INDIVIDUAL TAX RETURN PROBLEM 2: Taxation

Required: TAX QUESTION

Use the following information to complete Karl and Ellie Frederickson's 2014 federal income tax return. If information is missing, use reasonable assumptions to fill in the gaps.

Need: Form 2106

Facts:

Karl Frederickson is employed as a human resources manager for Toys Unlimited, Inc., and Ellie is a financial planner for her mother's company, Frederickson Investments, Inc., a full service wealth planning firm. They provide the following information:

They both want to contribute to the presidential election campaign.

They live at 9876 Fighting Irish Lane, South Bend, IN.

Karl's birthday is 7/17/1965 and his Social Security number is 555-12-6789.

Ellie's birthday is 9/11/1967 and her Social Security number is 987-65-4321.

Karl or Ellie do not have any foreign bank accounts or trusts.

Karl received a Form W-2 from Toys Unlimited, Inc. that contained the following information:

?	Line 1 Wages, tips, other compensation:	$45,000
?	Line 2 Federal income tax withheld:	7,500
?	Line 3 Social Security wages:	45,000
?	Line 4 Social Security tax withheld:	1,890
?	Line 5 Medicare wages and tips:	45,000
?	Line 6 Medicare tax withheld:	653
?	Line 17 State income tax:	2,200

Ellie received a Form W-2 from Frederickson Investments, Inc. that contained the following information:

?	Line 1 Wages, tips, other compensation:	$85,000
?	Line 2 Federal income tax withheld:	12,500
?	Line 3 Social Security wages:	85,000
?	Line 4 Social Security tax withheld:	3,570
?	Line 5 Medicare wages and tips:	85,000
?	Line 6 Medicare tax withheld:	1,233
?	Line 17 State income tax:	4,200

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Karl and Ellie incurred the following medical expenses for the year:

?	Transportation to Chicago for Karl's cancer treatment:	2,000 miles
?	Unreimbursed hospital charges for Karl:	$6,500
?	Unreimbursed prescription drug charges for Karl and Ellie:	1,750
?	Unreimbursed physician charges for Karl and Ellie:	2,200
?	Unreimbursed prescription glasses for Ellie:	150
?	Laser hair treatment for Ellie (so that she will no longer need to shave her legs)	2,000

Karl and Ellie paid $12,000 of interest payments on their primary residence (acquisition debt of $225,000). They also paid $1,750 of interest expense on Ellie's car loan and $500 of interest on their Visa card.

Karl and Ellie paid $4,000 of real estate taxes on their home and $1,000 of real estate tax on a vacant lot they purchased with the hope of building their dream home in the future. They also paid $3,000 in sales tax on Ellie's car and other purchases and $1,000 of ad valoreum tax on their cars.

Karl and Ellie made the following contributions this year:

?	American Red Cross	$?200
?	United Way	150
?	St. Joseph's Catholic Church	8,000
?	Food for the family of Hannah Barbara (a neighbor who suffered a tragic car accident this past year).	225
?	Stock transfer to the University of Notre Dame (originally purchased for $1,000 in 2005)	750

Karl incurred $4,000 of unreimbursed meals and entertainment related to his job. Ellie incurred $1,200 of expenses for investment publications, and last year they paid their CPA $500 to prepare their tax return.

The roof on Karl and Ellie's house was severely damaged in a hail storm. They had to replace the roof ($7,500), which unfortunately was not covered by insurance because of their high deductible ($10,000).

Karl won $5,000 in the state lottery. He has been playing the lottery for years ($10 in lottery tickets every week ($520 in total) that he saves to keep track of the numbers he plays).

Karl and Ellie have qualifying insurance for purposes of the affordable care act.