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(Solved) I would recommend completing your solutions in Excel. PROBLEMS 1. H, age 45, and W, age 43, are married with two dependent children: M, age 18, and...


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Excel Sheet

For Problem 1 & 2, please show your calculations in an organized
manner so that partial credit may be given. I would recommend
completing your solutions in Excel.
PROBLEMS
1. H, age 45, and W, age 43, are married with two dependent children: M, age 18,
and N,age 19. Both are full-time students at a local university. H, who is president of
a localbank, is paid a salary of $125,000. He also is the sole proprietor of a jewelry
store thathad a net profit for 2015 of $75,000. W, a registered nurse at a large
hospital, is paida salary of $50,000. In addition to the above income, H and W
received the followingduring 2015:
a. $3,000 cash dividend on ABC, Inc. stock, which they own jointly. They
paid$25,000 for the stock three years ago and it has a current market value of
$40,000.ABC, Inc. has $300,000 of current and accumulated E&P.
b. $750 in interest on State of Michigan bonds that H owns
.c. $7,000 in interest on corporate bonds that H and W purchased two years ago at
face value for $100,000.
d. W received a check for $400 from her employer in recognition of her outstanding
service to the hospital during the past 10 years.
e. The bank provides H with $90,000 of group term life insurance protection. The
bank provides all full-time employees with group term insurance.
f. 1,000 shares of XYZ common as a stock dividend. Prior to the distribution, H and
W owned 9,000 shares of common with a basis of $15,000. H and W did not have
the right to receive cash or other assets in lieu of the stock
g. Because W must be available should an emergency arise, she is required to eat
her lunches in the hospital cafeteria. The value of the free meals provided by her
employer during 2015 was $1,100.
h. H’s grandfather passed away in February 2015, leaving H a 400-acre farm in
southern Illinois valued at $500,000. H rented the land to F, a neighboring farmer,
for $13,000.
i. In order to drain off the excess surface water from 10 acres, F (see (h)
above)installed drainage pipe at a cost of $1,500.
j. W sold 50 shares of DEF stock for $100 per share. She bought the stock four years
ago for $1,800.
k. H received a dividend check for $280 from the MNO Mutual Life Insurance
Company. H purchased the policy in 2002, and W is the primary beneficiary.
l. H and W’s only itemized deductions were interest on their home mortgage,
$18,000;property taxes on their home, $4,000; and charitable contributions,
$6,000.
m. The hospital withheld $11,000 of Federal income taxes on W’s salary and the
appropriate amount of FICA taxes. The bank withheld $30,000 in Federal income
taxes from H’s salary and the appropriate amount of FICA taxes. Furthermore ,H’s
quarterly estimated tax payments for 2015 total $35,000.
Part I: Computation of Federal Income Tax. Calculate H and W’s 2015 Federal
income tax liability(or refund) assuming they file a joint return. Part II: Tax Planning Ideas. H and Ware very concerned about the amount of Federal
income tax they now pay. Because they want to send M and N on to graduate
school, they have come up with the following strategies, which they hope will
reduce their family’s total tax liability.
1. In 2016 M and N will begin working at the jewelry store two nights a week
and on Saturdays throughout the school year and 20 hours a week during the
summer months. Each child will be paid $4,500 for services during the year.
2. On January 1, 2016 H and W will sell their corporate bonds for $100,000 and
invest the cash proceeds in Series EE savings bonds. H and W will use the bondsto
pay for M and N’s qualified educational expenses.
3. On January 1, 2016 H and W will gift their stock in ABC, Inc. to M and N
equally.
4. Beginning in 2016 H will instruct the farmer who is leasing his Illinois farm
topay the $13,000 in rent directly to M and N (i.e., $6,500 each).H and W have
asked for your opinion concerning the above strategies. For eachidea, explain why it
will or will not reduce the family’s total tax liability. Assuming Hand W implement
only the strategies that will reduce taxes, how much will the familysave in taxes in
2016 compared to 2015. (Note: Calculate the 2016 tax using the tax lawand rates
applicable to 2015 and assume all other data from Part I above is the same.)
Problem 2
2. Tony Johnson (I.D. No. 456-23-7657), age 45, is single. He lives at 5220 Grand
Avenue, Brooklyn, NY 10016. Tony is employed by RTI Corporation, which operates a
chain of restaurants in and around New York City. He has supervisory responsibilities
over the managers of four restaurants. An examination of his records for 2015
revealed the following information.1. During the year, Tony earned $33,000. His
employer withheld $2,200 in Federal income taxes and the proper amount of FICA
taxes. Tony obtained his current jobthrough an employment agency to which he
paid a $150 fee. He previously was employed as a manager of another restaurant.
Due to the new job, it was necessaryto improve his wardrobe. Accordingly, Tony
purchased several new suits at a cost of $600.2. On the days that Tony works, he
normally eats his meals at the restaurants for purposes of quality control. There is
no charge for the meals, which are worth $2,000.
3. He provides 60% of the support for his father, age 70, who lived with Tony allyear
and who has no income other than Social Security benefits of $7,000 duringthe
year. Tony provided more than one-half of the cost of maintaining the home.
4. Dividend income from Chevron Corporation stock that he owned was
$350.Interest income on savings was $200.
5. Tony and other employees of the corporation park in a nearby parking garage.
The parking garage bills RTI Corporation for the parking. Tony figures that his free
parking is worth $1,000 annually.
6. Tony subscribes to several trade publications for restaurants at a cost of $70.
7. During the year, he paid $200 to a bank for a personal financial plan. Based on
this plan, Tony made several investments, including a $2,000 contribution to an individual retirement account, and also rented for $30 a safety deposit box in which
he stores certain investment related documents.
8. Tony purchased a new home, paying three points on a loan of $70,000. He also
paid $6,000 of interest on his home mortgage during the year. In addition, he
paid$650 of real property taxes on the home. He has receipts for sales taxes of
$534.
9. While hurrying to deliver an important package for his employer, Tony received a
$78 ticket for violating the speed limit. Because his employer had asked that he
deliver the package as quickly as possible, Tony was reimbursed $78 for the ticket,
which he paid.
Compute Tony’s taxable income for the year. If forms are used for the computations,
complete Form 1040 and Schedule A.

 


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