ACCT 308
Tax Return Problem
Fall 2014
Edward S. Nelson
1. Edward S. Nelson is 35 years of age and single. He lives at 8311 Harbor Blvd, Fullerton, CA 92831. The phone number he wishes to show on his tax return is his daytime work number of 714-555-5555. His social security number is 456-78-1234.
2. Edward wishes to contribute $3 to the Presidential Election Campaign Fund.
3. Edward is employed by Plymouth Foods, Inc. as the manager of the Main Street restaurant.
For 2013 his Form W-2 from Plymouth Foods reports the following items:
Box 1: Gross wages and taxable benefits ............................ . $68,000
Box 2: Federal income tax withheld ................................. . 10,500
Box 3: Social Security wages ....................................... . 68,000
Box 4: Social Security tax withheld .................................. . 2,856
Box 5: Medicare wages ........................................... . 68,000
Box 6: Medicare tax withheld ...................................... . 986
Box 12: Substantiated employee business expense (Code L) ............. . 1,640
(see #16, below)
4. Edward obtained his job with Plymouth Foods through an employment agency to which he paid a $500 fee. He also incurred expenses of $100 related to the preparation of his resume and $1,200 to improve his wardrobe with two new business suits.
5. Prior to obtaining the job with Plymouth Foods, Edward was employed by Ivy Corp. as the manager of the Guy's restaurant in Fresno, CA. For 2013 his Form W-2 from Ivy Corp. reports the following items:
Box 1: Gross wages and taxable benefits ............................ . $22,000
Box 2: Federal income tax withheld ................................. . 2,000
Box 3: Social Security wages ....................................... . 22,000
Box 4: Social Security tax withheld .................................. . 924
Box 5: Medicare wages ........................................... . 22,000
Box 6: Medicare tax withheld ...................................... . 319
6. On the days that Edward works, he eats his meals at the Main Street restaurant so that he is available for supervisory reasons during the peak dining hours. There is no charge to him for the meals, but he estimatesthey are worth $1,500.
7. Edward received Forms 1099-INT reporting in box 1 (regular or OID interest) the following
interest income during 2013:
Second National Bank (savings account)................................. . $100
Cardinal Corp. (corporate bonds) .................................. . 800
Push Logistics, Inc. (corporate bonds) .................................. . 900
8. Edward redeemed $3,000 of Series EE savings bonds that matured in May. He originally had purchased the bonds for $1,500 many years earlier. During the period that Edward held the bonds, he had never included in his taxable income the annual increase in the redemption value. This year he received a Form 1099-INT from the U.S. Treasury Department which reported in box 3 (U.S. savings bonds) interest income of $1,500 from the bonds.
9. Edward received Forms 1099-DIV reporting the following dividends during 2013:
Box 1a Box 1b
Ordinary Qualified
North Star Corp. . . . . . . . . . . . . . . . . $ 600 ....................... . $ 600
Southpoint, Inc. . . . . . . . . . . . . . . . . . . 200 ....................... . 200
Morgan Stanley . . . . . . . . . . . . . . . . . . . . 1,400 ....................... . 500
10. Edward has neither a foreign bank account nor a foreign trust.
11. Edward received Form1099-B fromMorgan Stanley reporting the following stock sales during 2013:
Date Date Sales Basis
Corporation Shares Acquired Sold Price Box 3
Rocky Road, Inc. 600 2-15-13 9-18-13 $23,200 $18,300
Echotron Corp. 800 4-20-13 10-21-13 10,000 13,800
G&P, Inc. 300 7-25-09 11-05-13 5,700 8,500
Red Duck, Inc. 100 3-10-08 12-12-13 7,000 9,300
12. Edward received a Form 1099-MISC from XYZ Communications, Inc. (employer identification number 54-0086732) which reported $2,000 of prize winnings in box 3 (other income). He received this prize as a result of correctly answering a trivia question during a radio contest. Edward incurred no direct expenses related to winning the prize.
13. As a hobby, Edward paints abstract portraits. During the year, he sold three of his paintings at an art show. His receipts and disbursements related to the hobby are as follows:
Revenue ......................................................... . $ 500
Cost of supplies ................................................... . 1,200
14. In moving from Fresno to Fullerton for the job with Plymouth Foods, Edward incurred the following expenses in May 2013. None of these expenses were reimbursed by Plymouth Foods:
Cost of moving household effects .................................... . $2,250
Meals consumed during move ...................................... . 100
House-hunting expenses(including $150 for meals) .................... . 1,200
Not included in any of the above expenses is the cost of driving Edward's automobile from Fresno to Fullerton. Although Edward did not keep any of his automobile expense receipts,he noted that his driving distance one-way was 255 miles. He also noted that the distance from his old home to his new job site was 260 miles, and that the distance from his old home to his old job site was 14 miles. (Note: For 2013, the standard mileage deduction for moving expensesis 23.5¢ per mile).
15. Edward paid his ex-wife, Shelley Robinson (SSN: 444-55-1234), $18,700 for her living expenses during 2013, as required by a written divorce decree. The decree designated this payment to represent alimony.
16. Related to his employment with Plymouth Foods, Edward attended a management seminar in Seattle for three days in September 2013. He also spent two additional days sightseeing. Edward was reimbursed $1,640 by Plymouth Foods for his seminar registration fee, lodging, and airfare. The reimbursement is not included in his compensation income reported in box 1 of his Form W-2. Instead, it is reported in box 12 with the code L (substantiated employee business expense). Edward's total expenses for
his trip to Seattle are as follows:
Airfare (round trip) ................................................. . $410
Seminar registration fee ............................................. . 600
Lodging ($210 per night) ............................................ . 1,050
Meals ($80 per day) ................................................ . 400
Airport parking ($10 per day) ........................................ . 50
Rental car ($50 per day) ............................ ................. . 250
17. Edward also incurred and paid the following unreimbursed employee business expensesin
2013:
Business gifts ($100 per gift) .......................................... . 800
Parking ............................................................ . 90
Uniforms .......................................................... . 370
18. In January, Edward's grandfather passed away. Edward inherited $350,000 which he invested under the management of Lowell, Dudley & Morgan. During the year, Edward paid $3,700 to Lowell, Dudley & Morgan for their management services.
19. In April 2013, Edward paid $2,000 in state income taxes for tax year 2012.
20. Edward paid Second National Bank $305 to rent a safe deposit box to store his
investment related documents.
21. Edward paid $700 in April to Hendrick & Flynn, CPAs, for the preparation of his 2012 individual income tax return.
22. Edward contributed $200 to the Republican Party.
23. For the year 2013, the standard deduction for a single taxpayer is $6,100 and the personal exemption was $3,900.
24. Check figures to help you when preparing the return:
Total income (line 22) ............................................. . $95,000
AGI (line 37) ..................... ...................... 73,990 (H&R: 73,989)
Taxable income (line 43) .......... ...................... 62,805 (H&R: 62,804)
Tax overpaid (line 73) ............................................. . 995
Assignment
Complete Edward Nelson's Federal income tax return for 2013. Assume that Edward is filing his return on time (before April 15, 2014). In preparing the return, you will need to use forms 1040,2106, 3903 and schedules A, B, and D. If Edward has a refund due, request that it be refunded to him, rather than having it credited to his 2014 taxes.
You must also write a formal letter to your client, Edward Nelson, and submit the letter though the Turnitin link in TITANium. Assume that you will be sending a bill along with a copy of the tax return to Edward for his records. Thus, you will need to write a cover letter (not to exceed one page) to accompany the tax return. You should explain what you did and how you arrived at the total amount billed, e.g., time spent on each activity, hourly rate, complexity. In addition, discuss Edward's overall tax consequences for the year. You may also explain the tax treatment of certain items (e.g., special rules, limits on deductions) and/or provide tax planning suggestions (for example, if he were to engage in similar transactions in the future).
Turn in a hard copy of your letter along with a hard copy of the completed return for Edward Nelson assembled as it would be filed with the IRS. Supporting and itemized statements should be attached as appropriate, and tax forms should be assembled in the correct order (see #3, below). Inputsheets and taxpayer worksheets, however,should not be attached.
Notes
1. H&R Block tax preparation software comes bundled with the CSUF edition of the textbook. You may also use other software, such as TurboTax.
2. If you have never used tax preparation software to prepare a return before, you may wish to manually prepare a rough draft of the return and then transfer the appropriate information to the electronic forms.
3. The printout from the tax preparation software should result in correct assembly order for Edward Nelson's tax return.
4. You are allowed to work with one or two other classmates on the tax return, and turn in one tax return. However, each student must write their own client letter. Collaboration is not allowed on the client letter portion of the assignment.
5. Grading on the client letter will generally follow the Writing Skills Rubric used by the Department of Accounting, although the scale will diffe