Problem excersice for federal taxation.
Complete forms 1040, schedules A, B and D
PROBLEM Lori Ann (age 27) and Albert Welch (age 28) are married and file a joint return. They have one child, Margaret (age 3). Lori Ann's Social Security number is 366-55-2222, Albert's is 555-66- 4300, and Margaret's is 555-77-7333. They reside at 400 Aspen Drive, Williamsburg, VA 23185. Lori Ann is employed as an accountant at the College of William and Mary at an annual salary of $48,000. Albert is an executive with Historic Williamsburg and receives a salary of $40,000 annually. The appropriate amounts for FICA taxes were withheld. For Federal income taxes, $10,250 was withheld by Lori Ann's employer, and $7,000 was withheld by Albert's employer. For state income tax purposes, $1,800 was withheld by Lori Ann's employer, and $1,600 was withheld by Albert's employer. Items of potential tax significance include the following: a. Albert received $1,900 of interest income on certificates of deposit and $900 of interest income on bonds issued by the City of Norfolk. b. Lori Ann received dividend income (ordinary) of $2, 750 on Green, Inc., stock. She received the stock as a gift from her Aunt Jane on January 10, 2019, when it was worth $9,500. Aunt Jane's adjusted basis was $2,000 and she had owned the stock for two months. c. On May 10, 2019, Albert sold land for $24,000 that he had inherited from his father in December 2014. His father's adjusted basis for the land was $12,000, and the fair market value on the date of the father's death was $26,000. Albert sold the land to his sister, Marge. d. On August 5, 2019, Lori Ann sold the Green, Inc., stock for $25,000 (200 shares) e. Lori Ann and Albert received rent income of $1,500 for their mountain getaway, which they rented for one week in December. During the year, they spent 80 days at their mountain home. Clue on #e: This property is a personal residence, since the rental use was less than 15 days. Some of the mountain home expenses below, can go to Schedule A as itemized deductions. See page 7-24 in the textbook. Expenses associated with the mountain home for the year were as follows: Property taxes $1,500 Mortgage interest 1,200 Repairs, maintenance, and insurance Utilities 1,400 600 They purchased the house in January 2016 for $100,000 with $20,000 being allocable to land. Continued on next page -Depreciation on the house would be $2,909 for 2019 computed as follows: $80,000 X .03636 = $2,909. The rate of 3.636% is per table A-6 [ years 2 to 9 ], page 70 of Publication 946 (2018 version) and page 6-30 to 6-31 of text (27 1/2 years). [ the 2019 version will be out in 1/2020 ] 0 Proceeds from the November 5, 2019 sale of Lori's personal automobile, for which she paid $4,500 in 2012, $3, 100. Potential itemized deductions, in addition to items already mentioned, were: Charitable contributions $6,600 Mortgage interest on residence 11,600 Real property taxes 5,700 Personal property taxes 300 State and local sales taxes 3,000 Medical expenses (less reimbursements) 350 Albert receives a bonus of $5,000 in January 2020 associated with the outstanding performance of his unit in 2019. Lori Ann and Albert made estimated tax payments of $4,000. ompute their net tax payable or refund due for 2019 OTES: (1) Complete forms 1040, schedules A, B and D. (2 ) If needed. instructions can be viewed at IRS.gov ) . (3) Explain why any amounts above were not included in your calculations. (4) Show all computations on a supporting schedule. (5 ) Assume that Albert's father purchased the land on 1/15/2004. (6) The net income or loss from the mountain home would be recorded on Schedule E and Form 4562, if the forms are needed. If the forms are needed, enter the net profit or loss on Form 1040, line 6(a). Do not complete Schedule E and Form 4562 (instructor to provide these with the solution). See pages 7-24 to 7-26 of the text for a discussion on this topic. (7) Enter the estimated tax payments on line 16 of Form 1040
