Calculate carmin taxable income and income tax liability

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Reference no: EM131402279

Problem 1:

Carmin Kovach is single and has two children from her previous marriage. Anika, 9, lives with Carmin. Julius, 11, lives with his father, Ray. Carmin pays alimony of $400 per month to Ray. The payments are to continue until Julius reaches age 18, when they will be reduced to $100.

Carmin is 34 and employed as a nuclear engineer with Atom Systems Consultants, Inc. (ASCI). Her annual salary is $80,000, and ASCI has an extensive fringe benefits program for its employees.

ASCI has a qualified pension plan that covers all employees. Under the plan, ASCI matches any contribution to the plan up to 8% of the employee's annual salary.

Carmin makes the maximum allowable contribution of $6,400, and it is matched by ASCI.

ASCI provides medical coverage to all employees but not to their dependents.

Carmin's medical coverage costs ASCI $3,000 during the current year. She receives $980 in reimbursements for her medical costs. ASCI also provides employees with a flexible benefits plan. Carmin pays $2,500 into the plan. She uses $2,400 to purchase medical coverage for Anika. Her medical, dental, and optometry costs not covered by insurance total $1,900; the flexible benefits plan reimburses her $100 for these costs.

ASCI also provides employees with group term life insurance of twice their annual salary, up to a maximum coverage of $150,000. Carmin's group term life insurance premiums cost $400. Because of the sensitive and sometimes dangerous nature of her work, ASCI also provides Carmin with a $300,000 whole life insurance policy. The whole life insurance policy costs $490.

Taking advantage of ASCI's educational assistance program, during the fall Carmin enrolls in two law school classes at a local university. ASCI pays her tuition, fees, books, and other course-related costs totaling $2,300.

Carmin also receives certain other fringe benefits not available to all employees. She receives free parking in the company's security garage that would normally cost $280 per month. In addition, ASCI pays the $1,000 cost of her nuclear engineer's license and $600 per year in professional association dues and professional magazine subscriptions. ASCI also pays Carmin's $900 dues to a health club that is located in the same building as her office.

Carmin routinely enters sweepstakes contests. This year, she is notified that she has won $5,000 in a breakfast cereal promotion. The prize is to be paid equally over 10 years. She receives the first payment December 28, although she doesn't deposit the check in her checking account until January 3.

In February, Carmin's father dies. Social Security pays her $600 as a survivor's benefit. She also receives stock valued at $30,000 and her father's house, which has a value of $90,000, as her share of her father's estate.

Carmin rents out 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, Carmin receives $1,200 from the tenant per the terms of the lease agreement.

In November, the plumbing freezes and several lines burst. The tenant has the repairs made and pays the $300 bill. In December, he reduces his rental payment to $100 to compensate for the plumbing repairs. Carmin pays other deductible costs for the rental that total $2,680. The allowable depreciation on the rental house is $1,080.

Carmin owns several other investments. She receives the following amounts (all in cash) from the stocks and bonds she owns:

General Dynamics common stock $ 300

City of Toronto bonds 1,600

State of Nebraska bonds 400

New Jersey economic development bonds 300

Grubstake Mining Development stock 1,000

Carmin owns 1,000 shares of Grubstake Mining Development common stock.

Grubstake is organized as an S corporation and has 100,000 shares outstanding.

Grubstake reports taxable income of $200,000 during the current year.

Carmin sells the following securities during 2013:

Security

Sale Date

Purchase Date

Sale Price

Commission Paid

Basis

Nebraska Bonds

3/14/13

10/22/10

$1,900

$80

$1,710

Cassill Corporation Stock

10/18/13

2/19/13

$8,900

$450

$9,630

Carmin purchased 500 shares of General Dynamics stock on July 22, 2010, at a cost of $2,200. On June 15, 2013, she receives 50 shares of General Dynamics stock as a dividend. The fair market value of General Dynamics stock on June 15, 2013, was $3.50 per share.

Carmin slips on a wet spot in front of a computer store during the current year. She breaks her ankle and is unable to work for two weeks. She incurs $1,300 in medical costs, all of which are paid by the owner of the store. The store also gives her $1,000 for pain and suffering resulting from the injury. ASCI continues to pay her salary during the two weeks she misses because of the accident. ASCI's plan also pays her $1,200 in disability pay for the time she is unable to work.

Calculate Carmin's adjusted gross income on her 2013 tax return. Then do one or both of the following, according to your professor's instructions:

a. Include a brief explanation of how you determined each item that affected adjusted gross income and any items you excluded from gross income. Your solution to the problem should contain a list of each item included in adjusted gross income and its amount, with the explanations attached.

b. Write a letter to Carmin explaining how you determined each item that affected adjusted gross income and any items you excluded from gross income. You should include a list of each item included in adjusted gross income and its amount.

Problem 2:

Income for 2013. This is the second phase, which provides the additional information necessary for you to calculate her taxable income, income tax liability, and additional tax (or refund due). NOTE: The gross income items from problem 86 still apply. However, some additional items might affect the amount of gross income that Carmin must report. That is, several items included in the gross income from integrative problem 86 are either not reported as gross income or need to be combined with the additional information in this problem to determine the correct treatment. Therefore, you should make the appropriate adjustments to gross income in integrative problem 86, and begin your tax calculation under the heading of Gross Income from Problem 86, As Adjusted.

From this point on, any items of gross income from the information in this problem should be listed to determine gross income for tax purposes. You do not need to list all the individual gross income items from integrative problem 86 in your solution. However, you should explain the adjustments made to the phase 1 gross income figure as part of your discussion of the solution.

Carmin has the following amounts withheld from her paycheck for the payment of state income taxes, federal taxes, and Social Security taxes:

State income taxes $4,768

Federal income taxes 9,723

Social Security taxes 6,120

In addition, Carmin makes timely federal estimated tax payments of $400 per quarter and estimated state tax payments of $150 per quarter. To minimize her tax liability, she makes her last estimated state tax payment on December 31, 2013.

Because of her busy work schedule, Carmin is unable to give her accountant the tax documents necessary for filing her 2012 state and federal income tax return by the due date (April 15, 2013). In filing her extension on April 15, 2013, she makes a state tax payment of $245 and a federal tax payment of $750. Her return is eventually filed on June 25, 2013. In August 2013, she receives a federal refund of $180 and a state tax refund of $60.

Carmin pays $1,980 in real estate taxes on her principal residence. The real estate tax is used to pay for town schools and other municipal services. The town also has 5 fire districts, which levy a separate tax (i.e., fire tax) to fund each district's fire department. The fire tax is based on the assessed value of the taxpayer's home. Carmin pays $170 in fire tax during the year.

Carmin drives a 2012 Tarago 919 Wagon. Her car registration costs $50 and covers the period 1/1/13 through 12/31/13. In addition, she pays $280 in property tax to the town, based on the book value of the car.

In addition to the medical costs presented in problem 85 in Chapter 4, Carmin incurs the following unreimbursed medical costs:

Dentist $310

Doctor 390

Prescription drugs 215

Over-the-counter drugs 140

Optometrist 125

Emergency room charges 440

Chiropractor 265

On March 1, Carmin takes advantage of low interest rates and refinances her $75,000 home mortgage. The new home loan is for 15 years. Carmin and her ex-husband paid $90,000 for the house in 2002. The house is worth $155,000. She pays $215 in closing costs and $1,800 in points to obtain the loan. As part of the refinancing arrangement, she also obtains a $10,000 home equity loan. She uses the proceeds from the home equity loan to remodel the kitchen and bathroom and to reduce the balances on her credit cards. Her home mortgage interest for the year is $6,500, and her home equity loan interest is $850. She incurs interest on her Chargit credit card of $410 and $88 on her Myers Department Store card.

The interest on her car loan from Tarago Financing Corporation is $350.

Carmin receives the following information on her investment in Grubstake Mining and Development:

Ordinary income $7,400

Short-term capital gain 300

Long-term capital loss 5,200

Charitable contribution 500

In May 2013, she contributes clothing to the Salvation Army. The original cost of the clothing was $740. She receives a statement from the Salvation Army valuing the donation at $360. In addition, she makes the following cash contributions:

Larkin College $850

United Way 125

First Methodist Church 790

Amos House (homeless shelter) 200

Kappa Delta Delta Sorority 150

Local Chamber of Commerce 100

Carmin sells real estate in the evenings and on weekends. She runs the business from a 600-square-foot office in her basement. She has been operating in a businesslike way since April 2004 and has always shown a profit. She has the following income and expenses from her business:

Commissions $24,230

Advertising 4,300

Telephone 550

Real estate license 160

Carmin has a separate telephone line to her office. The $550 telephone cost includes a $30 monthly fee and $190 in long-distance calls related to her business. Carmin uses her car in her business and properly documents 8,000 businessrelated miles. The business and personal use of her car during the year total 20,000 miles. In 2012, Carmin elected to use the standard mileage method to calculate her car expenses. She spends $85 on tolls and $225 on parking related to her real estate business.

Carmin incurs the following expenses in operating her home:

Water $ 205

Electricity 980

Gas 630

Insurance 1,470

The living area of Carmin's house (not including the basement) measures 2,400 square feet. When she started her business in April 2005, the fair market value of the house was $100,000. Approximately 10% of the purchase price is attributable to the land. Depreciation on the house (unallocated) for 2013 would be $2,077.

In April, Carmin's house is robbed. She apparently interrupted the burglar because all that's missing is an antique brooch she inherited from her grandmother and $300 in cash. Unfortunately, she didn't have a separate rider on her insurance policy covering the jewelry. Therefore, the insurance company reimburses her only $500 for the brooch. When her grandmother died in 2010, the fair market value of the pin was $6,000. The fair market value of the pin at the date of the theft is $7,500. Her insurance policy also limits to $100 the amount of cash that can be claimed in a theft.

Carmin's company has an accountable employee expense reimbursement plan from which Carmin receives $10,800 for the following expenses:

Airfare $4,700

Hotels 3,400

Meals 2,000

Car rentals 600

Entertainment 900

Incidentals 400

During the year, she also pays $295 for business publications and $775 for a local accountant to prepare her 2012 tax return. The bill from the accountant indicated that preparation of the business portion of Carmin's return cost $550.

In 2011, Carmin loaned $10,000 to her ex-husband Ray so he could start a new business. Their loan agreement requires Ray to pay Carmin 8% interest on the unpaid balance of the loan on December 31 of each year and to begin repaying the loan in $2,500 annual installments on July 1, 2013. Carmin receives the interest on the loan during 2011 and 2012. In March 2013, she receives a letter informing her that Ray has filed for bankruptcy. On February 22, 2014, the bankruptcy court awards all creditors 40% of their claims on Ray's assets.

Calculate Carmin's taxable income, income tax liability, and tax (or refund) due on her 2013 tax return. Then do one or both of the following, according to your professor's instructions:

a. Include a brief explanation of how you determined each deduction and any item you did not treat as a deduction. Your solution to the problem should contain a list of each deduction and its amount, with the explanations attached.

b. Write a letter to Carmin explaining how you determined each deduction and any items you did not treat as a deduction. You should include a list of each deduction and its amount.

Reference no: EM131402279

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len1402279

2/21/2017 4:25:01 AM

I need each problem done in excel please. Include a brief explanation of how you determined each item that affected adjusted gross income and any items you excluded from gross income. Your solution to the problem should contain a list of each item included in adjusted gross income and its amount, with the explanations attached.

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