Question

TAX RETURN PROBLEM #3 Josh Bari, age 40, is single. His Social Security number is 111-11-1111, and he resides at 150-51 Ave. A, Tangers, NY 11234. Josh has a 5-year-old child, Kendra, who lives with her mother, Katy. As a result of his divorce in 2017, Josh pays alimony of $6,000 per year to Katy and child support of $12,000. The $12,000 of child support covers 65% of Katy’s costs of rearing Kendra. Kendra’s Social Security number is 123-45-6789, and Katy’s is 123-45-6788. Josh’s mother, Sally, lived with him until her death in early September 2018. He incurred and paid medical expenses for her of $12,900 and other support payments of $11,000. Sally’s only sources of income were $5,500 of interest income on certificates of deposit and $5,600 of Social Security benefits, which she spent on her medical expenses and on maintenance of Josh’s household. Sally’s Social Security number was 123-45-6787. Josh is employed by the Highway Department of the State of New York in an executive position. His salary is $95,000. The appropriate amounts of Social Security tax and Medicare tax were withheld. In addition, $9,500 was withheld for Federal income taxes, and $4,000 was withheld for state income taxes. In addition to his salary, Josh’s employer provides him with the following fringe benefits: Group term life insurance with a maturity value of $95,000. The cost of the premiums for the employer was $295. Group health insurance plan. Josh’s employer paid premiums of $5,800 for his coverage. The plan paid $2,600 for Josh’s medical expenses during the year. Upon the death of his aunt Josie in December 2017, Josh, her only recognized heir, inherited the following assets: Asset Josie’s Adjusted Basis FMV at Date of Death Car $35,000 $ 19,000 Land—300 acres 90,000 175,000 IBM stock 15,000 40,000 Cash 10,000 10,000 Three months prior to her death, Josie gave Josh a mountain cabin. Her adjusted basis for the mountain cabin was $120,000, and the fair market value was $195,000. No gift taxes were paid. During the year, Josh had the following transactions: On February 1, 2018, he sold for $45,000 Microsoft stock that he inherited from his father four years ago. His father’s adjusted basis was $49,000, and the fair market value at the date of the father’s death was $41,000. The car Josh inherited from Josie was destroyed in a wreck on October 1, 2018. He had loaned the car to Katy to use for a two-week period while the engine in her car was being replaced. Fortunately, neither Katy nor Kendra was injured. Josh received insurance proceeds of $16,000, the fair market value of the car on October 1, 2018. On December 28, 2018, Josh sold the 300 acres of inherited land to his brother, James, for its fair market value of $160,000. James planned on using the land for his dairy farm. Other sources of income for Josh were as follows: Dividend income (qualified dividends) $ 3,500 Interest income: Guaranty Bank 1,000 City of Tangers water bonds 2,000 Award from state of New York for outstanding suggestion for highway beautification 10,000 Potential itemized deductions for Josh, in addition to items already mentioned, were as follows: State and local property taxes paid on his residence and cabin $ 7,000 State property taxes 3,500 Estimated Federal income taxes paid 3,000 Charitable contributions 4,500 Mortgage interest on his residence 7,200 Orthodontic expenses for Kendra 4,000 REQUIRED: Compute Josh’s net tax payable or refund due for 2018. Complete Forms 1040, 8949 and 6251 if applicable, Schedules A, B & D. You must prepare the 1040, Schedules A, B, D. Forms 8949 & 6251 IF APPLICABLE. You may use tax software or manually prepare their tax return. You must submit all forms and schedules as PDF files, using the Dropbox in BB. Submit by the deadline date and time. No late work will be accepted

Answer 1

Every assessee whose Total income exceeds the Basic Exemption limit which is prescribed by the government that assessee is required to file return of income for the respective financial year.

Generally such individual require to file the return of income on or before the July for the respective assessment year only those who is not require to audit the books of account.

If it is required to audit the books of account then such assessee is required to file the return on or before the due date mentioned in the income tax as per 1961. As per income tax act is mentioned as on or before the September month of the respective assessment year.

While calculating the taxable income we have to consider what ever emoulments paid by the employer that entire should be taxable in the financial year.

Computation of Taxable income of Josh Bari for the period 2018

Particulars		Amount
Salary		95000
Group Term life insu		295
Group Health Insu		5800
Medical expenses		2600
Total Salary		103695
long term Capital Gain for Microsoft shares		-4000
Insurance proceeds for car		-3000
Sale of lamd		70000
Dividend income		3500
Interest Income		2000
mortgage Interest		7200
Expenses and contribution		-8500
Alimony Expenses		-6000
Total Taxable income		164895

Generally what ever gift given by relatives that entire will be exempted it is not require to pay any tax on that. If any assessee received gift on occasion of marriage even though from any other person that is other than relatives also no need to require to pay any gift tax it is fully exempted as per Income tax act under the head Income from other sources.

As per respective case law i.e Manjula J K shah Cost of asset and period of holding should be consider as per previous owner. Even for calculation of cost of indexation benefit it should be consider as for the previous for previous owner only.

Generally long term capital loss shall be set off with the Long term capital gain only. It can be carry forward for 8 years if return has been filed with in the due date.

Shot term Capital loss can be set off with the Long term Capital gain or Short term capital gain.

For long term Capital gain tax should be calculated as per the rates specified in the income tax act.

Short term capital gain will be calculated in normal rates of income tax.

Any dividend income received by the assessee shall be taxable under the head income from other sources.

Cost of inflation index rates are not given in the problem. I am calculated income with out considering that CII.

As per income tax if total income other than long term capital loss or short term capital gain / loss if it exceed 2.5 lakhs the it is taxable.

Assessee has to pay long term capital gain for sale of land after set of long term capital loss of sale of Microsoft share I. E #70000- 4000- 3000 then finally it will come 63000 for that assessee is require to pay tax @ 20% = 12600

But assessee income does not exceed 2.5 lakhs so what ever amount he paid previously that should be reduced from the 12600.

Cess should be calculated i.e 12600*4% = 505

Total tax payable = 13100

But already paid = 13500

There for assessee will get an refund of 400 from income tax department.