ACCT 3350 Section PP1

Team #5
10/3/2016
(Kim), Eunjin Andrea
(Dougherty), Cara
(Paik), Gyungeun

Tax Return Project Assumptions

1. Income Calculation for Robert on W2:

(Salary: 250,000)+ (Bonus: 75,000) = (Total Income: 325,000)
Then subtract pretax contributions:
(Health Insurance: 8,100) + (401K Contributions: 20,000) = (Total Pre-Tax Contributions:
28,100)
Total Income listed on W2 for Robert= 325,000- 28,100 = $296,900.

2. Employment related expenses total 12,000. Robert is not able to deduct any of the business
expenses on his tax return because he was reimbursed by his employer for all of the expenses.
The tax benefit, if any, will go to his employer.

3. Lisa can deduct :

Supplies
Legal
CPA License Fee (assuming it is a renewal)
Subscription Expense (if related to accounting which is her trade or business)
Dues to professional organizations (all but 10% are deductible. The 10% not directly
help her business are not deductible)
Computer: we will depreciate this asset straight line over 5 years because it is a business
asset.
Volunteer work is not deductible, because there was no income. It was simply a donating
of her time. No actual exchange of cash occurred.
She can only deduct mileage for her miles that she actually drove for her business
purpose. Her deduction will be based on the standard mileage deduction equal to 3,450.

4. Lisa's home office is not used exclusively for business, because she sometimes sleeps in it.
Because of this, Lisa will not be able to deduct any of her home office as business expenses, but
some of the expenses can be deducted later on her tax form such as ad valorem on personal
residence, home equity loan interest.

5.

We assumed Polk was Lisa's maiden name and that all of the shares were purchased in her
maiden name.

Sold all shares for 6,000. Because they were a gift and the original purchase price was
1,300, we use this as our basis. The sale will result in a LT capital gain of $4,700.
2

500 shares for $7810= 15.62/ share

300 Shares.... 300x15.62 = $4686
Sold 300 shares..... 17,000- 4686 = 12,414 LT capital gain

525- 1800= 1275 LT capital loss

900- 2700= 1800 LT capital loss
10,410- 9,100= 1,310 LT capital gain
6,125- 3,150= 2,975 LT capital gain
(4,700+12,414+1,310+2,975) - (1,275+1,800) = 18,324 capital gain in 2015

* We will tax these gains at 15% LT capital gains tax rate.

6.

Robert had previously purchased shares worth 100,000 dollars. At the end of the year they were
deemed worthless. Robert is able to take a capital loss on the entire 100,000 dollars. We can
then net the capital gains and losses together. 18,324 gain + 100,000 loss = 81,676 total LT
capital loss for the year. We will then only deduct 3,000 as a capital loss for the year and carry
the rest of the loss forward to the following years.

7. Lisa's income is 250,000. We must also include the 7,000 of previously earned income. The
15,000 of income that will be paid in 2016 will not be included. The 6,000 loss of income Lisa
cannot deduct because there was no cash exchanged in the event. It is strictly a loss of time to
her.
Interest income from City of Dallas bonds will not be included in taxable income because
it is interest on a municipal bond.
19,000 interest income from Ford Motor Company will be included because it is a
personal investment.
30,000 loan repayment that Lisa receives that year is not included in taxable income
because it is simply coming back to her. This is to avoid double taxation as she paid
taxes on the amount the first time she received it.
The cash gift from her parents is not included due to the double taxation reason
Federal Income Tax Refund is not included in the taxable income.

8.

Expenses:
Life Insurance Premiums: not deductible. Personal Expense
Medical and Dental expense: deductible, but only if the expenses exceed 10% of AGI.
State and local taxes: deductible
Salvation Army Contributions: deductible
Contribution to an indigent family: not deductible because not a qualified chairty
Contribution to committee to elect CREEP: not deductible because for public office
election
LT Stock Donated to Charity in Canada: not deductible, because donated to a charity
outside of the country.
3

ST stock donated to Goodwill Industries: deductible, but only the 6,000 fair market value.
It would have been smarter for them to sell the stock and get a capital loss from the sale,
and then donate the cash proceeds from the sale. This would have allowed them to
deduct the full 6,000, but also claim another 4,000 in capital loss on their return.
Gambling Winnings must be included in the total taxable income
The 12,000 gambling loss will be fully deductible.

9. Lake House Casualty:

The actual loss on the house will be the lesser of the cost basis, or the difference between
fair value when damaged and new fair value after damaged.
The lesser of the amounts is the basis which is 180,000.
Insurance will pay 90% of the actual loss. .9 x 180,000= 162,000 paid by insurance.
180,000- 162,000= 18,000 loss deduction.
The loss is less than 10% of AGI, therefore it cannot be deducted.
10. With two children, they will be able to have a deduction for two dependents. Tyler will still have
to file his own tax return, but will not be able to claim his own personal exemption because his
parents have already claimed him.
11. The 100,000 of federal income tax withheld and the 100,000 in quarterly payments towards the
income tax payments will be used to decrease the total taxes due.

Additional Information:
1. Lisa was given the land worth 500,000 and at the time of trade, it was worth 700,000. This would
mean she had a gain of 200,000. She traded the property for a similar plot of land that was also
worth 700,000, but then also paid 200,000. Because she paid the 200,000 extra in the exchange,
her gain is canceled by a loss, and the net effect to her taxes is zero.
2. The sale of the Citrus County land resulted in a 100,000 gain for this tax year. The basis for the
land is 500,000 and the sale price was 600,000 plus four 100,000 notes that are payable in the
future years. The 100,000 gain is the only number that effects this tax year, and the other notes
payable, because the cash will be received in future years are not included in our taxes this year.