Question

Question: Prepare how to record the information below for Lapin 2019 (federal) tax return and in which forms to disclose it?

Following is a list of information for Michael and Diana Lapin for the tax year 2019. Michael and Diana are married and have three children, Amara, Bryan, and Skyla. Michael is a lawyer working for a Native American law firm, Native American Justice, Inc. Diana works part-time for Creation, a genetic research lab. The Lapins' and their dependents’ information is as follows:

Other: During 2019, Diana received a debt forgiveness of $2,500 from American Express. (How does this affect income?)

Unreimbursed Job Related Expenses

Diana attended a Genetics conference in Boston, MA during 2019. Her employer’s practice is to reimburse their employees for these conferences. Her total expenses incurred were 3,000. However, she was only reimbursed 1,500 as of December 31, 2019.

Michael had no unreimbursed expenses for 2019.

Group Term Life Insurance

Native American Justice, Inc. provides $100,000 of group term life insurance for Michael, who is not a key employee. (Hint: don’t forget to consider its effect on gross income).

Miscellaneous Deductions

Tax Return Preparation                                                                                  $2,500

Legal fees – Estate Planning                                                                            4,000      

Safe Deposit Box at Chase used to safeguard stock certificates.                         300

Other fact:

-The Lapins paid Humpty Dumpty After-School Care $2,500 during the year to care for Skyla while Michael worked.

-Amara is pursuing her first degree in Business Administration. She purchased course-related books from the campus bookstore for $1,500. Amara does not have a felony drug conviction.

-Amara II received a 1099 for $2,400 of interest issued by Wells Fargo Bank, P.O. BOX 3908 Des Moines IA 50306 – 3411, EIN 94-1000000. The interest was from money she had inherited from her grandparents and kept in a CD at MCU.

-The entire family receives health care benefits from his employer.

-Michael and Diana would like to contribute $3 to the presidential election campaign.

Answer 1

Diana has received a debt-forgiveness of $2500 from American express. Its is a taxable income as an ordinary income and should be reported in Form 1040 U.S. Individual income tax Return.

Diana's office expenses of $3000 has been incurred and $1500 is reimbursed from the same. So for tax computation only $1500 will be taken as a deductible expense.

Michael's group term insurance will be included in his return as the amount exceeds the limit of $50000 as per the U.S. Code.

Miscellaneous deductions $2500. All miscellaneous deductions subject to 2% of AGI are eliminated for Tax Years 2018-2025, as per ths US Law. So if the Michael's deductions are in this limit of his income it will be eliminated otherwise, it will be considered and deducted from this taxable income.

Legal fees of Estate Planning $300. Fees related to estate planning are deductible only to the extent they relate to the production, or maintenance or the generation of taxable income, or if for tax advice or tax planning. If Michael have sought counsel for such matters, you will want to ensure that your invoice is itemized to indicate the cost of deductible services. These fees would qualify as a miscellaneous itemized deduction on Schedule A.
For example Michael may deduct:

Legal fees incurred in attempting to produce or collect taxable income (perhaps relating to a rental property)
Legal fees incurred in real estate transactions can be used to increase basis (fees to clear a title)
Legal fees for tax advice

Care fees paid for kid's care to Care School $2500. Eligible child care expenses are limited to $3,000 per dependent (up to $6,000 for two or more dependents). So this expense is considered for deduction in the Lapins Income return.

Amara purchased books from college campus is not eligible for deduction as the Government has removed the deduction since year 2018.

Amara received Interest of $2400 as interest and even received Form 1099 by Wells Fargo Bank for CD kept. This is a taxable Income in Lapins Income Return.

Health Care benefits are tax free benefits.

$3 will be considered for deduction contributed to president Electoral campaign.