Larry and Lisa Williams, both 33 years old, have been married for 9 years. They live at 638 Arctic Way, Fairbanks, AK 99701. Lisa's Social Security number is 445- 81-1423 and Larry's is 798-09-8526. Larry is the president of Arctic Birch Corporation located in Fairbanks. The Arctic Birch stock is owned 40 percent by Larry, 40 percent by Lisa, and 20 percent by Larry's father. Larry's Arctic Birch wages and income tax withholding for 2012 are:
Earnings from Arctic Birch..........................$152,000
Federal tax withheld....................................10,000
State tax withheld...............................................0
The Williams' other income includes interest on a savings account at Alaska National Bank of $500. In April, Larry canceled a small certificate of deposit at Alaska National Bank and had to pay a $360 penalty on this early withdrawal of savings.
During the year, Larry and Lisa paid the following amounts (all of which can be substantiated):
Home mortgage interest........................................................$35,000
Real estate taxes on personal residence.........................................5,600
Auto loan interest..................................................................4,800
Medical insurance..................................................................3,400
Other medical expenses............................................................3,600
Income tax preparation fee............................................................750
Charitable contributions:
A painting to the Fairbanks Museum of Arts for
exhibition (fair market value established by
qualified appraisal)...............................................................40,000
Church..............................................................................2,000
Tree Huggers Foundation (a qualified charity) ................................3,000
University of Alaska, Fairbanks..................................................5,000
Safe-deposit box......................................................................300
Sales tax actually paid in 2012....................................................1,700
The tax basis for the donated painting is $25,000 and the painting has been owned by Larry and Lisa for 5 years.
During the year, Larry sold land to Arctic Birch Corporation for $75,000. He acquired the land 5 years ago for $160,000. No Form 1099-B was filed for this transaction.
Arctic Birch Corporation does not have a qualified pension plan or Section 401(k) plan for its employees. Therefore, Larry deposited $10,000 ($5,000 each) into traditional IRA accounts for Lisa and himself.
Required:
Complete the Williams' federal tax return for 2012. Use Form 1040, Schedule A, Schedule B, Schedule D, and Form 8949 from pages 7-43 through 7-50 to complete this tax return. Make realistic assumptions about any missing data. Do not complete Form 8283.