Write a letter to the Smith’s discussing the results of their tax return, remind them of any deduction substantiation rules they need to follow (receipts, mileage log, etc.), offer suggestions for future tax planning (retirement planning, tax implications of impending birth of child, college fund for new child, etc.).
This letter should be 1- 2 pages in length and include proper grammar and spelling. You will need to include hyperlinks to the IRS.gov tax publications that you recommend to your clients.
They received a $5,332 refund.
Comprehensive Tax Problem
Joseph and Diane Smith
1580 West Street
Chatham, VA 24531
Joseph and Diane are both 35 and have no dependents. If your clients receive a refund, they want the full amount refunded to them. Diane is currently pregnant and will give birth during the next tax year.
Joseph – SSN: 400-20-0100
Diane – SSN: 200-40-8000
Joseph works as a salesman and, at the company’s request, maintains an office in his home. During the current year Joseph earned total compensation from his job of $125,000. Following are the deductions from his pay.
Federal Withholding $20,000
FICA $ 7,347
Medicare $ 1,813
Virginia Withholding $ 4,000
Diane is a nurse and earned total compensation of $45,400. Following are the deductions from her pay.
Federal Withholding $ 5,000
FICA $ 2,815
Medicare $ 658
Virginia Withholding $ 2,000
Joseph and Diane have investments in stocks and have a saving account at a local bank. During the current year they earned $1,450 in interest from the Bank of Virginia. They received ordinary stock dividends of $5,950 from GE stock. They also traded in the stock market during the year and had the following results.
LTCG $ 4,900
STCG $ 0
They have no loss carryover from previous years
As a salesman, Joseph travels for his job and incurred the following expenses. Joseph was reimbursed by his employer according to an accountable plan for $5,080 of the following expenses. He received $3,560 reimbursement for hotel, tips, and laundry expenses and $1,520 for meals and entertainment expenses.
Meals $ 820
Entertainment of customers $1,080
Tips $ 100
Laundry and dry cleaning $ 150
Joseph uses his personal vehicle for traveling for his job. During the current year he drove the car a total of 38,000 and 32,000 of those miles were for business. Joseph is reimbursed $0.30 per business mile by his company. He also had business-related parking fees and tolls totaling $280. Joseph uses the standard mileage method for deducting auto expenses. Joseph’s reimbursement for business mileage is $9,600.
Joseph incurred expenses for the business use of his home. The amount Joseph can report on his Form 2106 Line 4 is $4,265. Joseph did not receive any reimbursements for these expenses.
Diane incurred the following business expenses in connection with her nursing job.
Professional Dues $450
Professional Journal $200
The couple have the following additional expenses for the year
Health Insurance (after-tax) $ 4,400
Doctor bills $ 470
Real estate taxes (entire house) $ 2,200 (10% is allocated to the business)
Personal property taxes $ 400
Mortgage Interest (entire house) $15,600 (10% is allocated to the business)
Charitable contributions – cash $ 9,000
Charitable contributions – Stock (Boys and Girls Club)
GE stock, 100 shares, purchased in July, owned 5 years:
Adjusted basis $2,000
Tax preparation fees $ 750