29 Jun Question INDIVIDUAL TAX RETURN PROBLE
Question
INDIVIDUAL TAX RETURN PROBLEM 6
Required:
· Use the following information to complete Paige Turner’s 2011 federal income tax return. If information is missing, use reasonable assumptions to fill in the gaps.
· Any required forms, schedules, and instructions can be found at the IRS Web site (). The instructions can be helpful in completing the forms.
Facts:
1. Paige Turner is single and has two children from her previous marriage. Ali lives with Paige, and Paige provides more than half of her support. Leif lives with his father, Will (Lief lived with Will for all of 2011). Will provides more than half of Leif’s support. Paige pays “alimony” of $400 per month to Will. The payments are to continue until Leif reaches age 18, when they will be reduced to $150. Paige provides you with the following additional information:
· She uses the cash method of accounting and a calendar year for reporting.
· She wishes to contribute to the presidential election campaign.
· Paige lives at 523 Essex Street, Bangor, ME 04401.
Page C-10
· Paige’s birthday is May 31, 1973.
· Ali’s birthday is October 5, 2002.
· Leif’s birthday is December 1, 2000.
· Paige’s Social Security number is 007-16-4727.
· Ali’s Social Security number is 005-61-7232.
· Leif’s Social Security number is 004-23-3419.
· Will’s Social Security number is 006-45-6333.
· She does not have any foreign bank accounts or trusts.
2. Paige is employed as a nuclear engineer with Atom Systems Consultants, Inc. (ASCI). ASCI’s federal employer identification number is 79-1234466. Her annual salary is $70,000. ASCI has an extensive fringe benefits program for its employees. Paige’s pay stubs indicate that she had $7,230 withheld in federal taxes, $4,987 in state taxes, $4,495 in Social Security taxes, and $1,051 in Medicare taxes.
3. Paige received salary of $70,000 (before subtracting her 401(k) and flexible spending plan contributions). She contributed $7,000 to her 401(k) account, and she contributed $3,600 to her flexible spending account.
4. ASCI paid $397 of whole life insurance premiums to cover Paige’s personal whole life insurance policy. ASCI also paid health club dues of $900 to a nearby health club on Paige’s behalf.
5. Taking advantage of ASCI’s educational assistance program, during the fall Paige enrolled in two graduate engineering classes at a local college. ASCI paid her tuition, fees, and other course-related costs of $2,300.
6. Paige received free parking in the company’s security garage that would normally cost $200 per month.
7. Paige manages the safety program for ASCI. In recognition of her superior handling of three potential crises during the year, Paige was awarded the Employee Safety Award on December 15. The cash award was #x0024;500.
8. On January 15, 2011, Paige’s father died. From her father’s estate, she received stock valued at $30,000 (his basis was $12,000) and her father’s house valued at $90,000 (his basis in the house was $55,000).
9. Paige owns several other investments and in February 2012 received a statement from her brokerage firm reporting the interest and dividends earned on the investments for 2011. (See Exhibit A.)
10. In addition to the investments discussed above, Paige owns 1,000 shares of Grubstake Mining & Development common stock. Grubstake is organized as an S corporation and has 100,000 shares outstanding (S corp. ID number 45-4567890). Grubstake reported taxable income of $200,000 and paid a distribution of $1.00 per share during the current year. Paige tells you that Grubstake typically does not send out its K-1 reports until late April. However, its preliminary report has been consistent with the K-1 for many years. (See Exhibit A.) Paige does not materially participate in Grubstake’s activities.
11. Paige slipped on a wet spot in front of a computer store last July. She broke her ankle and was unable to work for two weeks. She incurred $1,300 in medical costs, all of which were paid by the owner of the store. The store also gave her $1,000 for pain and suffering resulting from the injury. ASCI continued to pay her salary during the two weeks she missed because of the accident. ASCI’s plan also paid her $1,200 in disability pay for the time she was unable to work. Under this plan ASCI pays the premiums for the disability insurance as a taxable fringe benefit.
EXHIBIT A
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