02 Jul Tax Based accounting problem
Question Description
ACC 460 TAX PROBLEM #5, FALL 2018 (15 pts.)
PART 1.Clark and Ellen Griswold are married and wish to file a joint return for 2018.They have two dependent children, Audrey (age 17) and Rusty (age 12), who live with them.Their primary residence is in Phoenix, and they own a condo (2nd home) in Flagstaff. They also own a rental house n Mesa. Clark and Ellen have the following items of income and expense for 2018:
Income:
Clark’s salary
$90,000
Ellen’s salary
110,000
Interest income on City of Phoenix bonds
5,000
Interest income on US Treasury bonds
13,000
Qualified cash dividends
10,000
FMV of 50 shares of Marty Co. common stock received as a stock dividend
7,500
Refund of 2017 Arizona income tax (the Griswolds itemized in 2017)
3,000
Net rental income from 100% owned rental house*
8,500
Share of Moose Partnership loss**
(12,000)
Share of DF Kaye S Corporation income***
20,000
Life insurance proceeds received on the death of Clark’s father
100,000
Short-term capital gains
10,000
Short-term capital losses
(14,000)
25% Long-term capital gains
13,000
15% Long-term capital gains
30,000
15% Long-term capital losses
(5,000)
Expenses:
Home mortgage interest ($400,000 principal)
24,000
Home equity loan interest ($110,000 principal)
6,600
Condo loan interest ($75,000 principal)
8,000
Car loan interest
6,000
Credit card finance charges
3,000
Home property taxes
6,000
Condo property taxes
5,000
Condo maintenance fees
2,500
Car tags (ad valorem part)
2,100
Arizona income tax withheld
8,000
Federal income taxes withheld
36,000
Medical insurance premiums (paid by the Griswolds, not part of an employer plan)
10,000
Unreimbursed medical bills
8,000
Charitable contributions
11,000
Unreimbursed employee business expenses
7,500
* The rental house does not meet the definition of a “qualified trade or business” for purposes of the §199A deduction.
**Clark and Ellen invested $10,000 as limitedpartners in the Moose Partnership at the beginning of 2018 .The loss is not the result of real estate rentals. Neither materially participate in the operations of the partnership.
***Ellen is a 50% owner and President of DF Kaye.
REQUIRED:Determine Clark and Ellen’s tax liability, using the tax formula.You must label your work, provide supporting schedules for summary computations, and indicate any carryovers.Present your work in a neat, orderly fashion.
PART 2.Audrey owns a bond mutual fund which was funded from an inheritance from her grandfather. The mutual fund paid $4,800 in interest in 2018.Audrey also earned $2,500 from various part-time jobs during the year.
REQUIRED:Determine Audrey’s tax liability, using the tax formula. Label all work.
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