Income tax project, osalyn uses the Cash Method Of

Income tax project

Reference no: EM1380209

FACTS

John Alan Kelly and Rosalyn Elaine Kelly, a married couple, live at 3822 Robin Lane Houston, Texas 77049-7236. Their home telephone number is (713) 468-9721, home fax number is (713) 591-7014, cell telephone number for John is (832) 921-8427 and cell telephone number for Rosalyn is (832) 366-8122. John, whose social security number is 437-29-1297 and date of birth is April 2, 1961, is employed as a Loan Officer with Houston First National Bank located at 1100 Smith Street Houston, Texas 77002-0002 and whose Employer Identification Number is 42-4732689. John's work telephone number is (713) 654-8739 and E-Mail address is [email protected]. Rosalyn's social security number is 443-63-7289 and her date of birth is January 10, 1963. She is presently a Self-Employed sole owner of a small retail bookstore (ROSALYN'S BOOKSTORE) which she has owned and operated since January 6, 2009. Rosalyn's Bookstore is located at 2345 Marshall Lane Houston, Texas 77044-5943, her work telephone number is (713) 434-1275, her fax number is (713) 434-1276 and E-Mail address is [email protected]. The Employer Identification Number for the bookstore is 76-5678901. The Kellys have two (2) children who lived with them for the entire year of 2012 and that they fully supported for the entire year of 2012. The two (2) children are Jocelyn Danielle Kelly (age 17 (date of birth November 14, 1995) and social security number 643-28-1863) and Charles Aaron Kelly (age 10 (date of birth June 16, 2002) and social security number 623-51-2467). In addition, the Kellys provided in 2012 more than one-half (1/2) of the support of Rosalyn Kelly's mother, Louise Myra Anderson, (age 74 (date of birth May 29, 1938) at the end of 2012 and social security number 440-83-6278) and who lived the entire year of 2012 in her own home located in Livingston, Texas and her only Gross Income for 2012 was nontaxable Social Security Benefits.

The Kellys, who neither wishes to contribute to the Presidential Election Campaign Fund, have presented you with the following information to prepare their 2012 Federal Income Tax Return:

(a) John earned a salary from Houston First National Bank, Inc. of $71,540 (also Social Security Wages and Medicare Wages). Federal Income Taxes withheld from his pay was $7,832, Social Security Taxes (FICA) withheld was $3,005 and Medicare Taxes withheld was $1,037. John is covered by a retirement pension plan provided by Houston First National Bank.

(b) The Kellys received Interest on Savings Accounts of $1,200 from Houston First National Bank and Interest of $520 from Harris County Bonds that they own. In addition, the Kellys received Cash Dividends of $442 (all "Qualified Dividends") from Common Stock owned in Bush Corporation.

(c) Rosalyn uses the Cash Method Of Accounting for Federal Income Tax purposes for her business, ROSALYN'S BOOKSTORE, and the business code for the business for Federal Income Tax purposes is 451211. Relevant Financial Information for the business for 2012 is as follows:

Gross Sales $126,800

Less: Returns And Allowances 2,350

Expenses

Accounting Services $ 1,800

Advertising 2,500

Salaries And Wages 28,720

Payroll Taxes 2,866

Office Rent 10,800

Entertainment Of Customers 500

Interest (Miscellaneous Debts) 600

Seminar (Related To Bookstore Retailers) 400

Supplies 1,450

Telephone 1,600

Utilities 1,300

INVENTORY

Beginning Inventory January 1, 2012 $28,400

Ending Inventory December 31, 2012 16,800

Purchases In 2012 12,900

All Inventory is valued at cost. There were no changes in determining quantities, costs or valuations between Opening and Closing Inventory.

DEPRECIABLE ASSETS

Original

Description Cost Date Purchased

Personal Computer And Printer $1,600.00 January 2, 2012

(Five-Year Property)

Computer Software 250.00 January 2, 2012

(Three-Year Property)

Furniture And Fixtures 12,000.00 March 5, 2009

Rosalyn elected to take the Section 179 Deduction for all assets acquired during the year of 2012. Assets acquired before 2012 are depreciated using the designated useful life and the Section 179 Deduction was not elected. (The First Year Additional Depreciation was not elected for any of these assets).

Rosalyn also drove in 2012 her personal automobile, a 2011 Buick Park Avenue, which she acquired on April 28, 2011, a total of 6,000 miles (500 miles per month) for business purposes. Rosalyn has always used the automobile in her business and drove the automobile a total of 15,000 miles for the entire year of 2012 including 5,200 of commuting miles (Beginning Mileage Reading was 35,000 miles and Ending Mileage Reading was 50,000 miles). Rosalyn uses the Standard Mileage Method (Automatic Mileage Method) ($.555 per mile in 2012) to recover the cost of using her automobile for business purposes. In 2012, Rosalyn also paid $200 for parking and toll fees while using the automobile for business purposes and paid a total of $400 of Interest on the loan for the automobile.

(d) The Kellys also own a rent home that they rent out (Actively Participate) to people unrelated to them. The rent home (not Low-Income Housing) is located at 825 Lincoln Street Houston, Texas 77048-3252. The Kellys originally began to rent this home on May 1, 1993 when its depreciable basis was $30,000 (total cost of $37,500 less $7,500 allocated to the Land (Straight-Line Depreciation not elected)). Relevant information that pertains to the rent home for 2012 is as follows:

Total Rental Revenues $5,600

EXPENSES

Insurance 760

Mortgage Interest 1,980

Repairs 460

Property (Real Estate) Taxes 1,020

Lawn Maintenance 320

In addition to the above, John Kelly drove in 2012 his personal automobile, a 2009 Chevrolet Caprice, in attending to the rental property a total of 400 miles (33.33 miles per month). Finally, on June 19, 2012, the Kellys purchased new appliances (ie. refrigerator, stove and dishwasher) (five-year property) for the Rental Property for a total purchase price of $1,950.

(e) John attended a Banking Seminar in San Francisco, California. He incurred unreimbursed expenses of $1,450 for airfare, lodging and meals ($160 of the $1,450 was for meals).

In addition, John drove in 2012 his personal automobile a total of 1,200 miles (100 miles per month) for work related purposes. John purchased the car on February 3, 2009 and has always used it for work related purposes. He drove the car a total of 12,000 miles in 2012 of which 5,200 were commuting miles (average daily round trip commuting distance of 20 miles per day) (Beginning Mileage Reading was 50,000 miles and Ending Mileage Reading was 62,000 miles). John has always used the Standard Mileage Method (Automatic Mileage Method) in recovering the cost of using his automobile for work related purposes.

(f) The Kellys incurred the following personal expenses during the year of 2012:

Medical Expenses (Unreimbursed) (Various):

For Themselves And Their Children $4,500

For Rosalyn's Mother 900

Real Estate Taxes On Personal Residence 2,470

Home Mortgage Interest On Personal Residence 9,600

(Jawdat Mortgage Company)

Credit Card Interest 1,900

Interest On Car Loans 2,400

Charitable Contributions - (Cash) (Various Charities) 1,600

Charitable Contributions - (Property - Clothing, etc.) (FMV) 460 ($1,000 ORIGINAL COST)

(Star Of Hope 1240 North Main Street Houston, Texas 77001-8877)

Income Tax Preparation Fee 225

(g) The Kellys utilizes the Internal Revenue Service (IRS) Optional State Sales Tax Table (See page A-13 through page A-14 of the Instructions for Schedule A) to compute their Itemized Deduction for General Sales Taxes (Their State General Sales Tax Rate is 6.25% and their Local General Sales Tax Rate is 2.00% for a Total Sales Tax Rate of 8.25%).

(h) The Kellys paid an unrelated housekeeper/child caretaker, Shelly R. Baker, (address 3785 Pinkston Street Houston, Texas 77046-2386 and social security number 466-37-3682) and telephone number (713) 864-3267, $300 per month during the entire year of 2012 to care for their youngest child at their home while they were at work.

(i) The Kelly's 2011 Federal Income Tax Liability was $12,420.

(j) Rosalyn Kelly made the following Estimated Tax Payments for the year of 2012:

April 17, 2012 $2,000

June 15, 2012 3,100

September 17, 2012 1,200

January 15, 2013 2,100

(k) The Kellys will file a Joint Federal Income Tax Return for the year of 2012.

(l) If the Kellys will receive a refund for their 2012 Federal Income Tax Return, they would like for the refund to be Direct Deposited into their bank account as follows:

Name Of Financial Institution: Annette Bank Of Texas

Routing Number: 111000025

Checking Account Number: 0049637821732

REQUIRED FORMS AND SCHEDULES

Form 1040 Schedule B Schedule E Form 2106 Form 4562 (2)

Schedule A Schedule C Schedule SE Form 2441 Form 8582

The Income Tax Project

CHECK FIGURES

1. Schedule E total Depreciation

2. Schedule E Net Income: ($642.80).

3. Schedule C Net Income: $40,625.20.

4. Schedule A General Sales Taxes Deduction: $1,614.36.

5. Schedule A total Deduction: $15,799.46.

6. Adjusted Gross Income: $110,294.92.

7. Tax Liability On Taxable Income: $10,895.30.

8. Form 2441 Credit For Child And Dependent Care Expenses: $600.

9. Child Tax Credit: $950.00.

10. Tax Refund: $1,896.89.

Reference no: EM1380209

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