Dan and Cheryl are married, file a joint return, and have no children. Dan is a
ID: 2459078 • Letter: D
Question
Dan and Cheryl are married, file a joint return, and have no children. Dan is a pharmaceutical salesman and Cheryl is a nurse at a local hospital. Dan’s SSN is 400-20-1000 and Cheryl’s SSN is 200-40-8000 and they reside at 2033 Palmetto Drive, Nashville, TN 28034. Dan is paid according to commissions from sales; however, his compensation is subject to withholding of income and payroll taxes. He also maintains an office in his home as the pharmaceutical company does not have an office in Nashville and when he is not traveling, Dan operates his business from his home office. During 2012, Dan earned total compensation from his job of $125,000, on which $20,000 of federal income taxes were withheld, $4,624 of OASDI, and $1,813 of Medicare taxes. No state income taxes were withheld. Cheryl earned a salary during 2012 of $45,400, on which federal taxes withheld were $5,000, OASDI of $1,907, and Medicare taxes of $658. During 2012, Dan and Cheryl had interest income from corporate bonds and bank accounts of $1,450 and qualified dividends from stocks of $5,950. Dan also actively trades stocks and had the following results for 2012:
LTCG $4,900
LTCL (3,200)
STCG 0
STCL (7,800)
He had no capital loss carryovers from previous years. Dan does a considerable amount of travel in connection with his job. He uses his own car and is reimbursed $0.30 per business mile. During 2012, Dan drove his car a total of 38,000 miles (evenly throughout the year), of which 32,000 were business related. He also had business-related parking fees and tolls during the year of $280. Dan uses the mileage method for deducting auto expenses. Dan also had the following travel expenses while away from home during the year:
Hotel $4,200
Meals 820
Entertainment of customers 1,080
Tips 100
Laundry and cleaning 150
Total 6350
Dan was reimbursed for the travel expenses by his employer, pursuant to an accountable plan, in the amount of $5,080.
Dan’s expenses in connection with his office in the home were as follows:
Office supplies $ 290
Telephone (separate line) 1,100
Utilities (entire house) 3,400
Homeowners insurance 600
Interest and property taxes (see below for totals)
Repairs and maintenance (entire house) 800
Dan’s office is 300 square feet and the total square footage of the house is 3,000 square feet. Dan and Cheryl purchased the house on June 12, 1998, for $280,000, of which $40,000 is attributable to the land. Cheryl incurred several expenses in connection with her nursing job. She paid $450 in professional dues, $200 in professional journals, and $350 for uniforms.
Dan and Cheryl had the following other expenditures during the year:
Health insurance premiums (after-tax) $ 4,400
Doctor bills 470
Real estate taxes on home 2,200
Personal property taxes 400
Mortgage interest 15,600
Charitable contributions—ash 9,000
Charitable contributions—E stock owned for 5 years:
FMV $12,000
Adjusted basis 2,000
Tax preparation fees 750
Compute Dan and Cheryl’s income tax liability for 2012. Disregard the alternative minimum tax.
Explanation / Answer
Calculation of income tax payable for 2012:
Personal Income particulars
Wages 45400
Taxable interest 1450
Qualified dividends 5950
Total 52800
Other income :
STCG / L (7800)
LTCG / L 1700 NET
Total (6100)
Income from business or profession:
Commission 125000
Auto expenses (9600)
other travelling exp (5080)
Total 110320
Deductions
Home office expenses :
Telephone 1100
off supplies 290
Repairs &-
maintenance@10% 80
utilites @10% 340
Total 1810
property taxes paid 400
medical expenses 470
mortgage interest 15600
real estate taxes 2200
Health insurance premiums 4400
oasdi 6531
medical taxes 2471
Total 32072
Miscellaneous deductions :
charitable contributions 9000+12000 = 21000
professional education exp 450+200+350 = 1000
Total 22000
Net total income 101138
Tax payable @25% out of which qualified dividend is taxable at 15% = 24690
Tax credits :
Federal income tax withhelds 25000
Refund to be claimed 310
Calculation of income tax payable for 2012:
Personal Income particulars
Wages 45400
Taxable interest 1450
Qualified dividends 5950
Total 52800
Other income :
STCG / L (7800)
LTCG / L 1700 NET
Total (6100)
Income from business or profession:
Commission 125000
Auto expenses (9600)
other travelling exp (5080)
Total 110320
Deductions
Home office expenses :
Telephone 1100
off supplies 290
Repairs &-
maintenance@10% 80
utilites @10% 340
Total 1810
property taxes paid 400
medical expenses 470
mortgage interest 15600
real estate taxes 2200
Health insurance premiums 4400
oasdi 6531
medical taxes 2471
Total 32072
Miscellaneous deductions :
charitable contributions 9000+12000 = 21000
professional education exp 450+200+350 = 1000
Total 22000
Net total income 101138
Tax payable @25% out of which qualified dividend is taxable at 15% = 24690
Tax credits :
Federal income tax withhelds 25000
Refund to be claimed 310
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