Question

Carmin Kovach is single and has two children from her previous marriage. Anika, 9, lives with Carmin. Julius, 11, lives with his father, Ray. Carmin pays alimony of $400 per month to Ray. The payments are to continue until Julius reaches age 18, when they will be reduced to $100. Carmin is 34 and employed as a nuclear engineer with Atom Systems Consultants, Inc. (ASCI). Her annual salary is $80,000, and ASCI has an extensive fringe benefits program for its employees. ASCI has a qualified pension plan that covers all employees. Under the plan, ASCI matches any contribution to the plan up to 8% of the employee’s annual salary. Carmin makes the maximum allowable contribution of $6,400, and it is matched by ASCI. ASCI provides medical coverage to all employees but not to their dependents. Carmin’s medical coverage costs ASCI $3,000 during the current year. She receives $980 in reimbursements for her medical costs. ASCI also provides employees with a flexible benefits plan. Carmin pays $2,500 into the plan. She uses $2,400 to purchase medical coverage for Anika. Her medical, dental, and optometry costs not covered by insurance total $1,900; the flexible benefits plan reimburses her $100 for these costs. ASCI also provides employees with group term life insurance of twice their annual salary, up to a maximum coverage of $150,000. Carmin’s group term life insurance premiums cost $400. Because of the sensitive and sometimes dangerous nature of her work, ASCI also provides Carmin with a $300,000 whole life insurance policy. The whole life insurance policy costs $490. Taking advantage of ASCI’s educational assistance program, during the fall Carmin enrolls in two law school classes at a local university. ASCI pays her tuition, fees, books, and other course-related costs totaling $2,300. Carmin also receives certain other fringe benefits not available to all employees. She receives free parking in the company’s security garage that would normally cost $280 per month. In addition, ASCI pays the $1,000 cost of her nuclear engineer’s license and $600 per year in professional association dues and professional magazine subscriptions. ASCI also pays Carmin’s $900 dues to a health club that is located in the same building as her office. Carmin routinely enters sweepstakes contests. This year, she is notified that she has won $5,000 in a breakfast cereal promotion. The prize is to be paid equally over 10 years. She receives the first payment December 28, although she doesn’t deposit the check in her checking account until January 3. In February, Carmin’s father dies. Social Security pays her $600 as a survivor’s benefit. She also receives stock valued at $30,000 and her father’s house, which has a value of $90,000, as her share of her father’s estate. Carmin rents out her father’s house on August 1. The monthly rent is $400, and the lease agreement is for one year. The lease requires the tenant to pay the first and last months’ rent and a $400 security deposit. The security deposit is to be returned at the end of the lease if the property is in good condition. On August 1, Carmin receives $1,200 from the tenant per the terms of the lease agreement. In November, the plumbing freezes and several lines burst. The tenant has the repairs made and pays the $300 bill. In December, he reduces his rental payment to $100 to compensate for the plumbing repairs. Carmin pays other deductible costs for the rental that total $2,680. The allowable depreciation on the rental house is $1,080. Carmin owns several other investments. She receives the following amounts (all in cash) from the stocks and bonds she owns: General Dynamics common stock $ 300 City of Toronto bonds 1,600 State of Nebraska bonds 400 New Jersey economic development bonds 300 Grubstake Mining Development stock 1,000 Carmin owns 1,000 shares of Grubstake Mining Development common stock. Grubstake is organized as an S corporation and has 100,000 shares outstanding. Grubstake reports taxable income of $200,000 during the current year. Carmin sells the following securities during 2013: Security Sale Date Purchase Date Sale Price Commission Paid Basis Nebraska Bonds 3/14/13 10/22/10 $1,900 $ 80 $1,710 Cassill Corporation Stock 10/18/13 2/19/13 $8,900 $450 $9,630 Carmin purchased 500 shares of General Dynamics stock on July 22, 2010, at a cost of $2,200. On June 15, 2013, she receives 50 shares of General Dynamics stock as a dividend. The fair market value of General Dynamics stock on June 15, 2013, was $3.50 per share. Carmin slips on a wet spot in front of a computer store during the current year. She breaks her ankle and is unable to work for two weeks. She incurs $1,300 in medical costs, all of which are paid by the owner of the store. The store also gives her $1,000 for pain and suffering resulting from the injury. ASCI continues to pay her salary during the two weeks she misses because of the accident. ASCI’s plan also pays her $1,200 in disability pay for the time she is unable to work. Calculate Carmin’s adjusted gross income on her 2013 tax return. Then do one or both of the following, according to your professor’s instructions: a. Include a brief explanation of how you determined each item that affected adjusted gross income and any items you excluded from gross income. Your solution to the problem should contain a list of each item included in adjusted gross income and its amount, with the explanations attached. b. Write a letter to Carmin explaining how you determined each item that affected adjusted gross income and any items you excluded from gross income. You should include a list of each item included in adjusted gross income and its amount.

Answer 1

Carmin's Account

Expenses or Losses	Dr. Amount($)	Incomes or gains	Cr. Amount($)
Carmin Pays to until age of 18($400/month) (12*400)for year	4800	Carmin’s Annual Salary	80000
Pension contribution 8% of annual salary (8% of 80000)	6400	Reimbursement for medical costs	980
Carmin’s medical coverage costs	3000	Reimbursement of flexible benefit plans	100
Flexible benefit plan costs	2500	Receives benefits from ASCI for tuition fee, books and other course related materials	2300
Medical coverage for Anika	2400	Receives free parking in security garage has cost $280/month (280 * 12 =3360/year)	3360
Costs not covered by insurance	1900	Receives benefits from ASCI for nuclear engineer license	1000
Group term life insurance premium ($400 twice a year i.e. 400*2 =800)	800	Receives benefits from ASCI for associations dues and professional magazine subscriptions	600
Whole life insurance policy	490	Receives benefit from ASCI health club	900
Paid rent from 1st of August ($400/month) (400* 4= 1600 from 1st August to 1st Dec.)	1600	won breakfast cereal promotion ($5000 price paid equally in 10 years (5000/10 =500/year)	500
social security for tenant	400	Receives from social security on her father’s death	600
Other rental costs	2680	Value of father’s house	90000
Depreciation on rental house	1080	Last month rent paid by tenant	400
Commission paid on security sale	80	Receives from tenant as per lease agreement	1200
Purchase price of Nebraska bonds	1710	Repair bill payments by tenant	300
Medical costs	1300	Compensate for plumbing repairs by tenant	100
		Receives from stock and bonds
		General dynamic common stock	300
		City of Toronto bonds	1600
		State of Nebraska bonds	400
		Jersey Economic bonds	300
		Mining development stock	1000
		Security sale price	1900
		Dividend from general dynamic stock (50shares* 3.50 = 175)	175
		Receives from store	1000
Gross profit	159075	Receives from ASCI for disability	1200
Total	190215		190215

31140 are expeses by Carmin and 190215 is her income an benefits

Gross income = 190215 - 31140 = $159075

Carmin checked his account balance on jan 3. payment date by her organization is considered on the other hand jan 3 account checking entries should be entrered in new year.