Question

In: Accounting

Use the data below to prepare a 2017 Income tax return for your new clients, Bob...

Use the data below to prepare a 2017 Income tax return for your new clients, Bob and Mary Dingledingle.

They tell you the following story:

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(You are not filling out any tax forms so most of this info is not needed).
Bob is a teacher. He just graduated from college three (3) years ago and has a job as a science teacher in a public school. His social security number is 333-33-3333.
Mary is a bookkeeper at happy land amusement park. She has great benefits but doesn’t earn that much. Her social security number is 222-22-2222.
They live at 2627 Peakachu Drive, Philadelphia, PA 19114. Bob hates politicians and will not contribute to any stinkin’ election campaign. Mary likes The Donald and does want to contribute to election campaigns.
Bob and Mary have 1 boy … little Jack Jack, Social Security number 444-44-4444, age 2. Jack Jack stays with Grandma while Mary is working so there are no day care costs.
Bob and Mary dream of a big refund so they can go on a dream cruise to West Fock-i-stan.
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Income:
Harry gets a W-2 from - Public School – PS 46 that says: Wages $45,000, Federal Withholding $9000, State Withholding $1200
Mary gets a W-2 from – Happyland Amusement park that says: $18,000, Federal Withholding $3000, State Withholding $400
Bob and Mary get Interest from the following banks – 1st Federal 100, 2nd Federal 200, 3rd Federal $300, 4th Federal – 400
Mary has Dividends from the following companies – Wal-Mart $111, Disney $222, ExxonMobil $333, Royal Caribbean International $444
Mary sold 1000 shares of Disney Stock on 7/1/17 for $22,000. She bought the stock on 7/1/12 for $27,500. She has never sold stock before and has no idea how to handle this.
Mary knits hats as a hobby and sold them for $50 this year.
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Expenses:
Bob and Mary have the following Expenses.
Bob paid student loan interest last year of $500.
Bob paid for Educator expenses of $700 last year. He knows it is really high but his students love magic markers.
Bob and Mary have a house and paid Mortgage Interest of $10,800 and real estate taxes of $2800.
Mary paid $100 to UNICEF, $520 to the church and $300 to her hospital – Our Lady of Perpetual Sin. Bob is a Boy Scout Leader and gives $1,000 per year to the boy scouts. Bob and Mary donated $480 worth of old clothes to the Salvation Army.
Bob also subscribes to season tickets to the Washington Redskins which cost $6000. He primarily bought the tickets so he could take the Superintendent of schools to games since Bob really really wants to get on the school board. Sometimes he does take his brother-in-law to the crappy games (2 of 8 games are crappy).
Little Jack Jack has had some medical issues this year. He was in the hospital for surgery costing $26,000 of which $18,000 was reimbursed by insurance. There were also Doctor bills of $2222 and Medical supplies of $876. Mary got new glasses in the amount of $500.
They have no foreign accounts.
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You will earn a whopping $550 for doing this return.
DO NOT PREPARE ANY TAX FORMS. JUST DO A TAX CALCULATION COMPUTING:
1) Total Income
2) Adjustments for AGI
3) AGI
4) Itemized Deductions & Exemptions
5) Taxable Income

Solutions

Expert Solution

Total Income

Remarks

Filing Status and Exemptions

Total number of exemptions claimed

3

Filing status

Married filing jointly

Personal exemption

yes

Spouse exemption

yes

Dependents

1

Income

Wages, salaries, tips, etc.

$45,000

Salary

Spouse wages, salaries, tips, etc.

$18,000

Salary

Taxable interest

$1,000

Interest on banks are taxable

Tax-exempt interest

$0

Considered taxable for the AMT

Ordinary dividends (this includes any qualified dividends)

$1,110

All dividend income

Qualified dividends

$1,110

Qualified dividends are the portion of your total ordinary dividends subject to the lower capital gains tax rate. Qualified dividends are typically dividends paid by a corporation in which you own stock (or a mutual fund that owns stock in the corporation).

Taxable refunds or credits of state and local income taxes

$0

Alimony received

$0

Business income or loss (Schedule C & E subject to self-employment taxes)

$0

Spouse's business income or loss (Schedule C & E subject to self-employment taxes)

$0

Short term capital gain or loss*

$0

Long term capital gain or loss*

($3,000)

Limit on Losses. If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.

Other gains or losses

$0

Taxable IRA distributions

$0

Taxable pensions and annuity distributions

$0

Intangible drilling costs (IDC) for investor general partners

$0

Income from rentals, royalties, S Corporations and Schedule E (not included above and subject to NIIT)

$0

Income from rentals, royalties, S Corporations and Schedule E (not included above and not subject to NIIT)

$0

Farm income or loss (Schedule F)

$0

Unemployment compensation

$0

Taxable Social Security benefits

$0

Other income

$50

Hobby income

Total income

$62,160

Adjusted Gross Income

Educator expenses

$500

If you were an 'eligible educator' in 2017 you are able to deduct up to $250 in expenses. If you are married filing jointly and both of you are 'eligible educators' the limit is $500 ($250 each). Eligible educators include kindergarten through 12th grade teachers, instructors, counselors, principals, or aides who worked in a school for at least 900 hours during the school year. The expenses can be for professional development courses related to what you teach or supplies you use in the classroom. Home schooling expenses do not qualify and nor do expenses that were reimbursed. Your total expenses must be reduced by any savings bond interest that was nontaxablefor higher education expenses, nontaxable qualified tuition program earnings or distributions, and nontaxable distributions of Coverdell education savings account earnings.

Certain business expenses (form 2106)

$2,250

So business purpose expenses are around 75%,(6/8 games) i.e. 4500 (6000*75%). Max allowed is 50% so This income deduction only applies to employee business expenses of reservists, qualified performing artists and fee-basis government officials. This includes non-reimbursed business expenses for vehicles, parking fees, tolls, transportation, lodging and other business expenses. Meals and entertainment are included but limited to 50% of the expense incurred.

Health Savings Account (HSA) deduction (form 8889)

$0

Moving expenses (form 3903)

$0

Self-employment tax deduction (Schedule SE)

$0

Self-employed SEP, SIMPLE and qualified plans

$0

Self-employed health insurance deduction

$0

Penalty on early withdrawal of savings

$0

Alimony paid

$0

IRA deduction

$0

Student loan interest deduction

$500

Based on a modified AGI of $59,410 and total allowable student loan interest of $500

Enter the total student loan interest you (and your spouse if married filing jointly) paid for the year. Your allowable deduction is phased-out starting at $80,000 ($165,000 married filing jointly) and is completely eliminated at $95,000 ($195,000 married filing jointly). The calculator will automatically determine any phase-out amounts based on your income.

Domestic production activities deduction (form 8903)

$0

Total adjustments

$3,250

Adjusted gross income (AGI)

Total income

$62,160

Total adjustments

($3,250)

Adjusted gross income (AGI)

$58,910

Standard Deduction

Standard deduction

$12,700

65 or older?

no

Blind?

no

Spouse 65?

no

Spouse blind?

no

Total checked above

0

Married filing separately

no

Can someone claim you as a dependent?

no

Itemized Deduction

Medical and dental expenses

Actual expenses $11,598

Total of Medical expenses - Non reimbursed surgery cost 8000 (26000-18000), Doctor bills of $2222, Medical supplies of $876, Mary got new glasses $500.

Allowed deduction $7,180

Enter your qualified medical and dental expenses for the year. This can include your health insurance premiums if you paid for them yourself (notthrough an employer sponsored plan) and you have not deducted them elsewhere. Your actual deduction is only for the amount that exceeds 7.5% of your Adjusted Gross Income (AGI). Enter your total expenses and we will calculate the actual deduction based on your AGI.

Taxes paid (generally state and local)

$2,800

Interest paid

$10,800

Gifts to charity

$1,920

Casualty and theft losses

Actual loss $0

Allowed deduction $0

Job and misc. expenses

Actual expenses $0

Allowed deduction $0

Other itemized expenses

$0

Itemized deduction

Total itemized deduction $22,700

Total allowed after Pease adjustment $22,700

Exemption & Taxable income

Adjusted gross income (AGI)

$58,910

Deduction for exemptions

Total allowed after PEP adjustment $12,150

Total exemption is 4050 each of personal, spouse and a dependent. So 4050*3 = 12150

Standard or itemized deduction to use (higher of two options)

$22,700

Taxable income

$24,060


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