Question: Harpo and Susan Marx (ages 52 and 47) are residents of Santa Rancho Fe, California and file a joint federal income tax return. They provide the entire support of their four children, Bill, Alex, Jim and Minnie, ages 19, 17, 14 and 9. All of the children are full-time students in school or college.
On the basis of the following information, compute Mr. and Mrs. Marx's 2014 federal income, including any AMT and SE taxes, and the amount due with their Form 1040 or the refund they should receive.
A. Mr. Marx is an entertainer who performs in partnership with his 4 other brothers. His ordinary income from self-employment was $278,300. The Marxes made estimated federal income tax payments totaling $58,000 to the IRS and a contribution of $28,500 to the qualified Keogh plan maintained by the partnership.
B. The Marxes earned $10,365 of interest income and $13,790 of qualified dividend income from their investment portfolio. They also received a $4,218 long-term capital gain distribution from a mutual fund. They have a $9,723 capital loss carryforward from last year.
C. The Marxes received a K-1 from an S corporation in which they own 6 percent of the stock. Their share of the corporation's business loss was $4,930. The S corporation owns a grapefruit grove in Coachella Valley, California. The couple are not involved in this corporation which is run by Mr. Marx's brother, Zeppo.
D. Mrs. Marx received a $50,000 cash inheritance from her great aunt Bessie.
E. The Marxes moved from Hollywood to Santa Rancho Fe in April so Mr. Marx could permanently relocate for motion picture purposes (the light is better in Santa Rancho Fe). The cost of moving their household goods was $11,260. The partnership reimbursed Mr. Marx for $10,000 of this expense.
F. The Marxes paid $33,890 of interest on a $573,000 first mortgage and $4,120 on a $90,000 second mortgage on their personal residence. They incurred the first mortgage to buy the home and the second mortgage to purchase new furniture.
G. The Marxes paid $8,400 of real estate taxes on their home and $2,920 for homeowner's insurance.
H. The Marxes made $21,980 of cash donations to various qualified charities. They also donated $2,500 to a neighborhood collection taken up to assist their neighbor, Jack Benny, when his horse barn caught on fire and burned to the ground. Mr. Benny, penny-pincher and tight-wad that he was, did not have any insurance in place to cover this disaster.
I. The Marxes paid $1,911 of sales and local sales taxes. California did not have a state income tax at the time the Marxes resided there.
J. The Marxes paid $3,500 in 2014 to their CPA firm, Dewey Cheatum and Howe, who prepared their previous Form 1040.