COMPREHENSIVE INDIVIDUAL TAX RETURN PROBLEMPAUL D. TURNER – 2022
Introduction:
Every student will have four weeks to work on one of the four versions of the Paul
Turner case. There will be 20 questions to answer with each question worth 3 points for
a total of 60 points. You will have an unlimited number of attempts and an Excel
template will be provided to you. The test is in Black board in the Paul Turner folder.
The problem (this document) and the excel template can be found under “Course
Documents” – “Paul Turner” folder.
Questions:
1. What is the net Form W-2 wages?
2. What is miscellaneous income?
3. What is Schedule B income (Interest and dividends)?
4. What is Schedule C net income (Business income)?
5. What is Schedule D net income (Capital gains and losses)?
6. What is Schedule E depreciation (Rental property)?
7. What is Schedule E net income (Rental income & Sub-S income)?
8. What is the total “For AGI” deductions?
9. What is Adjusted Gross Income?
10. What is the Schedule A deduction for taxes?
11. What is the Schedule A deduction for interest expense?
12. What is the Schedule A deduction for charitable contributions?
13. What is the Schedule A total itemized deductions?
14. What is the qualified business income deduction?
15. What is taxable income?
16. What is the tax on ordinary income?
17. What is the tax on long-term capital gain (loss) and qualified dividends?
18. What is the self-employment tax?
19. What is the kiddie tax?
20. What is the balance due or (refund)?
Facts:
1. Paul Turner is single and has two children, Allen and Lee Ann, from his previous
marriage. Allen lives with Paul and Paul provides more than half of his support.
In the current year, Allen earned $300 of interest income and $5,000 working at a
fast-food restaurant. Allen graduated from high-school in December 2021 and
was not a registered student during 2022. Lee Ann lives with her mother, Wilma
(Lee Ann lived with Wilma for all of the current year). Wilma provides more than
half of Lee Ann’s support. Paul pays “alimony” of $400 per month to Wilma
pursuant to a divorce degree entered into in 2015. The payments are to continue
until Lee Ann reaches age 18, when they will be reduced to $250. Paul uses the
cash method of accounting and a calendar year for reporting. Paul’s birthday is
May 31, 1981. Allen’s birthday is October 5, 2004. Lee Ann’s birthday is
December 1, 2008. Paul prefers to report any “kiddie tax” on his tax return.
2. Paul is employed as a nuclear engineer with Atom Systems Consultants, Inc.
(ASCI). Paul’s pay stubs indicate that he had $7,320 withheld in federal taxes,
$4,978 in state taxes. He earned $90,000 of wages subject to employee Social
Security taxes and Medicare taxes. ASCI has an extensive fringe benefits
program for its employees.
3. Paul earned salary of $88,500 (before subtracting his 401(k) and flexible
spending plan contributions and before adding any additional possible income
items described in paragraphs 4-7, 11). He contributed $7,300 to his 401(k)
account, and he contributed $2,600 to his flexible spending account.
4. ASCI paid $597 of whole life insurance premiums to cover Paul’s personal whole
life insurance policy in the face amount of $50,000. ASCI also paid health club
dues of $825 to a nearby health club on Paul’s behalf.
5. Taking advantage of ASCI’s educational assistance program, during the fall Paul
enrolled in two graduate engineering classes at a local college. ASCI paid his
tuition, fees, and other course-related costs of $5,300.
6. Paul received free parking in the company’s security garage that would normally
cost $200 per month.
7. Paul manages the safety program for ASCI. In recognition of his superior
handling of three potential crises during the year, Paul was awarded the
Employee Safety Award on December 15. The cash award was $800.
8. On January 15, of the current year, Paul’s father died. From his father’s estate,
he received stock valued at $30,000 (father’s basis was $12,000) and his father’s
house valued at $105,000 (father’s basis in the house was $55,000).
9. Paul owns several other investments and received the following information
reports for the current tax year:
Form 1009-Div:
General Dynamics – Gross qualified dividends – $600
Form 1099-Int
New Jersey Economic Development bonds – Gross interest – $300
IBM bonds – Gross interest – $600
State of Nebraska bonds – Gross Interest – $200
10. In addition to the investments discussed above, Paul owns 1,000 shares (1%) of
Grubstake Mining & Development common stock. Grubstake is organized as an
S corporation and has 100,000 shares outstanding. Grubstake reported taxable
income of $200,000 and paid a distribution of $1.00 per share during the current
year. Paul does not materially participate in Grubstake’s activities.
11. Paul slipped on a wet spot in front of a computer store last July. He broke his
ankle and was unable to work for two weeks. He incurred $1,300 in medical
costs, all of which were paid by the owner of the store. The store also gave him
$1,000 for pain and suffering resulting from the injury. ASCI did not pay his salary
during the two weeks he missed because of the accident. However, ASCI’s
disability insurance plan paid him $1,500 in disability pay for the time he was
unable to work. Under this plan, ASCI pays the premiums of $500 for the
disability insurance as a taxable fringe benefit. The disability plan premiums and
the disability benefit payments were not included in Paul’s W-2 wages reported in
paragraph 3.
12. Paul received a Form 1099-B from his broker for the sale of the following
securities during the current year. The adjusted basis amounts were reported to
the IRS.
Security
Nebraska
bonds
Cassill Corp
(500 shares)
Sale
Purchase
Date
Date
03/14/22 10/22/12
Sales
Price
$2,300
CommissionPaid
Sale
$280
His
Basis
$1,890
10/20/22
$8,500
$425
$9,760
02/19/17
13. In addition to the taxes withheld from his salary, he also made timely estimated
federal tax payments of $175 per quarter and timely estimated state income tax
payments of $150 for the first three quarters. The $150 fourth-quarter state
payment was made on December 28 of the current year. Paul would like to
receive a refund for any overpayment.
14. In August of the current year, he received a federal refund of $60 and a state tax
refund of $240 related to the tax returns he filed for the prior year. His itemized
deductions for the prior year were $19,930.
15. Paul found a renter for his father’s house on August 1. The monthly rent is $600,
and the lease agreement is for one year. The lease requires the tenant to pay the
first and last months’ rent and a $600 security deposit. The security deposit is to
be returned at the end of the lease if the property is in good condition. On August
1, Paul received $1,800 from the tenant per the terms of the lease agreement. In
November, the plumbing froze and several pipes burst. The tenant had the
repairs made and paid the $300 bill. In December, he reduced his rental payment
to $300 to compensate for the plumbing repairs. Paul provides you with the
following additional information for the rental in the current year.
Property taxes
Other maintenance expenses
Insurance expense
Management fee
Depreciation (to be computed)
$620
285
495
350
?
Local practice is to allocate 10 percent of the fair market value of the property to
the land. (See ¶8 for basis information.) Paul makes all decisions with respect to
the property. This rental activity qualifies as a trade or business under the
Internal Revenue Code for purposes of the Qualified Business Income deduction.
16. Paul paid $4,050 in real estate taxes on his principal residence. The real estate
tax is used to pay for town schools and other municipal services.
17. Paul drives a 2019 Acura TL. His car registration fee (based on the car year) is
$50 and covers the period 1/1/22 through 12/31/22. In addition, he paid $280 in
property tax to the state based on the book value of the car.
18. In addition to the medical costs presented in ¶11, Paul incurred the following
unreimbursed medical costs:
Dentist
$ 310
Doctor
390
Prescription drugs
215
Over-the-counter drugs
140
Optometrist
125
Emergency room charges 440
LASIK eye surgery
2,000
Chiropractor
265
19. Paul paid interest to his lenders as follows:
Primary home mortgage
Home-equity loan
Credit cards
Car loan
$7,500
435 (not acquisition debt)
498
390
20. On May 14 of the current year, Paul contributed clothing to the Salvation Army.
The original cost of the clothing was $740. He has substantiation valuing the
donation at $360. In addition, he made the following cash contributions and
received a statement from each of the following organizations acknowledging his
contribution:
Larkin College
United Way
First Methodist Church
$700
152
790
Amos House (homeless shelter)
Local Chamber of Commerce
200
100
All of the above entities are nonprofit corporations and §501( c)(3) organizations
except the Chamber of Commerce which is not a §501( c)(3) organization.
21. On April 1 of the current year, Paul’s house was robbed. He apparently
interrupted the burglar because all that’s missing is an antique brooch he
inherited from his grandmother (June 12, 2006) and $300 in cash. Unfortunately,
he didn’t have a separate rider on her insurance policy covering the jewelry.
Therefore, the insurance company reimbursed him only $500 for the brooch. His
basis in the brooch was $6,000, and its fair market value was $7,500. His
insurance policy also limits to $100 the amount of cash that can be claimed in a
theft.
22. Paul sells real estate in the evening and on weekends (considered an active
trade or business). He runs his business from a rental office he shares with
several other realtors. Paul has been operating in a business-like way since 2004
and has always shown a profit. He had the following income and expenses from
his business:
Commissions earned
Expenses:
Advertising
Telephone
Real estate license
Rent
Utilities
$21,250
2,200
95
130
6,000
600
This real estate activity qualifies as a trade or business under the Internal
Revenue Code for purposes of the Qualified Business Income deduction.
23. He has used his Acura TL in his business during the current year. During the
year, he properly documented 6,500 business miles. The total mileage on his car
(i.e., business-use and personal-use miles) during the year was 15,000 miles.
Paul elects to use the standard mileage method to calculate his car expenses.
He spent $45 on tolls and $135 on parking related to the real estate business.
24. Paul’s company has an accountable expense reimbursement plan for employees
from which Paul receives $12,000 for the following expenses:
Airfare
Hotel
Meals
Car rentals
Entertainment
Incidentals
Total
$4,700
3,400
2,000
600
900
400
12,000
25. During the current year, Paul also paid $295 for business publications other than
those paid for by his employer and $325 for a local CPA to prepare his tax return
for the prior year.
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