Whittenburg Gerald E., Altus-Buller Martha. Income Tax Fundamentals
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Withholding Tables C-3
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C-4 Appendix C
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Withholding Tables C-5
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C-6 Appendix C
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Withholding Tables C-7
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C-8 Appendix C
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Additional Comprehensive
Tax Return Problems
CONTENTS
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.
Comprehensive Problem One: D-2
Noah and Joan Arc’s Tax Return
Comprehensive Problem Two: D-4
Gregory and Lulu Clifden’s Tax Return
Forms for Comprehensive Problems
One and Two* D-7
Appendix D
Please note: Additional forms can be printed by going to the IRS Web site at www.irs.gov, but are not required to com-
plete these problems.
D-1
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Comprehensive Problem One
Noah and Joan Arc’s Tax Return
Noah and Joan Arc live with their family at 4342 Josie Jo, Santee, CA 92071. Noah’s Social
Security number is 434-11-3311; Joan’s is 456-87-5432. Both are in their mid-30s and
enjoy good health and eyesight. Noah owns and operates a pet store and Joan is a fire-
fighter for the city.
1. The Arcs have two children, a son named Billie Bob (Social Security number 598-01-
2345), who is 7 years old, and a daughter named Mary Sue (Social Security number
554-33-2411), who is 4 years old. The Arcs paid $2,800 to the Roundup Day Care
Center to take care of Mary Sue while they worked. Because Joan is a firefighter, she
was home in the afternoon to care for Billie Bob after school.
2. For the current year, Joan’s W-2 from the city fire department showed the
following:
Wages $27,000
Federal income tax withheld 5,050
State income tax withheld 1,200
FICA tax withheld 2,066
Noah made estimated federal income tax payme nts of $12,000 and estimated state
income tax payments of $1,000 during the current year.
3. Noah’s pet store is located at 18542 Mission Road, Santee, CA 92071. The name of
the store is ‘‘The Arc,’’ and its taxpayer ID number is 95-9876556. The beginning
inventories and ending inventories are both $10,000. The revenue and expenses for
the year are as follows:
Sales Revenue $144,000
Expenses:
Cost of Sales $62,000
Insurance 750
Accounting fees 1,800
Wages 25,000
Payroll taxes 2,250
Utilities 2,700
Rental expense
7,200
Total Expenses
(101,700)
Net Income
$ 42,300
4. Noah and Joan paid the following amounts during the year (all by check):
Political contributions $ 250
Church donations (for which a written
acknowledgment was received)
2,300
Real estate taxes on their home 1,200
Mortgage interest for purchase of home 12,000
Tax return preparation fees 350
Credit card interest 220
Automobile insurance premiums 600
Uniforms for Joan 125
D-2 Appendix D
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.
5. Noah likes to invest in the stock market. During the year he sold the following secur-
ities, none of which were qualified small business companies:
Stock Date Acquired Date Sold Sales Price Cost Basis
Blue Co. 02/11/03 08/15/10 $ 4,500 $2,300
Yellow Co. 01/31/10 06/05/10 6,000 5,000
Red Co. 10/02/04 10/07/10 12,000 1,600
The expenses of sale are included in the cost basis. Noah has a long-term capital
loss carryover from last year of $2,300.
6. During the year, Noah and Joan receive d the following qualifying dividends:
Exxon $320
Coca-Cola 268
Texas Utilities 220
All stocks, bonds, and savings accounts were purchased or established with com-
munity property.
7. Noah and Joan own rental property located at 6431 Gary Ct., San Diego, CA 92115.
The revenue and expenses for the year are as follows:
Rent Income $14,000
Insurance 550
Interest expense 7,000
Property taxes 1,000
Miscellaneous expenses 600
Depreciation (The house was acquired in 1990) 3,000
Required: Although Noah and Joan do not believe their tax return will be unduly
complicated, they do realize their limitations and come to you for assistance. You are
to prepare their federal income tax return in good form, signing the return as the
preparer. Do not complete a California state income tax return. Assume any other
information (addresses, etc.) that you may need. The following forms and schedules
are required:
Form 1040 Schedule E
Schedule A Schedule M
Schedule B Schedule SE
Schedule C Form 2441
Schedule D
Note: The forms included in Appendix D are provided for the student to work only
one of the two comprehensive problems. If desired, additional forms may be obtained
from the IRS Web site at www.irs.gov.
Additional Comprehensive Tax Return Problems D-3
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.
Comprehensive Problem Two
Gregory and Lulu Clifden’s Tax Return
Gregory R. and Lulu B. Clifden live with th eir family a t the Rock Glen House Bed &
Breakfast, which Gregory operates. The Bed & Breakfast (B&B) is located at 333 33
Fume Blanc Way, Temecula, CA 92591. Gregory’s Social Security number is 543-88-
9756 and Lulu’s is 256-43-8819. Both are in their mid-40s and enjoy good health and
eyesight.
1. The Clifdens have three sons, Gerald A. (SS# 466-74-1131), Gary T. (SS# 465-76-
8375), and Glenn E. (SS# 475-23-1426). Gerald is 17 years old, Gary is 12 years
old, and Glenn is 10 years old.
2. The Rock Glen House Bed & Breakfast is operated as a sole proprietorship and had
the following income and expenses for the year:
Room rental income $164,250
Vending machine income 2,325
Advertising expense 4,720
Depreciation 18,180
Mortgage interest on the B&B 32,940
Wages of maid 15,450
Taxes and licenses 6,420
Supplies 8,930
Business insurance 6,300
Laundry expenses 4,290
Accounting fees 1,850
Office expenses 2,380
Utilities 6,350
All of the above amounts relate to the business portion of the Bed & Breakfast;
the personal portion is accounted for separately. The Rock Glen House Bed &
Breakfast uses the cash method of accounting and has no inventory. The employer
tax ID number is 95-1234567.
3. The Clifdens made estimated federal income tax payments of $16,000 and estimated
state income tax payments of $6,000 (all made during 2010).
4. Lulu is a substitute school teacher with the local school district. For the current
year, Lulu’s Form W-2 from the school district showed the following:
Wages $10,200
Federal income tax withheld 1,650
State income tax withheld 380
FICA (OASDI & Medicare) 780
5. Gregory is retired from the U.S. Navy. His annual statement from the Navy showed
the following:
Retirement income $9,400
Federal income tax withheld 1,200
State income tax withheld 290
D-4 Appendix D
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.