Complete the federal income tax return for zena

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Reference no: EM131031513

Note:

The IRS Extension form does not extend the due date of the assignment. Note for purposes of this return, you may work with another student. (Email me the names of the person you are working with.) You each must complete the return using the software, and provide any associated workpapers.

Following is information that you will need to complete the federal income tax return for Zena and Zeke Zastera.

Facts:

Zeke and Zena Zastera are married and have 3 children. Following are the basic facts related to them:

Name

Social Security Number

DOB

 

Zeke N. Zastera

490-15-8534

08-20-1970

Husband

Zena A. Zastera

504-68-9246

09-10-1973

Wife

Ashley Zastera

853-65-9876

02-26-1994

Daughter

Brittany Zastera

850-63-6667

10-28-1998

Daughter

Matthew Zastera

851-96-4456

02-15-2003

Son

Their address is:

186 Valley Drive

Marion, IA 52302

2. The mortgage interest and property taxes that they paid on their personal residence can be found on the attached Form 1098.

3. Zeke works at a local car dealership as a salesperson. His W-2 is attached.

4. Interest received by Zeke and Zena are denoted on the attached 1099s.

5. Matthew was enrolled in before and after school day care that is provided by the YWCA (EIN 42-9685321) located at 123 1st Ave SE, Cedar Rapids, 52401. Zeke and Zena paid a total of $3,000 for the day care.

6. Ashley attended Mount Mercy University on a full-time basis in 2013. The Zasteras paid $10,000 in tuition, $7,000 in room and board and $1,200 for books for Ashley's college expenses.

7. Zeke and Zena sold 200 shares of Proctor & Gamble stock for $39.50 per share on 06-01-2013. At the time of the sale they paid a commission to their stock broker of $125. They bought the stock on 2-8-2007 for $18.00 per share.

8. Zeke had an extensive collection of baseball cards acquired between 1975 and 1979 for an estimated cost of $738. (Even though the cost was unsubstantiated, given the number of baseball cards and the sales price of a packet of cards in the 1970s, you deem the estimate to be reasonable and believe you have a position to claim this amount as basis based on the Cohan, 8 AFTR 10552 (2nd Cir., 1930) . On May 28, 2013, Zeke exchanged his baseball cards for an installed hot tub and season tickets to the Iowa Cubs games. The value of the installed hot tub and the season tickets were $3,750 and $1,000, respectively.

9. On July 15, 2013, Zeke sold all his shares (315.27) of Columbia Acorn Fund for $6,800. He originally purchased the 267.27 shares of the Acorn fund on 5/1/2010 for $3,000. He reinvested the dividends and capital gains and received. The following are the combined dividend and capital gain distributions in the years since purchase.

Year    Distribution   Shares Received by Reinvesting

2010      $120                          12.00 shares

2011      $180                          15.00 shares

2012      $420                          21.00 shares

10. Finally, the Zasteras sold 1,000 shares of Donkong, a Qualified Small Business Stock, on July 5, 2013 for $250,000. They acquired the stock for $20,000 on January 14, 2006. The Zastera's were 10% owners of the stock and were the first original owners to sell. (Hint: See 2013 IRS Publication 550 page 66on how to compute and report this gain).

11. Zena owns 10% of a partnership which owns and operates Mexican Restaurants in Davenport, Iowa. The partnership K-1 is attached.

11. Zeke and Zena made the following charitable contributions, in 2013:
$2000 to St. Jude Catholic Church
$150 to Mount Mercy University
$75 to IPTV.
$50 was given to a destitute neighbor to buy some shoes for a job interview.

12. Zeke and Zena had the following medical expenses that weren't covered by health insurance.
Prescription drugs of $600.
Co-Payments and Deductibles (Zeke $1,750, Zena $1,250)
Veterinary bill of $70 for office visit, lab report and cat scan of their now deceased cat, Stuffy.

13. Zena owns and operates a combination of CPA firm and mortuary called Deep ZZZ. While a seemingly unusual combination, the businesses create some cross-demand. For instance, when clients see their tax bill, they sometimes expire, others do estate planning and funeral planning at the same time, still others select Zena to be the executor of their estate.

1. Deep ZZZ (EIN 86-6001132) uses the accrual basis of accounting.

2. Deep ZZZ operates from the mortuary Building at 123 Funeral Home Lane, Cedar Rapids, Iowa 52401.

3. Receipts were $168,250, including $3,250 on sales taxes of the goods sold (inventory consists entirely of caskets, the sales of which totaled $65,000 excluding the sales tax assessed at 5%).
4. Inventory at the end of last year was $12,000. A physical count of inventory on hand at the end of this year showed inventory to be $15,000. Inventory is valued at cost.

5. Additional outlays from the Deep ZZZ's check register are as follows:

 

Purchases of Caskets

35,000

 

Sales Tax

3,250

 

Hearse Auto insurance

850

 

Hearse Gasoline

1,200

 

Vehicle registration

150

 

Maintenance, Hearse

889

 

Software license fee

2,250

 

Tax Return supplies

4,000

 

Office Supplies

250

 

Wages

28,000

 

FICA tax

1,736

 

Medicare tax

406

 

Utilities

1,436

 

Telephone

450

 

Insurance

6,000

 

Legal fees

1,500

 

Bank fees

35

 

Bad Debt Expense5

1,200

 

Property Taxes Paid

3,500

 

Business loan - principal

5,000

 

Business loan - interest

1,200

 

Donations1

500

 

Lobbying2

1,000

 

Meals and Entertainment3

1,800

 

Business Investigation4

2,200

1 Cash donations of $500 were made during the year for various causes included contributions of $200 to the Boy Scouts, $175 to the Girl Scouts and $125 for various fundraisers for the local school.

2 Zena went to Des Moines for 3 days to voice her opinion to state legislators regarding the state sales tax. Legislators were attempting to include accounting services as a taxable service.

3 Zena incurred $1,800 in meals and entertainment expense. $1,200 was incurred in taking potential clients to lunch or dinner to discuss business. $600 was spent in membership dues to the Airport National golf course in which Zena joined to try to drum up business. Her poor golfing and duck-hook shots wounded people by hitting them with golf balls, but did not kill anyone.

4 Zena incurred $2,200 in business investigation costs. Zena was contemplating getting into the catering business so that she could bid on catering the meals often held after the funeral.

Ultimately, Zena decided not to get into the catering business.

5 DEEP ZZZ accrues bad debt expense based on the percentage of sales method. On January 1, 2013, the balance in the allowance for doubtful accounts was $1,000. During 2013, $1,200 was accrued and $1,000 of actual writeoffs occurred, leaving $1,200 as the allowance for doubtful accounts balance on 12/31/2013.

GAAP Depreciation was $5,500. For Tax purposes, Deep ZZZ computes depreciation using MACRS percentages (not the optional straight line method.) Written mileage logs for the Hearse indicate that it was driven 1,200 business miles. Deep ZZZ deducts the actual costs for the Hearse. The Hearse was used only for business purposes. (Hearses are excluded from the Luxury auto limitations.) Deep ZZZ did not elect to use bonus depreciation or to take §179 expense in 2013 or any prior year. Following is the depreciation schedule for Deep ZZZ.

Asset

Date purchased

Cost

Prior GDS Depreciation

GDS Life

Mortuary Building Land

7/1/2006

25,000

0

N.A.

 

Mortuary Building

7/1/2006

$125,000

$20,699

39

Hearse

1/12/2010

$25,684

18,287

5

Display Racks

9/28/2009

$9,759

$6,710

7

Computer

5/19/2013

3,600

0

5

Backhoe

10/12/2008

12,260

$9,183

7

Computer

11/16/2008

$3,750

$3,391

5

Office Furniture

1/9/2006

2,250

$2,150

7

Note: remember mid quarter depreciation and that you have to calculate depreciation for the alternative minimum tax differently that regular tax. Assume that no disposals of property acquired during tax years 2006-2012 have occurred prior to 2013.

On 9/30/2013, Deep ZZZ sold the old computer purchased on 11/16/08 for $400.

13. Zena and Zeke paid $5,600 for a health insurance plan established under Deep ZZZ to provide health insurance for the Zasteras that was offered to small businesses through a local small business association. This amount was paid with after-tax dollars. (Neither Zeke nor Zena were eligible for health insurance at their place of employment.) In 2013, Zena made her first contribution to a traditional IRA totaling $4,000. Zena is not eligible to participate in a qualified retirement plan at work.

14. The Zasteras have two vehicles for which they paid Iowa license plate fees. $350 was paid for their 2012 Jeep Grand Cherokee which weighs 4,500 lbs. and a $120 for their 2006 BMW Z4 which weighs 2,500 lbs.

15. Zena and Zeke made 4 federal estimated tax payments of $10,500 each on their due dates, except the 4th quarter payment was made on December 31, 2013. The federal income taxes for 2012 totaled $8,500. They had to pay an additional $350 of Iowa income tax when they filed their 2012 return on April 15, 2013 and they received a refund of $1,250 on their federal 2012 tax return for which they received an Iowa tax benefit. The Zasteras made 4 state of Iowa estimated tax payments of $2,050 each on the respective due dates except the fourth payment which was made on December 31, 2013. In 2012, Zeke owed $2,250 of Iowa income tax while Zena owed $1,500.

16. Zena and Zeke own a 4-plex on 147 Poplar Street, Marion that is fully rented. They bought the 4-plex on 5-8-10 for $225,000 with $20,000 of the cost allocated to the land. Following is a breakdown of the 4-plex purchased and accumulated tax depreciation.

Asset

Cost

Prior GDS Depreciation

GDS life

Land

$20,000

N/A

N/A

Building

$205,000

19,567

27.5

 

 

 

 

The following is information regarding the income and expenses of the 4-plex.

Income:

 

Rent

$30,000

Washer & dryer

2,400

Expenses:

 

Utilities

5,500

Property tax

4,500

Repairs & maintenance

1,200

Insurance

450

Snow removal

500

Mortgage loan - principal

3,800

Mortgage loan - interest

11,100

Required:

Prepare the federal income and state income tax return for Zeke and Zena using Tax Act tax return preparation software. Prepare the alternative minimum tax schedule 6251 for both the federal and Iowa returns. Both Zeke and Zena wish to contribute $3 to the Presidential Election Campaign.

In addition, to completing the returns, prepare a book to tax reconciliation. This reconciles the book income of Deep ZZZ with the taxable income (please do in EXCEL or Word and attach it to your return).


Also, answer the following questions. (Hint: By clicking on the forms icon in TaxAct, you have access to various calculation worksheets that provide the answer to the "limitation" questions below. I want you to do the limitation calculation yourself, but you can use the worksheet as a guide to assist you in the explanation).

1. What is the benefit of making the 4th quarter estimate payments in 2013 rather than 2014?

2. Please show a mathematical calculation for income tax line, 1040 line 44.

3. Was Zena's IRA contribution deductible? (why or why not)?

4. Verify the calculation of the child tax credit and the child and dependent care credit.

Iowa Tax return

On the Iowa tax return, joint filers complete the same return, but their incomes are taxed separately. Therefore, it is important that you pay attention to whom the various investment income belongs. Some of the income belongs to Zena, some belongs to Zeke, and some is joint income. By coding the investment income correctly when entering them on the federal return, they will flow correctly to the Iowa return.

Other items to consider when doing the Iowa return.

· It is necessary to designate the amount of the federal 2012 refund that accrues to Zeke and Zena. This is based on their 2012 income, which indicates 60% of the amount goes to Zeke and 40% goes to Zena.

· They reside in the Linn-Mar School district.

· U.S. Government interest is tax free on state tax returns.

· Most municipal interest is taxable in Iowa, however the Zasteras purposely purchased Iowa municipal bonds that are tax exempt in Iowa.

· Both Zeke and Zena want to contribute the $1.50 to the Republican Party on their Iowa return.

Reference no: EM131031513

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