Student’s Name
Course Name
Instructor’s Name
April 12, 2020
Decisions and Assumptions:
- The child tax credit of $2,000 per qualifying child under age 17. $1,400 can be refunded for each qualifying child. Amount reduce or phase out at an adjusted gross income of $400,000. Max is ten years old and hence qualify for a child tax credit.
- The child must be 24 years or less if a full-time student for his/her income to be included in the tax return. He/she should not provide more than 50% of the support. Amanda is 20 years, a full-time student, and has contributed less than 50% of the support.
- Income:
Amanda | Income | 2,850 |
Jorge Lopez | Gross salaries and bonuses | $124,000 |
Total | $126,850 |
Form 1040 Line 1
- Interest income and qualified dividend income for Amanda are recorded in Form 1040 Schedule B part 1 and part 2, respectively.
- Palmview bar association award is not included in the tax return because an unrelated party paid it as a contribution towards education.
- Jorge and Margarita provide more than 50% of Amanda support, which includes paying for undergraduate study and law school. The total support amount is 11,000 tuition and 9,000 accommodation.
- Max attends St Mary’s Parochial School for ten months and pays a tuition fee of $400 per month because the parent donated a minimum of $2,000 to St Mary’s Church.
- Federal Income Tax withheld is $18,500 (Form 1040 line 17)
- Margarita operates a business, and hence the return is filed under form 1040 Schedule C. Gross profit is $91,750, Line 6.
Gross revenue | $118,500 |
Cost of material | 26,750 |
Gross Income | 91,750 |
Expenses (Web, telephone & depreciation) | $44,298 |
Tentative profit/Loss | 47,452 |
Deprecation (6,098) line 13
FMV | $485,000 *12% | $58,200 |
Remodel | $32,000 | |
FMV 2014 June | $90,200 | |
MACRS % | 5.71% | $5,153.13 |
This is the total depreciation of the property. The depreciation of the computers and sewing machines are according to 5 years MACRS.
Machines: | Value | MACRS % | Depreciation expense | |
Sewing | $4,200 | 11.52% | $483.84 | |
Computer equipment: | $4,000 | 11.52% | $461 | |
Additional sewing machine: | $7,000 | $0 | ||
$944.64 |
- When Margarita’s great aunt Consuelo died, the received money of $100,000 is recorded in form 1040 Schedule 1 as other incomes (line 8) because neither Jorge nor Margarita paid any of the premiums.
- The collection of antique fans is valued at the FMV as at the death, and hence the gain is 800 (10,800 – 10,000). It is a short-term gain in Schedule D line 1a.
Calculation of the short-term gains (Schedule D part 1)
Short Term | Sale | Cost | Gain/Loss |
Proceeds | Cost | Gain/Loss | |
Collection of antique fans | $10,800 | $10,000 | $800 |
2,000 shares of Microsoft | $27,500 | $22,000 | $5,500 |
Net | $38,300 | $32,000 | $6,300 |
Calculation of long term-gain (Schedule D part 2)
Long Term | Sale | Cost | Gain/Loss |
plot of land in North Carolina | $110,000 | $30,000 | $80,000 |
125 shares of Apple Inc. | $32,000 | $15,000 | $17,000 |
150 shares of Visa | $24,000 | $18,000 | $6,000 |
1,000 shares of Cardinal | $28,000 | $23,000 | $5,000 |
250 shares of 3G | $12,500 | $14,000 | ($1,500) |
capital loss carryover | ($15,000) | ||
Net | $206,500 | $100,000 | $91,500 |
- When Jorge plaid drums he earned a total revenue of $1,750 (1,600 + 150) and a total expense of 3,450 (1,500+ 1,000 + 400 + 200 +350). The even resulted in a loss of -1700. The expense is in Schedule 1 part 11 line 11.
- Lopez’s purchased a 2-bedroom apartment and rented it for 75 days (Form 1040 Schedule E). The rent received is 16,400, and the expenses for the apartment is $17,875. This activity resulted in a loss of $1,475 and cannot be deducted because it is a passive loss property.
- Taxable Income (Form 1040 line 12.a)
Taxable income | $233,562 | ||
($0-19,400) | $19,400 | 10% | $1,940 |
(19,401-$78,950) | $78,950 | 12% | $9,474 |
($78,951-168,400) | $135,212 | 22% | $29,747 |
Tax amount | $41,161 |
- Lopez’s have to pay a total of 27,142 for the 2019 tax. (Form 1040 line 23)