Question

Jane Smith, age 40, is single and has no dependents. She is employed as a legal secretary by Legal Services, Inc. She owns and operates Typing Services located near the campus of Florida Atlantic University at 1986 Campus Drive. Jane is a material participant in the business. She is a cash basis taxpayer. Jane lives at 2020 Oakcrest Road, Boca Raton, FL 33431. Jane's Social Security number is 123-45-6789. Jane indicates that she wants to designate $3 to the Presidential Election Campaign Fund. Jane had health insurance for all months of 2018. During 2018, Jane had the following income and expense items: a. $100,000 salary from Legal Services, Inc. b. $20,000 gross receipts from her typing services business. c. $700 interest income from Third National Bank. d. $1,000 Christmas bonus from Legal Services, Inc. e. $60,000 life insurance proceeds on the death of her sister. f. $5,000 check given to her by her wealthy aunt. g. $100 won in a bingo game. h. Expenses connected with the typing service: Office rent $7,000 Supplies 4,400 Utilities and telephone 4,680 Wages to part-time typists 5,000 Payroll taxes 500 Equipment rentals 3,000 i. $9,500 interest expense on a home mortgage (paid to San Jose Savings and Loan). j. $15,000 fair market value of silverware stolen from her home by a burglar on October 12, 2018. Jane had paid $14,000 for the silverware on July 1, 2008. She was reimbursed $10,000 by her insurance company. k. Jane had loaned $2,100 to a friend, Joan Jensen, on June 3, 2014. Joan declared bankruptcy on August 14, 2018, and was unable to repay the loan. Assume that the loan is a bona fide debt. l. Legal Services, Inc., withheld Federal income tax of $15,000 and the appropriate amount of FICA tax from her wages. m. Alimony of $10,000 received from her former husband, Ted Smith; divorce was finalized in 2012, and no changes have been made to the divorce decree since that time. n. Interest income of $800 on City of Boca Raton bonds. o. Jane made estimated Federal tax payments of $2,000. p. Sales taxes from the sales tax table of $946. q. Property taxes on her residence of $3,200. r. Charitable contribution of $2,500 to her alma mater, Citrus State College. s. on November 1, 2018, Jane was involved in an automobile accident. At the time of the accident, Jane's automobile had an FMV of $45,000. After the accident, the automobile's FMV was $38,000. Jane acquired the car at a cost of $52,000. Jane's car was covered by insurance, but because the policy had a $5,000 deduction clause, Jane decided not to file a claim for the damage. Calculate the greater of the standard deduction or itemized deductions. 6. Calculate the qualified business income deduction. 7. Calculate total taxable income. 8. Calculate the income tax liability. 9. Calculate the total tax credits available. 10. Calculate total withholding and tax payments.

Answer 1

Federal Income Tax The annual amount which is charged by the federal govemment and state govemment, on the earned income (salaries, wages, and commission) and uneamed income (rent dividends, and interest) of individuals and business organizations, is referred to as federal ncome tax Part 1: Tax Computation Compute 2011 Federal income tax payable (or refund due) forJ Calculation of Federal Income Tax Payable or (Refund Due) Amount Description Amount (S) Explanation Sala Bonus Typing service business net receipts Interest income S) 101,000 (4,580) Note1 100,000 1,000 Refer Working Refer Working 700 Note 2 Life insurance proceeds Refer Working Note 3 Refer Working Note 4 Gift Bingo Prize Alimony Nonbusiness bad debts 100 10,000 Refer Working (2.100) Note 5 Adjusted gross income(AGI) Less: Total itemized deductions 105,120 (20,834) Refer Working Note 6 Less: Personal exemption (3.900 Refer Working Note 7 Taxable income 80,386 Tax on taxable income (from tax table) Less: Federal income tax withheld and estimated tax 16,025 | Refer Working Note 8 (17000) ayments Net tax payable (or refund due) for the vear 2011 975

Hence, the net tax payable for the year 2011 is S975 Working note 1. Determine the total typing service business net receipts. Step 1: Determine the connected with the typing services Expenses Office rent Suppl1es Utilities and telephone Wages to part-time Pavroll taxes Amount (S) 7,000 4,400 4,680 5,000 500 3,000 24.580 uipment rentals Total Step 2: Determine the total typing sevice business net receipts Total typing service business net receipts - Gross receipts -Total expenses = $20.000-$24.580 S(4,580) 2. Determine the interestincome. The interest received from the City of BR Bonds is a tax-exempt. Hence, the interest income is S0 Determine the life insurance proceeds The life insurance proceeds amounting to $60,000 are excludible from the gross income Hence, the life insurance proceeds will be S0

4 Determine the amount ofgift. The amount of gift received S5,000 from MsJ's aunt is excludible from the gross income. Hence, the gift amount is S0 Determine the nonbusiness bad debt The amount of loss from the loan provided by Ms. J to JJ, her friend is a bona fide loan and short-term capitalloss. Hence, loss amount $2,100 is a nonbusiness bad debt Determine the total itemized deductions Calculation of itemized deduction DeductionsAmount(S) Amount(S Amount(S) Explanation Interest on home mortgage Charitable contributions Sales tax Property Taxes Silverware losses Less: Insurance 9,500 2,500 946 1,100 Refer note 1 14,000 (1,500) oceeds Less: $100 Auto Less: Insurance 012,400 Refer note 2 Refer note 3 (100) 7,000 (2,000) 100 oceeds Less: $100 Total Less: 10% of (105,120) AGI Itemized Deductions 4900 17,300 (10512) Refer note 4 6,788 20,834

Note: 1. To determine the loss from silverware, take the lesser of the adjusted basis (S14,000) or fair market value (FMV) (S15,000) For personal use property, a deduct $100 per event floor. To determine the loss from accident, take the lesser of the decline in fair market value 2. 3. (FMV) (S7,000) or adjusted basis (S52,000). 4. For personal use property, a deduct $100 per event floor. 7. Determine personalexemption. The personal exemption for single and has no dependents in 2011 amounts to S3,900. 8. Determine tax on taxable income forJ Single filing- Use Schedule-X-1 for the tax rates for the year 2011 Taxable income $80,386 Tax on taxable income = $4,991.50 + 25% (Taxable income-$36,250) $4,991.50 + 25% x ($80,386-S36.250) $4,991.50 25% x44,136 - $4,991.50 $11,034 -16,025

Part -2 Tax Planning Tax File Memorandum January 10, 2014 From : JJJ. CPA Subject 'ss 2014 estimated tax The following are the projections for the 2014 as per Ms.J The gross receipts were increased to $26,000 in 2014 from $20,000 in 2011 Item s unchanged from 2011 to 2014 Items Amount (S) 2011 2014 ary 50,000 50,000 Christmas bonus Interestincome ony Office rent ex 1,000 700 1,000 700 0,000 10.000 7,000 7,000 Business expenses increased by 10% from 2011 to 2014: Percentage Amount increase (S) Amount Items 1000 2011 2014 4,400 Supplies Utilities and telephone4.680 Wages Payroll taxes Equipment rentals 5,000 500 3,000 440 468 500 50 300 4,840 5,148 5,500 550 3,300 The following are the items that will not occur in the year 2014 which occurred in the year 2011 Life insurance proceeds ($60,000) * Gift (S5,000) . Bingo winnings ($100) Bad debt ($2,100) . Stolen silverware, Auto accident. Sincerely yours, JJJ, CPA Partner

Memo on determination of estimated tax payments Today's Date 2020, O Road City BR, FL 33431 Dear J As per your request I am explaining the amount that J's minimum amount of estimated tax for the year 2014. The calculation of net tax payable is determined as below: Calculation of Federal Income Tax Payable or (Refund Due) Amount Amount Amount Description Explanation Sal Bonus Gross receipts from business Less Office rent Supplies Utilities and telephone Wages Payroll taxes 100,000 1.000101,000 26,000 7,000 4,840 5.148 5,500 550 ent rentals 338 700 10,000 111,362 Net business incom Interest income Alimony Adjusted gross income (AGI) Less Total temized deductions Less: Personal exemption (14,046) Refer Working Note 9 17996 Refer Working Note 10 Taxable income Tax on taxable income (from tax table) Less: F ederal income tax withheld and estimated tax 19,318 Refer Working Note 11 (16,000) ayments Net tax payable (or 3,318 refund due) Therefore, MsJ needs to make an estimated tax payments amounting to $3,318 for the year 2014 as the federal income tax withholdings are expected to be less than the tax liability For further clarifications, please feel free to contactme Sincerely yours, JJJ, CPA Partner

Working Notes Determine the total itemized deductions Calculation of itemized deduction Deductions Amount(S) Interest on home mort Charitable contributions Sales tax Property Taxes Itemized Deductions 9,500 2,500 946 1.100 10 Determine personalexemption. The personal exemption for single and has no dependents in 2011 amounts to $3,950 Determine taxon taxable income for J Single filing - Use Schedule-X-1 for the tax rates for the year 2014 Taxable income = $93,366 Tax on taxable income = $18,194 + 28% (Taxable income-$89,350) $18,194 + 28%($93,366 _ $89,350) = $18.194 + 28%×4.016 -S18,194 +$1,124.48 =$19,318.48 S19,318(Roun ded)

Complete form 1040 for J 2013

Complete schedule A form 1040 forJ SCHEDULEA Form 1040) Itemized Deductions 2013 Inform ation about 80hedule A ส d ts separate inst ruotions Is at we wraoecheauae Atach to Form 1040 seance № 07 ares) shown on Form 1040 JS 123-45-6789 Cauton.Do not Indlude epenses mbureed orpaid by others. 1 Medical and dental expenses ee Instruczione) 2 Enteramounttom Fom 1040, Ihe 33 3 Multay he2あoveo/ 10.os(.10. Bㅦ fether youor your匐ose was 2 105,120 bom before 'anuary 2 , 1950, mumlle 2 by 75% (075) instead 4SUs ihe 3 tom lne 1. line 3 ls moe nan Ine 1,ener-o 5 State and local (check ony one bo 10,512 TaesY Paid ncome tavesor ㄈㄨ ー]Gene alsa es axes 6 Fealestate axes e Instructions) 7 Personal popery taves sar erties LEttype and amount 1.100 9 A0d lines 5 througn s 2.046 10 Home monga ge Intestand pots epoted byou on Form 1098 11 Home monga ge Iterstnot reported to you on Form 109 ifpal 10 .500 You Paid o the person tiom whom you boug tne home, ee Insuctons and show that person s name, deniyingno.& addess Your mor02 12 Polnts not eponed to you on Fom 1093.See ins tuctons orepedal e 13 Mongage Ihsuance premluma (eee Instructons) 14 Inveetment Interest Frach Fonm 4952 reqied. (3ee Instructions) 15 Add lines 10though 14 16 Gita by cash orcheck. ifyou made any gto 250ormoe 14 15 ,500 Gifts to ee Instrucions 16 17 Otnertnan by cash or cnedk.ifany tos250 ormore, see instructions You must ated Form 8283 oers 500 13 Ca movertiom prior year 19 Add lines 16 17 2500 20 Casuaty orthef bss(es) Atach Forn 4634 (52e Instructions.) 21 u, eimbursed employee e penses→00 tael uilon dues. Theft Lo 20 673 and Certain Miscellaneous See Insructons) Job education, etc.tach Form 2105 or2106-EZ requie 21 22 Tax preparation es 23 Ctherexpenses-hvestment sate depos tbox esc List type egeA-10) and amount 24 A0d lnes 21 hougn 23 25 Eneramount加m Form 1040, Ine 38 26 Mu tiply ine 25 aboe by 2%(02) 27 Suaaa ihe 25 tom 24. fine 26 ls moe nan Ihe 24,enter-0 28 oreAmm 1st in instru tions. List pe and amount 25 105,120 2,102 27 Miscel laneous Deductions Total 29 s Fonm 1040,lIne 38, over$152,525? x INO. You rdeduction Is not limited Aod the amourtshtne白rngt ooum or Ines 4 ougn 23 Also, enter thamourton Fom 1040, line 40 Deductions ourdeduction maybe Im ted e tem ed Deductons 20.834 Workanee n he nstucions to ure the amounto ener 30 ityou elea to em deductons even thougn te a less han your standard deduxion, check here For Pap솝rwork Redu tion Ad №toe, see Form 1040 in structors. Bohedule A Form 1040) 2013

3 Complete schedule C- form 1040 for J Profit or Loss from Business SCHEDULEC Form1040 2013 For iriomatonon Sche duileC ard ts irs tuctions goowwissceik: Name ofFopiet Sccial security mber(SS 123-456T89 A Princpal business or proe ssion, including pnoductorse oe(see instuctions Typing senvce Bus iness nanme. fno separate business nane eae dank. D Employer D mber EN,se irstructions E Bsiness address includingsuiteroomno) City bwn or pos o sandZPode G Oldya"asalypatciaE nteoperalonoftisbETE6umg20ฏาท"Ma.seenarans trhtoniGE 6. you startd or acqined tisbusiness during 2014 checkhere Od you make anypaments in 204 hatwouldrequire you to fle Fomis) 1099? see instucions f'Yes tidyou orwueal required Fons 1099 X No lo ncome 1 Goss receosorsales eenstuctons trine ↑ andcheckte boxiftisincme wasrepoedtoyou on FomW 2 and the ayemplyeebox on ha 2 Retnsand allowances as checked 20 00 Sub ractine 2fromlinet 20 000 5 Gross poft. Subtract ine4 fomine 3. 6 oterno me. ndunngédera ad state炉sareorieltacentorreira (See nstucions 7 Goss come. Add ines 5 and 6. 20 000 20 000 Partll entEter epenses brbusiness use of yourhone only on line 30 8 Adeising 9 Ofoe Expense (See instrucions Pensi on and profit sha ring plans emt or lease see ins tucons hicles, machinery and equipment Car and tuck ep ense s 19 see instuci ons Commissi ons and ées Contract labar (see ins tucions 20 3,000 7,000 t0 b Oher business poperty 20b 12 Depleion Repairs and main nance Supplies hot included in Part I T xes a nd lice nses Tavel, meals and entertainmnt Tave 13 Depreciaon and secian 173 expense deduc fan not indude in Part I see ins tucions 400 23 14 Employee bene it programe ohe than on ine 19) b Ceducible meal s and 5 Insu rancehe han heal 6 Interest 24b 25 26 27a Oer expens es ifomine 43 entertain ment ee ins tucons iies Wages (ess employmentcred's). a Moage paid b banks, etc.) 5,000 b er 17 Legal and prot ssional servces 28 Tctalexpens es before exenses brbusiness use ofhome. Add ines 8through2a 29 entate proit jos sSubtract ine 28firomline 7 30 Expenses for bus iness use ofyour homre. Do no tre port these epenses elsewhere. Attiach Fomm 8323 16b Resenved fo iture ue 27b 24 580 uniess using he simpiied mehd see ins tuctions impliie d me thod filer sonlyl square footage of a) your home and epartofyourhore used or bus ine ss Use the Simpl fed Methad W orlsheet in the ins tuctions to igure the aount to eter on lne 30

3 Complete schedule D - form 1040 forJ. SCHEDULED Form 1040 OME No.155-007 Capital Gains and Losses 2013 Attach to Form 1040 cr Form 1040R Dep ar tmentof he Treasury ormatonabout Schedue D and its separate ins truct ons is at wwwis gowschedu Atachment mtemal Revenue Sevice(33) Secuence No.12 Your social secur ity number 123-45-6789 lse Form 8949 o istyour transactions for lines 1b,2,3,8.9, and10 ae s shown on Fomm 1040 JS Partl Short-Tem CapitalGains Assets Held One Year or Less See instrucionsfor how b fgure heamounts to enter onthe ines This form may beeasier to complete you round offcents to whole 1099-Bfor whichbass was repored to the RS andfr n) Gah or (055) below Ine2 colum 1a whih you hae no adjusiments (see nstuaions 1b Toals for all ransacions reprd on Fermis) 8949 with Box Achedked 2 Toals ir allranseciors repred on Formis) 8949 with Box Bcheked Toals for allransecions repored on Forms) 8949 with Box Cchedked 02,100 (2,100) 4 Sorerm gantom Form 0252. andshorem gain or (loss) torn Forms 4884.6731, and 8824 5 Netshrterm gain or (oss) from partnershps Srprtions estates and trusts from ···· .. 6Sorerm captalloss arryover Enerthe amoure,ifary tom lines of yourCapital Loss Carryover Worksheet n the instructions 7 Net short-term capital gainor(loss).Combne lines 1through8in column (h).ityou have any ong-term capitalgans or loeses,goto Partbe ow. Ctherwise, goto Partlon he bad (2,100) Term Gains a- Assets HeldMore Than One Year Pat I Se insrucions for how b fgure heamounts to enier onthe ines below This form may beeasier to compee iyou round officens to whole (e) Cost o Forma) 8949 Patl, 899 Pat 1099-B for whichbass was reporbed to the RS andir which you have no ad ustmenis isee nstutions. oafaln ered on Fermis) 8949 with Box Dcheked Toals ior allransacions reporEd on Form s) 8949 wih Box Echacked 10 Toais for allranscions epred on Fermis) 8949 wih Box Fcheked Gainfrom Form 4797, Partt long-term gan rom Forms 2439 and6252 and longem gainor(oss) om Forms 4084,6781, and8824 12 Net long-term gan or (bss) trom partnerships S rporasors,estates and usts tom Schedulesis) K-1 12 13 Capital gaindistbutons. See he instructions 14 Long-term capial bsscaryover Ener he amount f any.from line 13 ofyour Capital Loss Carryover 13 Worksheet n the insiuctions 14 15 let ong-tem capitalgain or (loss). Combine ines 8 through 14 n coumn(h. Thengo to Partilon 15 For Paperwork Reducton Act otce,see Form 1040 or Form 1040sR instuctions Cat No.11338H Schedule D Form 1040) 2013

I I Schedule D1040 2013 Page PAR I Summary 16 Combine lines 7 and 15 and enter the resuit... . 16 f ine 16 is a gain. enEthe amourt tom line 16 on Form 1040. Ine 13. or Form 1040NR, ine 14. Thengob ine17 below. fine 18 isaloss,skiplines 17 hrough 20below. Then go b ne21. Asobe sureto compee ine 22 fine 18 is zero skiplines 17thro ugh21 below and enber-0-on Fonm 1040, ine 13, or Form 1040NR, ine 14.Thengoto ine 22 17 Are lines 15 and 16 both gains? Yes Go to ine 18. No. Skip lines 18 through 21, and go to ine 22 18 Emer the amount. ifan.tom line 7 of the 28%Rate Gain Worksheet nte nstructions 18 19 Enber the amount, iany, from line 18 of the Unrecaptured Section 1250 Gain Worksheet in the nstructions 19 20 Are lines 18 and 19 both zero or blank? Yes Comple the Qualified Dividends and Capital Gain Tax Workshe etin the instuctons tr Form 1040, line 44 for in the instuctions for Form 1040NR, line 42.Do not compete ines 21 and 22 below No. Compete the Schedule DTax Worksheet in the instuctons Do not compete lnes 21 and 22 below. 21fline 16 s a loss, enier here and on Fom 1040, line 13, or Form 1040NR, line 14, the smaler of The los The loss on ine 16 o 330003000), or if married fling seper ately, ($1,500) 21 (2,100) Note. When fgur ing which amount is smaller, treat both amounts as positive numbers 22 Doyou have qualfed dividends on Form 1040, ine 9, orFom 1040NR, ine 10b? Yes Comple the Qualified Dividends and Capital Gain Tax Workshe etin the instuctons tr Fom 1040, line 44 for in the instuctions for Form 1040NR, line 42 № compete me rest of Form 1040 or Form 104 NR Sc hedule Di Form 1040) 2013

Complete form 8949 for J. Fom 8949 2013 Sales and Other Dispositions of Capital Assets Bhort-Tenm. Transactions rvovrg ceplesses you ned 1 yeer or s5

SECTION B-Business and Income-Producing Property PartI or or tomtosan casatyortuftSonstructons i daming Proporty A Property B Proporty C Proporty D loss aa0 to a us-type mostrnart scheme and Soction C ts not competed. 21 Part 31 or 34 an rpoyo.on Sdado AFom 1040.ฉ 23, cr Fom 104aNR Schod.BA ro2 Estatasard rats, utr on

Complete form 4684 for J Casualties and Thefts 2013 Informaton about Form 4684 and ts saparato Instructions is at www.irsgom4 Attach to your tax robn Use a soparato Form 4684 for each casuaty or thoft SEC or business or for income Use this section to report casualies and thelts of property not used in a trade Proporty B Proporty C Proporty D tor 10 13 17.300 16 11.300 17 Fo 4684 po

SECTION C-Theft Loss Deduction for Ponzi-Type Investment Scheme Using the Procedures in Revenue Procedure 2009-20 (Complete this section in lieu of Appendix A in Revenue Procedure 2009-20. See instructiona) bon 42 3 Addna 40, 41, and 42 rocovary 47 48 Actual covary .50 51 Part *larm o inad nottr us ®med sacton 4.coofRu ruฉ procaara 2000-20. poia

om 4044 p SECTION C-Theft Loss Deduction for Ponzi-Type Investment Scheme Using the Procedures in Revenue Procedure 2009-20 (Complete this section in lieu of Appendix A in Revenue Procedure 2009-20. See instructions.) bon 40 42 43 Ao1 nas 40,41, and 42 . 47 51 Part II tatements

SECTION B-Business and Income-Producing Property PartI or or tomtosan casatyortuftSonstructons i daming Proporty A Property B Proporty C Proporty D loss aa0 to a us-type mostrnart scheme and Soction C ts not competed. 21 Part 31 or 34 an rpoyo.on Sdado AFom 1040.ฉ 23, cr Fom 104aNR Schod.BA ro2 Estatasard rats, utr on