individual tax return problem 2 420100

*This one has me beyond confused. I would be grateful to anyone who can help me out. The textbook that the problem came from is McGraw Hill’s Taxation of Individuals and Business Entities, 2013 edition, Appendix C. Thanks so much!

INDIVIDUAL TAX RETURN PROBLEM 2 Required:

• Use the following information to complete Karl and Ellie Frederickson’s 2011 federal income tax return. If information is missing, use reasonable assumptions to fill in the gaps.

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• You may need the following forms to complete the project: Form 1040 and Schedule A. The forms, schedules, and instructions can be found at the IRS Web site (www.irs.gov). The instructions can be helpful in completing the forms.

Facts:

1. Karl Frederickson is employed as a human resources manager for Toys Unlimited, Inc., and Ellie is a financial planner for her mother’s company, Frederickson Investments, Inc., a full service wealth planning firm. They provide the following information:

   • They both want to contribute to the presidential election campaign.

   • They live at 9876 Fighting Irish Lane, South Bend, IN.

   • Karl’s birthday is 7/17/1965 and his Social Security number is 555 12 6789.

   • Ellie’s birthday is 9/11/1967 and her Social Security number is 987 65 4321.

   • Karl or Ellie do not have any foreign bank accounts or trusts.

2. Karl received a Form W 2 from Toys Unlimited, Inc. that contained the following information:

   Af?cAc‚¬A??c	Line 1 Wages, tips, other compensation:	$45,000
   Af?cAc‚¬A??c	Line 2 Federal income tax withheld:	7,500
   Af?cAc‚¬A??c	Line 3 Social Security wages:	45,000
   Af?cAc‚¬A??c	Line 4 Social Security tax withheld:	1,890
   Af?cAc‚¬A??c	Line 5 Medicare wages and tips:	45,000
   Af?cAc‚¬A??c	Line 6 Medicare tax withheld:	653
   Af?cAc‚¬A??c	Line 17 State income tax:	2,200

3. Ellie received a Form W 2 from Frederickson Investments, Inc. that contained the following information:

   Af?cAc‚¬A??c	Line 1 Wages, tips, other compensation:	$85,000
   Af?cAc‚¬A??c	Line 2 Federal income tax withheld:	12,500
   Af?cAc‚¬A??c	Line 3 Social Security wages:	85,000
   Af?cAc‚¬A??c	Line 4 Social Security tax withheld:	3,570
   Af?cAc‚¬A??c	Line 5 Medicare wages and tips:	85,000
   Af?cAc‚¬A??c	Line 6 Medicare tax withheld:	1,233
   Af?cAc‚¬A??c	Line 17 State income tax:	4,200

Page C 3

Karl and Ellie incurred the following medical expenses for the year:

Karl and Ellie paid $12,000 of interest payments on their primary residence (acquisition debt of $225,000). They also paid $1,750 of interest expense on Ellie’s car loan and $500 of interest on their Visa card.

Karl and Ellie paid $4,000 of real estate taxes on their home and $1,000 of real estate tax on a vacant lot they purchased with the hope of building their dream home in the future. They also paid $3,000 in sales tax on Ellie’s car and other purchases and $1,000 of ad valoreum tax on their cars.

Karl and Ellie made the following contributions this year:

Karl incurred $4,000 of unreimbursed meals and entertainment related to his job. Ellie incurred $1,200 of expenses for investment publications, and last year they paid their CPA $500 to prepare their tax return.

The roof on Karl and Ellie’s house was severely damaged in a hail storm. They had to replace the roof ($7,500), which unfortunately was not covered by insurance because of their high deductible ($10,000).

Karl won $5,000 in the state lottery. He has been playing the lottery for years ($10 in lottery tickets every week ($520 in total) that he saves to keep track of the numbers he plays).