individual tax return project-jeff and ivy bell

Project Description:

tax return project facts: fall 2013
jeff j. and ivy n. bell (ages 42 and 41) are married and live at 4326 orange blossom trail, dallas, tx
75080. jeff is the regional manager for a gaming company (mgm), while ivy is a self‐employed cpa.
they file a joint return and use the cash basis for tax purposes.
1. jeff receives a yearly salary of $75,000, plus an annual bonus, from mgm. the annual bonus is
determined in december of each year but not paid until january of the following year. jeff's bonus is
$25,000 for 2011 (received in 2012) and $17,000 for 2012 (received in 2013). jeff participates in his
employer's group health insurance plan to which he contributed $6,600 in 2012 for medical coverage.
mgm does not provide any retirement benefits, but it has established a § 401(k) plan to enable its
employees to make voluntary contributions. jeff did not contribute to the plan in 2012. the company
provides an office for jeff's use that is located at suite 419, 110 palm boulevard, dallas, tx.
2. jeff's employment‐related expenses (which mgm reimbursed jeff for) for 2012 are as follows:
airfare $5,100
lodging: not at a mgm $4,200
lodging: value of stays at a mgm $3,300
meals $800
entertainment $350
car rentals, limos, taxis $750
while on business trips in his car, jeff was caught in several small‐town speed traps and paid fines of
$620.
3: ivy is a licensed cpa who works part‐time on a consulting basis. her major clients are real estate
developers (both residential and commercial). because she limits her engagements, she does not have a
separate office but does her work at the client's premises or in her office at home (see item 5 below).
her business expenses for 2012 are summarized below:
supplies $6,000
legal $4,000
cpa license fee $1,000
subscriptions to professional journals $1,500
dues to professional organizations $250
in addition, she drove the family acura (purchased on june 7, 2011) 4,940 miles on her job tasks.
regarding the acura, ivy uses the automatic mileage method for tax deduction purposes. she drove the
car for 14,000 miles during the year.
4. one of ivy's clients was interested in building a shopping center on a tract of land she owned in levy
county. ivy inherited the property from her aunt when she died on june 6, 1990. at that time, the land
was worth $300,000. it has since been rezoned for commercial use and has a current value of$200,000.
on february 10, 2012, the following exchange took place in the office of an attorney: ivy exchanged the
levy parcel for a similar tract in dixie county (worth $175,000) and $25,000 in cash.
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5. on september 2, 2012, ivy sold a tract of land in citrus county to a farmer who owned the adjoining
property. the land was inherited from the same aunt and had a value of $200,000 on june 6, 1990.
under the terms of the sale, ivy received cash of $200,000 and four notes of$25,000 each payable at
one‐year intervals with simple interest of 8% provided for. to the extent allowed, ivy wants to defer
recognition of gain as long as possible.
6. on august 5, 2010, jeff purchased 5,000 shares of groupon common stock for $22 a share as
part of its initial public offering. the corporation was formed to establish and operate farmers' markets
in mid‐size cities throughout the united states. although some market locations were profitable, as a
whole the venture proved to be a failure. by december 2012, groupon was taken over by creditors, and
its stock became worthless.
7. besides the items previously noted, the bells had the following receipts for 2012:
ivy's consulting income $75,000
interest income:
city of dallas bonds $3,000
ford motor company bonds $15,000
loan repayment by sarah duval $9,000
cash gifts from ivy's parents $10,000
federal income tax refund (2011 return) $19,000
ivy's consulting income includes a $3,000 payment for work she did in 2011 but does not include $5,000
she billed in november for work performed in 2012. one client who has owed her $6,000 for work done
in 2010 was convicted of arson in 2012 and is serving time in state prison. ivy feels certain that she will
never collect the $6,000.
8. in addition to the items already mentioned, the bells had the following expenditures for 2012:
life insurance premiums $1,000
medical and dental expense not covered by insurance $4,000
taxes:
ad valorem taxes on personal residence $5,000
state and local sales taxes $7,000
interest on home mortgage $4,000
contributions‐
salvation army (tampa branch) $500
texas governor's election campaign fund $1,000
during 2012, the bells had gambling winnings of $4,200 and losses of $1,200‐all supported by records.
9. the bells maintain a household that includes two children, anna marie (age 20) and tyler (age 15).
anna marie graduated from high school on may 18, 2011, and is undecided about college. tyler is a
junior in high school. anna marie is an accomplished vocalist and during 2012 was able to earn $17,200
performing at various functions (e.g., weddings, funerals). she placed most of her earnings in a savings
account and kept only a small amount to spend on herself.
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10. in 2011, jeff invested $50,000 into the k&r partnership for a 20% interest in k&r. k&r leases small
construction equipment and the partnership had a $100,000 operating loss in 2011 and $30,000 of
operating income in 2012. jeff received a $10,000 cash distribution from k&r in 2012.
11. ivy owns a rental home and in 2012 she received $24,000 in rent payments, recorded a depreciation
expense of $7,000, paid interest on the mortgage of $14,000, paid property taxes of $4,000, and paid
$3,000 to a painter for painting the exterior of the house.
12. jeff's form w‐2 from mgm shows $25,000 withheld for federal income tax. the bells also have
made total quarterly income tax payments of $9,000. ivy's professional activity code is 541310. relevant
social security numbers are noted below:
social security
name number birth date
jeff j. bell 111‐11‐1111 07/01/1968
ivy n. bell 123‐45‐6781 03/20/1969
anna marie bell 123‐45‐6784 05/02/1992
tyler bell 123‐45‐6788 06/30/1997
requirements
prepare an income tax return (with appropriate schedules) for the bells for 2012. make necessary
assumptions for facts not stated in the problem and properly document such assumptions in your
workpapers. if the tax return reflects a refund, the taxpayers want it sent to them. the bells do not
wish to contribute to the presidential election campaign fund. in the past several years, the bells have
itemized their deductions from agi (have not claimed the standard deduction option).
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