on July 9, 1995 for $1,190.

On Dec 3, 2013 they sold 100 shares of MNO stock for $4000. They had purchased 100 shares on January 5, 2012 for $4800. They had also purchased 50 shares of MNO on November 24, 2012 for $2300.

They received dividends from IBM in 2013 of $285 which were all qualified and received dividends from shares of AT & T of $394 which were all qualified. Rhonda received a K-1 from a partnership named ABC Investors. The federal identification number is 35-5676890. The address is 909 W Baden St., NY, NY. She is a passive investor in the partnership. The K-1 reported an ordinary loss for Rhonda of $400. She did not dispose of her interest in 2013.

On June 4, 1992 they purchased a house in an exclusive subdivision of Elvira and paid $320,000. They took out a $255,000 mortgage and paid two points. In 2013 they had mortgage interest of $8,220. They paid real estate taxes of $4,150. In 2013 they bought a new bedroom set which cost them $5321. Since they had very little cash they took out a home equity loan for $6000 on July 1. The interest rate was 4.5%.

Naomi had to go to the hospital to have some surgery. Medicare only covered part of the expenses and Alex had to pay $6,920 to help her defray the cost.

Alan fell down the stairs and needed extensive back surgery. Out of pocket costs for Alex for hospital and doctors were $6,125.

Rhonda was feeling depressed from seeing too many students. She was looking very tired. She decided to have a facelift, which cost $8,123. The insurance company would not pay anything toward the cost. When she saw the bill for the facelift, she became even more depressed. Her doctor prescribed some anti depressants which cost her $1222.

Alex suffered from a herniated disc and had doctor bills of $4,052. Fortunately his insurance paid the entire bill. While he was off work, he received disability payments of $3,980. Because the family was short of money, Alex sold some old clothes to the homeless shelter. The clothes cost him $1250 but he only received $185 in return.

But although bad luck had descended upon the Staple family, Alex and Rhonda always remember to be generous. They contributed $1,400 cash to their church and donated $2800 of clothing to the Salvation Army on November 30, 2012. Around Christmas they even remembered a homeless person whom they always found stretched out on a park bench. They gave him a $10 gift certificate to KFC and a bottle of wine valued at $18.50. Since he was always shaking, they figured he was cold and they bought him a winter coat for $172. They treat strangers just like they were part of the family. They also had him sign a receipt so they could document the donation for tax purposes.

They also donated 100 shares of XYZ Co., which had a market value of $2,100 on December 4, 2013 to the local college. They had purchased the stock on January 7, 2013 for $1,553.

At work, Alex did have a good year. He impressed his superiors who sent him out to talk with customers and suppliers. He drove a lot. His car usage for 2013 consisted of 2,721miles driving from his office to see clients and 3,180 miles driving from home to the office and back. In addition personal usage totaled 6,100 miles. He spent $7,467 on gas, $550 on car insurance, $752 for repairs and $210 on license plates, of which $60 was for registration fees and $150 was for the value of the car. He received no reimbursement for his driving.

On occasion he would take clients out to lunch and he spent $380. He went on a business trip to Phoenix for three days and spent one extra day sightseeing. His plane fare was $450. The hotel cost $120 per night and meals costs $85 per day. The firm reimbursed him $575. To better himself, Alex took a course at the local university in retail analysis. He paid tuition of $825. The books cost him $375. He usually ate lunch in the school cafeteria. He spent $428, but only had receipts for $182. He was not reimbursed for any of his cost.

Ralph was so impressed with his fathers work ethic he graduated high school at age 16 and enrolled as a full-time student at the local university on August 16, 2013. He took the following courses: Advanced Calculus, American History, Retail Analysis, and Advanced Coping for Students Taking Income Tax. Unfortunately Alex had saved very little. He only had $10,020 in the bank and had earned only $222 of interest in 2013. He desperately wanted his son to go to college so he charged the following expenses to his credit card:

Tuition $1,850

Books 625

Dormitory 1,290

Meal passes 800

At the end of 2013 Alex had paid nothing toward these expenses but did pay $320 finance charges on his credit card. He also had taken out a student loan and paid interest of $72.

Finances had always been a source of friction between Alex and Rhonda. That is why Rhonda started her business a couple of years ago. She had wanted to stay home to raise Alan like she raised her other children. But she did find a good daycare; Spare the Rod, federal ID #35-2014689. The address was 123 Birch St, Elvira MA, 01245. The director of Spare the Rod is Attila Hungogre, affectionately known as Aunt Tillie. Although the children go on scavenger hunts around the neighborhood to find food, she teaches them to search in dumpsters behind grocery stores and not bakeries so the they have access to well balanced meals. Because this daycare is a sole proprietorship owned by Aunt Tillie, the budget is tight. Rhonda donated $525 to the daycare to have the utilities turned on during the winter. The candles burned by Aunt Tillie were not generating enough heat. Also Rhonda paid for some new carpeting at the daycare which cost her $1950. Alan had accidentally cut himself on a rusty nail coming out of the floor. He needed a tetanus shot which cost the Staples $123. Rhonda was billed $4,220 in 2013 in fees in addition to her contributions. However Aunt Tillie decided to reduce the bill to $4210 because Alan caught one of the mice inhabiting the daycare. The Staples were particularly pleased because the cost of a good daycare was so high. Also they had thought that the puncture marks they occasionally found in Alans arm had been caused by another child biting him.

Alex and Rhonda come to you to prepare their tax return for 2013. They had previously used a well-known CPA in town, I. Gougem. He had been an accountant for years at Enron. Alex and Rhonda were outraged at his bill, which they paid under protest on May 3, 2013. He charged $600 for schedule C and $1,850 for the rest of the return.

They are hoping you will charge less. They were also upset with Mr. Gougem because he overestimated Rhondas tax payments to the state and they received a refund of state taxes in 2013 of $545 for year 2012.

Your assignment is to prepare Alex and Rhondas tax return for 2013 using our tax software.

You must answer the questions on other sheet Answers to Final Return. I will be grading that sheet .

This is important. Instead of using Alexs name on the return, use your own. Also prepare a letter for your clients explaining the reasons you are taking certain deductions and omitting others. You may reference the Internal Revenue Code if you desire.

Answers needed for Final Return:

What is the Staples filing status?

How many exemptions do they have?

What is the amount on 1040 line 7?

What is the amount on 1040 line 8?

What is the amount on 1040 line 9?

What is the amount on 1040 line 10?

What is the amount on 1040 line 12

What is the amount on 1040 line 13?

What is the amount on 1040 line 17?

What is the amount on 1040 line 21?

What is the amount on 1040 line 22

What is the amount on 1040 line 27?

What is the amount on 1040 line 32?

What is the amount on 1040 line 33?

What is the amount on 1040 line 48?

What is the amount on 1040 line 49?

What is the amount on 1040 line 51?

What is the amount on 1040 line 62?

What is the amount on 1040 line 63?

What is the amount on Schedule A Line 1?

What is the amount on Schedule A Line 5?

What is the amount on Schedule A Line 6?

What is the amount on Schedule A line 10?

What is the amount on Schedule A line 16?

What is the amount on Schedule a line 17?

What is the amount on Schedule a line 22?

What is the amount on form 2106 line 1 column A?

What is the amount on form 2106 line 7 column A?

What is the amount on form2106 line 7 column B?

What is the amount on Schedule E line 18?