BUGEN 5930 Business, Society & the Planet
ECO511 Apply Economics Principles
January 30, 2018
BUGEN 5930 Business, Society & the Planet
HI5017 Managerial Accounting
January 30, 2018

Comprehensive Tax Problem

BUGEN 5930 Business, Society & the Planet

Comprehensive Tax Problem

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

LTCL                                       $(3,200)

STCG                                      $ 0

STCL                                       $(7,800)

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.

Hotel                                                        $4,200

Meals                                                       $ 820

Entertainment of customers                       $1,080

Tips                                                         $ 100

Laundry and dry cleaning                           $ 150

Total                                                        $6,350

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

Uniforms                                                             $350

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:

FMV                                                                                $8,000

Adjusted basis                                                                 $2,000

Tax preparation fees                                                         $ 750

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