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Michelle Tran

ACCT 3350.001

Professor Solcher
3/1/2015
Tax Case Documentation

1. Taxpayer information
a. Thomas qualifies for 3 exemptions
i. Himself, his wife Marta, and his son, Tyler
b. Although Anna Marie is under the age of 19 and still lives at home, she does not qualify
for the childs test because she makes over 3950, which means she has to file her own
tax return. Tyler qualifies for the child test and relative test because he is under the age
of 19 and is still in school.
2. Gain or Loss; Schedule D
a. The loss of 5000 shares can be deducted, but only $3000 from other income can be
deducted since it is a loss. The rest of the loss can be carry forward to the next year
taxes.
b. The inheritance of the business property from Marthas Aunt is tax -free; however, since
Martha sold the land, she will have to record her gain. At the time of her aunts death,
the land was worth 400000, and then Martha sold it for 800000, which is a 400000 gain.
3. Donative Items
a. Contributions to the Salvation Army are deductible for 500.
b. Donations to the Texas governors election campaign fund for 1000 are not deductible
because it is not a charity, religious, or educational purpose.
4. Expenses
a. Life insurance premiums are not deductible, only medical expense are.
b. Medical/dental expenses of 14000 are deductible before the 7.5% AGI limitation on
Schedule A, line 1.
c. Home mortgage interest of 15000 is deductible.
d. Repairs to the roof of 2000 and utilities of 3000 benefit the entire home rather than just
Marthas office, which is why only to the percentage from the home office use is
deducted. Marthas office is 200 sq. feet of a 2,000 sq. foot house; therefore, only 10%
is deductible.
5. Investments
a. Interest Income
i. The income of 8000 from City Bonds is tax-free because it is a municipal bond;
however, the company bonds and bank bonds are not tax-free.
b. Discharge of Indebtedness
i. The repayment of the loan from Sarah Duval for 3000 is excluded from income
due to the realization concept.
c. Gifts under 14000 are not included.
d. Federal tax refund is also tax-free.
6. Marthas Consulting Business Related; Schedule C
a. Marthas business expenses of 14000 for supplies, CPA license fee for 1500, legal fees
for 10000, subscriptions to professional journals for 7500, and dues to professional

Michelle Tran
ACCT 3350.001

Professor Solcher
3/1/2015

organizations for 250, are counted as business deductions because they have a bonafide business purpose that is profit motivated.
b. The bad debts loss of 6000 is not deductible because it is only deductible under the
accrual method, not the cash method.
c. Marthas bad debts from 2012 of 7000 that was repaid counts as taxable income for
2013 because of the cash basis of accounting.
d. Only the 9000 miles from Marthas Acura is deductible because it was used for business
purposes. She follows the automatic mileage method, which means she deducts 56
cents per mile. Her total amount deductible is 5085.
7. Employment Expenses
a. Thomas gets business deductions from his airfare for 6000, lodging not at MGM 4200,
lodging value of stay at a MGM for 3300, meals for 800, entertainment for 350, and car
rentals, limos, taxis for 750.
b. However, Thomas does not get a deduction for his fine for 750 because speeding is a
violation of the law.
8. Miscellaneous Deductions
a. Thomass gambling wins of 9200 is deductible and recorded on form W-2G. On the
other hand, losses can be recorded as miscellaneous deductions.
Conclusion:
Tom and Martha are filing a joint return. Marthas expenses from Schedule C and Toms business
expenses are all deductions that will lower the adjusted growth income, which will result in a smaller
taxable amount since the deductions are for AGI.

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