Reference no: EM132455233

Question 1 - Tax Return Problem

Bert and Barbara Longfelt support in nursing homes both Bert's parents and Barbara's parents. Bert's parents are 70 and 68 years of age respectively and have no income except for the $3,600 in Social Security they receive annually. Barbara's parents, both 72 years of age, have the following sources of income:

Social Security $9,800

Interest Income (Joint Ownership) $2,600

Dividend Income $900

Bert's annual salary is $45,000 and his wife's annual salary is $55,000.

They have two small children who live at home. Also, they own an apartment house from which they derive $6,000 net rental income. Two items from their rental property confused them so they did not include them in their rental income:

Security deposits received and to be used against final month's rent $500

Two tenants paid rent in advance in December 2015. The rent was due January 1, 2016 $600

Barbara owned stock prior to her marriage to Bert and received the following cash dividends:

General Corp. nonqualified common stock dividend (U.S. corporation) $300

Live Forever Life Insurance Co. (dividends on life insurance policy) $100

Bert and Barbara have several sources of interest income:

Interest income from savings accounts $850

Interest income from State of Tennessee Highway Bonds $400

Barbara entered the local area bake-off, won first place for her cherry pie, and received a $1,000 cash prize.

Bert, who is an accountant, made an arrangement with Harold the dentist. Bert would do Harold's tax work if Harold would take care of Bert and his family's dental work. During the year, Bert estimated that the value of his services to Harold was $500 and that Harold gave Bert and his family $600 worth of dental services. In December, Bert did a consulting assignment on a weekend and received $700. No Social Security or taxes were withheld.

During the year, they had $15,000 withheld for federal taxes.

During 2015, Bert and Barbara have $14,000 of itemized deductions. Compute Bert and Barbara's net tax due, including self-employment tax. Assume dividends are taxed at ordinary rates.

Question 2 - Tax Return Problem

Rodney and Alice Jones have three small children, ranging in age from 5 to 10. One child is blind and needs special care. Rodney works as an accountant for a large CPA firm and has gross income of $45,000. Alice is a lawyer with a national law firm and earns $48,000. Rodney's parents are quite old, and he and his two brothers entirely support them according to the following percentages:

Rodney 45%

Steven 40%

Robert 15%

The brothers decide that in 2015 Rodney should be allowed to declare his parents as dependents.

Rodney's employer provides group-term life insurance at twice the employee's annual salary. Rodney is 40 years of age.

During 2014, Rodney and Alice receive the following dividends on their jointly held investments:

Dividends from Mexico Inc. (Mexican Corp.) $700

Dividends from Widget Steel Corp. 150

They received interest income from the following investments:

Interest on State of Ohio highway bonds $800

Interest on deposits in savings and loans 400

The Joneses have itemized deductions of $15,000. Compute their taxable income.

Question 3 - Peter Nerf, a single taxpayer, is an accountant employed by a large corporation. This year, he was transferred from the company's headquarters office to an office in another state. For the year, he had the following items of income and expense:

Peter's moving expenses were not reimbursed by his employer. Assuming that he had no other taxable income, deductions or credits other than those listed above, calculate Peter's taxable income for the current year.

Question 4 - Diane Parker acquired an interest in a movie theater in June 2003. The theater broke even from 2003 to 2010. Parker did not actively participate in the activity during those years. She participated in the activity for 350, 400, 450, and 420 hours during 2011, 2012, 2013, and 2014, respectively. This was well below all other employees. The theater had losses allocated to her of $21,000, $6,000, $19,000, and $12,000 for 2011, 2012, 2013, and 2014, respectively. In 2015, however, she participated 750 hours in the business, and her share of the movie theater net income was $24,000. Her income from other sources (portfolio income) was $27,500. What are the income tax consequences to Diane for 2015?

Question 5 - Tom and Shannon Shores, both age 40, filed a joint return and paid the following medical expenses:

Hospital costs $3,200

Doctor's bills 1,600

Medicine and drugs 800

Hospitalization insurance premiums 4,000

In addition, they incurred the following medical expenses for Tom's mother who is totally dependent upon and lives with Tom and Shannon:

Cosmetic surgery (face-lift operation) $5,400

Doctor's bills 2,600

Medicines and drugs 1,000

They live 10 miles from the medical center and made 20 trips there for doctor office visits and hospital stays this year. Tom and Shannon's adjusted gross income is $85,000. What is Tom and Shannon's medical expense deduction for this year?