Problem 1
Compute the 2019 Federal income tax for Doug. All transactions are in 2019 unless stated otherwise.
Doug is 49, single and has sole custody of his 14 and 22-year-old children. His son, Frank is 14 and a student in high school. His daughter, Gloria is 22 and attends college in Iowa.
Doug salary was $182,000 in 2019. He participated in a qualified defined contribution plan, he contributed 24,000 and his employer added $12,000. Total contribution to the plan was 36,000.
He participated in a medical FSA (flexible spending account), contributing $5,000 to the plan. He used to funds in the plan to pay for dental care for Frank.
His earnings statement showed the following:
Federal tax withheld 17,350
New York State tax 7,200
New Yok City tax 4,400
Social security 7,115
Defined contribution plan 24,000
Medical FSA 5,000
He purchased a co-op apartment in January 2019 and moved into it. He financed the purchase with a $950,000 30-year bank mortgage at 3% interest. He paid the bank 1,200 in mortgage loan fees at closing and 28,450 in mortgage interest during the year. In addition, the bank charged 3 points, $28,500 which the bank withheld from loan proceeds.
Based on the statement from the co-op board, his share of real estate tax was 3,012.
The cost of dental (orthodontia) for Frank was 17,200. He paid 12,200 and the balance was paid from his FSA.
Cost of eyeglasses and contact lenses for Doug, Frank and Gloria was 1,450 during 2019.
His charitable contributions were:
Donations to his church 800
Food donated to local soup kitchen 85
He worked in the local soup kitchen for 3 days preparing meals for the hungry. The soup kitchen valued his service at 450.
He paid 28,000 in tuition for Gloria at Iowa State University.
Compute his tax and determine how much he will either pay the IRS or get a refund from the IRS.
Problem 2
Compute gain and/or loss in each of the following situations. For problem 2.4 compute total for year and how it will be treated on income tax return.
2.1 In 2003 Helen bought a house in Brooklyn for 185,000. She lived there until 2013 when she took a new job in Texas. She was offered 450,000 for the house but was not sure how the job would be so she decided to rent the house. From July 2013 until June 2019 she rented the house. In June 2019 the tenant moved and she decided to sell the house. In November 2019 she sold the house for 850,000. At all times the rental income was more than costs and depreciation allowable). Compute gain. Is any part ordinary income? Capital gain? Is any part of the gain excluded from income?
2.2 In 2004 Irving bought three shares in a real estate start-up from a friend. He paid 10,000 for each share and gifted them immediately to his three children, Jim, Ken and Louis. The company never did very well and paid a dividend of 25-50 per share each year.
In 2016 Jim needed some money and decided to sell his shares of the real estate company. The best offer he could get was $2,000. He mentioned to Ken (his brother) that he was trying to sell and Ken offered to buy the shares for $2,200. In 2019 Ken sold the two shares to an unrelated investor for 2,500 each. Compute any gain or loss reportable by Jim or Ken. Is it ordinary or capital, and if capital, long or short term?
2.3 In October 2014 Mary bought 500 shares in XYZ (a listed traded company) for $40 per share. In December 2018 when the shares were worth $35 per share, she gifted 250 shares to each of her grandchildren Nancy and Oscar. In July 2019 Nancy sold her shares for $38 per share. In November 2019 Oscar sold his shares of $42 per share.
Compute gain or loss reported by Nancy and Oscar. Is it capital or ordinary and if capital, long or short term?
2.4 Compute total gain or loss and tax treatment for 2019 for Peter.
In 2018, after considering all losses and allowances, Peter had net long term loss of 14,200 and net short-term loss of 2,200.
ABC purchased 8/1/2014 cost 17,000 sold 2/15/19 proceeds 25,000
DEF purchased 11/15/2018 cost 8,800 declared bankrupt 6/1/2019
GHI purchased 2/15/10 cost 25,000 sold 12/20/2019 31,800
- MACRS
Compute allowable MACRS, section 179 and special first year write off for Queen Corp. (QC) for 2016, 2017, 2018, 2018 and 2019. Compute gain/loss on widget sold in 2019.
In 2016 QC purchased a Framus (ten-year item) for $3 million. QC mad no special elections for 2016.
In 2017 QC purchased four widgets (five-year) items for 450,000 each, QC declined special first year write off only.