Reba Dixon 2017 Tax Return preperation Project problem 87 from Ch8 for my Intro
ID: 2597330 • Letter: R
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Reba Dixon 2017 Tax Return preperation Project problem 87 from Ch8 for my Intro to Tax Accounting class.
The first part of the question was to find her Taxable income and how much to be refunded now. The question i really need help with the Part 2 of this problem which is Reba Dixons U.S. Federal Income Tax return
Info provided below
Part 1: On McGraw-Hill’s Connect, complete Problem #87 from Ch08 of our text. In part (a), do not yet
complete the actual pages 1 and 2 of Reba’s Form 1040. For your convenience, the information provided
in the problem also appears below:
Reba Dixon is a fifth-grade school teacher who earned a salary of $38,000 in 2017. She is 45 years old
and has been divorced for four years. She received $1,200 of alimony payments each month from her
former husband. Reba also rents out a small apartment building. This year Reba received $30,000 of
rental payments from tenants and she incurred $19,500 of expenses associated with the rental.
Reba and her daughter Heather (20 years old at the end of the year) moved to Georgia in January of
this year. Reba provides more than one-half of Heather’s support. They had been living in Colorado
for the past 15 years, but ever since her divorce, Reba has been wanting to move back to Georgia to be
closer to her family. Luckily, last December, a teaching position opened up and Reba and Heather
decided to make the move. Reba paid a moving company $2,010 to move their personal belongings,
and she and Heather spent two days driving the 1,426 miles to Georgia. During the trip, Reba paid
$200 for lodging and $85 for meals. Reba’s mother was so excited to have her daughter and
granddaughter move back to Georgia that she gave Reba $3,000 to help out with the moving costs.
Reba rented a home in Georgia. Heather decided to continue living at home with her mom, but she
started attending school full-time in January at a nearby university. She was awarded a $3,000 partial
tuition scholarship this year, and Reba helped out by paying the remaining $500 tuition cost. If
possible, Reba thought it would be best to claim the education credit for these expenses.
Reba wasn’t sure if she would have enough items to help her benefit from itemizing on her tax
return. However, she kept track of several expenses this year that she thought might qualify if she was
able to itemize. Reba paid $2,800 in state income taxes and $6,500 in charitable contributions during
the year. She also paid the following medical-related expenses for her and Heather:
Insurance premiums $4,795
Medical care expenses $1,100
Prescription medicine $350
Nonprescription medicine $100
New contact lenses for Heather $200
Shortly after the move, Reba got distracted while driving and she ran into a street sign. The
accident caused $900 in damage to the car and gave her whiplash. Because the repairs were less than
her insurance deductible, she paid the entire cost of the repairs. Reba wasn’t able to work for two
months after the accident. Fortunately, she received $2,000 from her disability insurance. Her
employer, the Central Georgia School District, paid 60 percent of the premiums on the policy as a
nontaxable fringe benefit and Reba paid the remaining 40 percent portion.
A few years ago, Reba acquired several investments with her portion of the divorce settlement. This
year she reported the following income from her investments: $2,200 of interest income from
corporate bonds and $1,500 interest income from City of Denver municipal bonds. Overall, Reba’s
stock portfolio appreciated by $12,000 but she did not sell any of her stocks.
Heather reported $3,200 of interest income from corporate bonds she received as gifts from her
father over the last several years. This was Heather’s only source of income for the year.
Reba had $10,000 of federal income taxes withheld by her employer. Heather made $500 of
estimated tax payments during the year. Reba did not make any estimated payments. Reba had
qualifying insurance for purposes of the Affordable Care Act (ACA).
Part 2: In addition to the information in Part 1, now also assume the following:
• The $19,500 of expenses associated with Reba renting out a small apartment building is
comprised of the following items: $5,500 depreciation, $6,500 property taxes, $3,000
insurance, $1,000 repairs, and $3,500 utilities. Reba will report this information and the
$30,000 of rental payments received from tenants on Schedule E.
• Reba is a part-time chef who has developed a new way to prepare great tasting, lowcarbohydrate
meals using fresh ingredients. She teaches cooking classes during the
summer months when she is not teaching and reports this activity as a sole proprietorship
on Schedule C using a principal business code of 611000 in Box B. Activity for the year
included: gross receipts = $15,670, food supplies = $3,850, legal expenses = $900, office
expense = $410, advertising = $800, and the purchase of a portable convection oven on
June 15 used 100% for business purposes = $1,300 (claim the largest depreciation
deduction possible). In addition, Reba occasionally uses her personal car for business.
Assume that Reba maintains a mileage log showing that she drove her car a total of
10,000 miles during the year including 900 miles for business purposes. Reba does not
maintain a home office.
• Reba had two stock transactions during the year: 1) Sold 5,000 shares of LMN Corp.
common stock for $110,000 on May 5. The shares were originally purchased for $60
each on August 7, 2013. Reba decided to sell the LMN stock before the market price
dropped any lower. 2) Sold 900 shares of Home Depot, Inc. common stock for $150 per
share on April 21, 2017. The shares were inherited from Reba’s Aunt on March 21, 1997.
We will discuss in class how to determine the basis of these shares.
• Reba borrowed $25,000 from a broker to purchase investment assets including stocks and
bonds. During the year, she paid the broker $1,750 of interest related to this loan.
Taking the above information into account, prepare a complete and accurate U.S. federal income
tax return (but not the state and local returns) using the 2017 version of the forms and schedules
whenever possible. When a 2017 version is not yet available, use the 2016 version and update
the amounts and rates accordingly. The forms and schedules can be downloaded and printed
from the Internal Revenue Service (IRS) website (http://www.irs.gov):
Form 1040 – pages 1 and 2 Schedule A – Itemized Deductions
Form 3903 – Moving Expenses Schedule B – Interest and Ordinary Dividends
Form 4562 – Depreciation and Amortization Schedule C – Profit or Loss from Business
Form 8863 – Education Credits Schedule D – Capital Gains and Losses
Form 8949 – Sales & Dispositions of Capital Assets Schedule E – Supplemental Income and Loss
Schedule SE – Self-Employment Tax
Completing the forms manually in pencil is acceptable for this project (typing is NOT required).
As you prepare the forms, please use any business names, addresses, and fictitious Social
Security Numbers (SSNs) that you wish.
Explanation / Answer
Description Amount
Gross Income:
Salary 38,000
Alimony received 14,400
Rental receipts 30,000
Gift from mother
Disability insurance payments 1,200
Interest income from corporate bonds 2,200
Interest income from municipal bonds
(1) Gross income 85,800
Deductions for AGI:
Expenses for rental property 19,500
Moving expenses 2,481
(2) Total for AGI deductions 21,981
(3) AGI 63,819
From AGI deductions:
Medical expenses 63
State income taxes 2,800
Charitable contributions 6,500
Casualty loss deduction
(4) Total itemized deductions 9,363
(5) Standard deduction 9,250
(6) Greater of itemized deductions or standard deduction 9,363
(7) Personal and dependency exemptions 8,000
(8) Total from AGI deductions 17,363
Taxable income 46,456
(9) Tax on taxable income 6,310.90
(10) Credits 500
(11) Tax prepayments 10,000
Tax refund (4,189.10)
Tax on taxable income: See head of household tax rate schedule $1,315 + 995.90 [15% × (46,456
13,150)] = $6,310.90
Note A. The first question we have to answer to determine Reba’s filing status is whether she can claim
Heather as a dependent. If so, she may qualify for head of household filing status. If not, she will file a
single taxpayer.
Does Heather qualify as Reba’s dependent? Yes, as analyzed below.
Test Is Heather a qualifying child of Reba?
Relationship Yes, daughter
Age Yes, under age 24 and a fulltime
student (and younger than
Reba).
Residence Yes, Heather had the same principal residence as Reba for the
entire year.
Support Yes. Heather did not provide more than half of her own support.
Her scholarship does not count as support she provided for
herself because she is Reba’s child.
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