Whittenburg Gerald E., Altus-Buller Martha. Income Tax Fundamentals
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insurance coverage on the bracelet and his adjusted gross income for 2010 is $52,000,
calculate the amount of his theft loss deduction.
$ ____________
LO 5.5 19. Wilbur DuVal has an apartment full of antique furniture. A fire in the apartment
destroys a large par t of his furnishings. The destroyed furnishings had a fair market
value of $40,000, and Wilbur’s original basis in the furnishings was $33,750. He recov-
ers $13,000 from his insurance company . Wilbur’s adjusted gross income for 2010 is
$43,000. Use Form 4684 on pages 5-39 and 5-40 to report Wilbur’s loss.
LO 5.5 20. Go to the IRS Web site (www.irs.gov) and print out a copy of the most recent Instruc-
tions for Form 4684, Casualties and Thefts.
LO 5.5 21. Kerry’s car is totaled in an auto accident. The car originally cost $18,000, but is worth
$7,500 at the time of the accident. Kerry’s insurance company gives her a check for
$7,500. Kerry has $30,000 of adjusted gross income. How much can Kerry claim as
a casualty loss on her tax return? Please explain.
_________________________________________________ ________________________
_________________________________________________ ________________________
_________________________________________________ ________________________
_________________________________________________ ________________________
LO 5.5 22. Dan has a 20-year-old vintage car behind his residence. He has rarely used it. This year
he discovers that it has been comp letely destroyed by rust. The car originally cost
$5,000 and had a fair market val ue of that amount before the rust destroyed it. Dan
has $25,000 of adjusted gross income. What is his casualty loss? Please explain.
_________________________________________________ ________________________
_________________________________________________ ________________________
_________________________________________________ ________________________
_________________________________________________ ________________________
LO 5.6 23. Jim is fired from his job as a waiter and d ecides to take an extended t rip to Europe.
After touring Europe for 3 months, Jim r eturns to look for a n ew job as a waiter.
Are his job-hunting expenses deductible for 2010?
_____________
Please explain: __________________________________________________________
___ ___________ ___________ _______________________________________________
_________________________________________________ ________________________
LO 5.6 24. During the 2010 tax year, Irma incurred the following expenses:
Union dues $275
Tax return preparation fee 125
Brokerage fees for the purchase of stocks 35
Uniform expenses 300
If Irma’s adjusted gross income is $22,000, calculate her miscellaneous deductions
on the section of Schedule A of Form 1040 below.
Questions and Problems 5-41
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
LO 5.7 25. Jim (age 50) and Martha (age 49) are married with three dependent children. They file
a joint return for 2010. Their income from salaries totals $210,000 and they received
$10,000 in taxable interest, $5,000 in royalties, and $3,000 of other ordinary income. Jim
and Martha’s deductions fo r adjusted gross income amount to $3,200 and they have
itemized deductions totaling $24,500, consisting of $20,000 in mortgage interest and
$4,500 in charitable contributions. Calculate the following amounts:
a. Gross inc ome $__________
b. Adjusted gross income $__________
c. Itemized deduction or standard deduction amount $__________
d. Number of exemptions and deduction amount $__________
e. Taxable income $__________
LO 5.7 26. Frank, age 35, and Joyce, age 34, are married and file a joint income tax return for
2009. Their salaries for the year total $290,000 and they have taxable interest income
of $40,000. They have no deductions for adjusted gross income. Their itemized deduc-
tions consist of $4,000 in state income taxes, $5,000 of charitable contributions, and
$15,000 of mortgage interest. Frank and Joyce do not have any dependents.
What is their deduction for personal exemptions? Please use the following worksheet
for your calculations.
LO 5.8 27. Jose paid the following amounts for his son to attend Big State University in 2010:
Tuition $6,000
Room and board 5,000
Books 500
A car to use at school 2,000
Student football tickets 200
Spending money 4,000
How much of the above is a qualified higher education expense for purposes of his
Qualified Tuition Program?
$ ____________
X
5-42 Chapter 5
Itemized Deductions and Other Incentives
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Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
LO 5.8 28. In 2010, Van recei ves $20,000 (of which $4,000 is earnings) from a qualified tuition
program. He uses the funds to pay for his college tuition and other qualified higher
education expenses. How much of the $20,000 is taxable to Van?
$ ____________
GROUP 3:
COMPREHENSIVE PROBLEMS
.............................................. .............................................. .
1. John Williams (age 42) is a single taxpayer, and he lives at 1324 Forest Dr., Reno, NV
89501. His Social Security number is 555-94-9358. John’s earnings and withholdings
as the manager of a local casino for 2010 are:
Earnings from the Lucky Ace Casino $200,000
Federal income tax withheld 32,000
State income tax withheld 0
John’s other income includes interest on a savings account at Nevada National Bank
of $13,075.
John pays his ex-wife $4,000 per month. When their 12-year-old child (in the wife’s
custody) reaches 18, the payments are reduced to $2,800 per month. His ex-wife’s
Social Security number is 554-44-5555.
During the year, John paid the following amounts (all of which can be substantiated):
Credit card interest 1,760
Auto loan interest 4,300
Auto insurance 900
Property taxes on personal residence 6,200
State and local sales taxes actually paid during 2010 4,000
Blue Cross health insurance premiums 1,800
Other medical expenses 790
Income tax preparation fee 900
Charitable contributions:
Boy Scouts 800
St. Matthews Church 300
U. of Nevada (Reno) Medical School 30,000
Nevada Democratic Party 250
Fund-raising dinner for the Reno Auto
Museum (value of dinner is $50)
100
John also received the following Form 1098:
John Williams
1324 Forest Or.
Reno, NV 89501
XX-XXXXXXX
555-94-9358
Reno Bank & Trust
49 Commerce Street
Reno, NV 89501
19,700
Questions and Problems 5-43
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
The IRS is considering using Form 1098 to catch tax cheats. The IRS is look-
ing for individuals who receive Form 1098 for mortgage interest paid but
who are not filing tax returns. The IRS believes that a large number of tax-
payers who are earning enough income to pay mortgage interest and liv-
ing expenses are failing to file tax returns. Matching Form 1098 to tax
returns not filed will likely provide a fruitful source for IRS audits.
Required: Complete John’s federal tax return for 2010. Use Form 1040, Schedule A,
Schedule B, and Schedule M from pages 5-47 through 5-52 to complete this tax return.
Make realistic assumptions about any missing data.
2A. Bea Jones (age 32) moved from Texas to Florida in December 2009. She lives at 654
Ocean Way, Gulfport, FL 33707. Bea’s Social Security number is 466-78-7359 and
she is single. Her earnings and income tax withholding for 2010 for her job as a man-
ager at a Florida shrimp-processing plant are:
Earnings from the Gulf Shrimp Co. $42,000
Federal income tax withheld 7,800
State income tax withheld 0
Bea’s other income in cludes interest on a savings account at Beach National Bank of
$2,200 and $600 per month alimony from her ex-husband.
During the year, Bea paid the following amounts (all of which can be substantiated):
Home mortgage interest $ 9,700
Auto loan interest 2,300
Property taxes on personal residence 3,200
State and local sales taxes actually paid during 2010 1,500
Unreimbursed hospital bills 3,200
Doctor bills 2,550
Other medical expenses 720
Income tax preparation fee 600
Job-hunting expenses 925
Union dues 800
In July of this year, someone broke into Bea’s house and stole a diamond ring. The dia-
mond ring had a fair market value of $10,000 and a tax basis to Bea of $7,600. The ring was
uninsured. If the casualty or theft loss floor is changed from $100 to $500 by 2010 year-end
legislation, please use a basis of $8,000 to retain the integrity of the problem.
Required: Complete Bea’s federal tax return for 2010. Use Form 1040, Schedule A,
Schedule B, Form 4684, and Schedule M, from pages 5-53 through 5-58 to complete
this tax return. Make realistic assumptions about any missing data.
2B. John Fuji (age 37) moved from California to Washington in December 2009. He lives
at 468 Cameo Street, Yakima, WA 98901. John’s Soci al Security number is 571-78-
5974 and he is single. His earnings and income tax withholding for 201 0 for his job
as a manager at a Washington apple-processing plant are:
Earnings from the Granny Smith Apple Co. $52,500
Federal income tax withheld 8,450
State income tax withheld 0
5-44 Chapter 5
Itemized Deductions and Other Incentives
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
John’s other income includes interest on a Certificate of Deposit at Braeburn
National Bank of $1,285. Also, he paid $600 per month alimony to his ex-wife
(Dora Fuji, Social Security number 573-79-6075).
During the year, John paid the following amounts (all of which can be substantiated):
Home mortgage interest $8,350
Auto loan interest 1,575
Credit card interest 655
Property taxes on personal residence 2,700
State and local sales taxes 2,000
Unreimbursed hospital bills 5,200
Doctor bills 2,550
Other medical expenses 720
Income tax preparation fee 500
Job-hunting expenses 925
Cash charitable gift to the Jonagold Research Center 500
In July of t his year, someone broke into John’s house and stole a coin co llection.
The col lection h ad a fair market value of $12,000 and a tax basis to John of $ 4,000.
The collection was uninsured.
Required: Complete John’s federal tax return for 2010. Use Form 1040, Schedule A,
Schedule B, Form 4684, and Schedule M, on pages 5-53 through 5-58 to complete
this tax return. Make realistic assumptions about any missing data.
GROUP 4:
CUMULATIVE SOFTWARE PROBLEM
.............................................. .............................................. .
The following additional information is available for the Dr. Ivan and Irene Incisor family
from Chapters 1–4.
Ivan and Irene paid the following in 2010 (all by check or can otherwise be substantiated):
Contributions to Perpetual Perpetuity Catholic Church $ 400
Tuition to Perpetual Perpetuity Catholic School for Ira 6,000
Clothes to Salvation Army (10 bags in good condition) 350
Contributions to George Kerry’s Congressional campaign 250
Psychotherapy for Irene 2,000
Eyeglasses for Ira 375
Prescription medication and drugs 1,800
Credit card interest 1,345
Interest on Ivan’s dental school loans 3,000
Investment interest on stock margin account 325
Auto loan interest (auto was paid for by a home equity loan
on residence)
900
Auto insurance 1,600
Dave Deduction, CPA, for preparation of last year’s tax return 700
Safe-deposit box for storage of stocks and tax data 100
Contribution to an educational savings account for Ira 1,000
Home mortgage interest 10,875
Home property taxes 3,100
State sales taxes 5,000
Unreimbursed business expense (seminar on tooth polishing) 700
Questions and Problems 5-45
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
In June, Ivan purchased a new Professional HDV Camcorder for $7,000. While the
Incisors were on vacation in August, someone broke into their residence and stole the
plasma TV. Ivan’s homeowners’ insurance did not reimburse him for any part of the
loss since he declined the special premium add-on for high value items required by his
policy. If the casualty or theft los s floor is chan ged from $100 to $500 by 2010 year-end
legislation, please use a basis of $7,400 to retain the integrity of the problem.
Required: Combi ne this new infor mation about the Incisor family with the information
from Chapters 1–4 and complete a revised 20 10 tax return for Ivan and Irene. Be sure
to save your data input files since this case will be expanded with more tax information
in later chapters.
5-46 Chapter 5
Itemized Deductions and Other Incentives
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Questions and Problems 5-47
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
5-48 Chapter 5
Itemized Deductions and Other Incentives
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Questions and Problems 5-49
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
5-50 Chapter 5
Itemized Deductions and Other Incentives
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.