Reference no: EM132658978

Tax Computation Problem - Addison Parker (Social Security number 123-45-6785), single and age 32, lives at 3218 Columbia Drive, Spokane, WA 99210. She is employed as regional sales manager by VITA Corporation, a manufacturer and distributor of vitamins and food supplements. Addison is paid an annual salary of $83,000 and a separate travel allowance of $28,000. In order to access the travel allowance, VITA requires adequate accounting by Addison.

Addison participates in VITA's contributory health and § 401(k) plans. During 2019, she paid $4,500 for her share of the medical insurance and contributed $11,000 to the § 401(k) retirement plan.

Addison uses her automobile 70% for business and 30% for personal. The automobile, a Toyota Avalon, was purchased new on June 30, 2017, for $37,000 (no trade-in was involved). Depreciation has been claimed using the MACRS 200% declining-balance method, and no § 179 election was made in the year of purchase. (For depreciation information, see the IRS Instructions for Form 4562, Part V.) During 2019, Addison drove 15,000 miles and incurred and paid the following expenses relating to the automobile:

Gasoline $3,100

Insurance 2,900

Auto club dues 240

Interest on car loan 1,100

Repairs and maintenance 1,200

Parking (during business use) 600

Traffic fines (during business use) 500

Because VITA does not have an office in Spokane, the company expects Addison to maintain one in her home. Out of 1,500 square feet of living space in her apartment, Addison has set aside 300 square feet as an office. Expenses for 2019 relating to the office are listed below.

Rent $18,000

Utilities 4,000

Insurance (renter's casualty and theft coverage) 1,600

Carpet replacement (office area only) 1,200

Addison's employment-related expenses (except for the trip to Korea) for 2019 are summarized below.

Airfare $4,100

Lodging 3,200

Meals 2,800

Transportation (taxis and airport limos) 300

Business gifts 540

Continuing education 400

Professional journals 140

Most of Addison's business trips involve visits to retail outlets in her region. Store managers and their key employees, as well as some suppliers, were the parties entertained. The business gifts were boxes of candy costing $30 ($25 each plus $5 for wrapping and shipping) sent to 18 store managers at Christmas. The continuing education was a noncredit course dealing with improving management skills that Addison took online.

In July 2019, Addison traveled to Korea to investigate a new process that is being developed to convert fish parts to a solid consumable tablet form. She spent one week checking out the process and then took a one-week vacation tour of the country. The round-trip airfare was $3,600, and her expenses relating to business were $2,100 for lodging ($300 each night), $1,470 for meals, and $350 for transportation. Upon returning to the United States, Addison sent her findings about the process to her employer. VITA was so pleased with her report that it gave her an employee achievement award of $10,000. The award was sent to Addison in January 2020.

Besides the items already mentioned, Addison had the following receipts in 2019:

Regarding the city lot (located in Vancouver), Addison purchased the property in 2004 for $16,000 and held it as an investment. Unfortunately, the neighborhood where the lot was located deteriorated, and property values declined. In 2019, Addison decided to cut her losses and sold the property for $13,000. The sailboat was used for pleasure and was purchased in 2015 for $16,500. Addison sold the boat because she purchased a new and larger model (see below). While at the Spokane airport, Addison found an unmarked envelope containing $5,000 in $50 bills. Because no mention of any lost funds was noted in the media, Addison kept the money.

Addison's expenditures for 2019 (not previously noted) are summarized below.

Medical (not covered by insurance) $7,897

State and local general sales tax 3,300

Church pledge (2019 and 2020) 5,600

Fee paid for preparation of 2018 income tax return 500

Contribution to mayor's reelection campaign fund 200

Contribution to a Coverdell Education Savings Account (on behalf of a favorite nephew) 2,000

Addison keeps careful records regarding sales taxes. In 2019, the sales tax total was unusually high due to the purchase of a new sailboat. In 2019, Addison decided to pay her church pledge for both 2019 and 2020. The insurance premium was on a policy covering her father's life. (Addison is the designated beneficiary under the policy.)

Addison's employer withheld $8,600 for Federal income tax purposes, and she applied her $800 overpayment for 2018 toward the 2019 tax liability.

Required - Compute Addison's Federal income tax payable (or refund) for 2019. In making the calculation, use the Tax Rate Schedule and disregard the application of the alternative minimum tax (AMT).