Tax Return Problems

Communications

Critical Thinking

Decision Making

Planning

Tax Forms Problem

Denise Lopez, age $40,$ is single and has no dependents. She is employed as a legal secretary by Legal Services, Inc. She owns and operates Typing Services located near the campus of Florida Atlantic University at $1986$ Campus Drive, Boca Raton, FL $33434.$ Denise is a material participant in the business, she is a cash basis taxpayer, and her Social Security number is $123-45-6781.$ Denise lives at $2020$ Oakcrest Road, Boca Raton, FL $33431.$ Denise wants to designate $$3$ to the Presidential Election Campaign Fund. She has never owned or used any virtual currency. During $2023,$ Denise had the following income and expense items:

$$100,000$ salary from Legal Services, Inc.

$$20,000$ gross receipts from her typing services business.

$$700$ interest income from Third National Bank.

$$1,000$ Christmas bonus from Legal Services, Inc.

$$60,000$ life insurance proceeds on the death of her sister.

$$5,000$ check given to her by her wealthy aunt.

$$100$ won in a bingo game.

Expenses connected with Typing Services:

Office rent $$7,000$

Supplies $4,400$

Utilities and telephone $4,680$

Wages to part$-$time typists $5,000$

Payroll taxes $500$

Equipment rentals $3,000$

$$9,164$ interest expense on a home mortgage $($paid to Boca Raton Savings and Loan$).$

$$15,000$ fair market value of silverware stolen from her home by a burglar on October $12,2023.$ Denise had paid $$14,000$ for the silverware on July $1,2013.$ She was reimbursed $$10,000$ by her insurance company.

Denise had loaned $$2,100$ to a friend, Joan Jensen, on June $3,2019.$ Joan declared bankruptcy on August $14,2023,$ and was unable to repay the loan. Assume that the loan is a bona fide debt.

Legal Services, Inc., withheld Federal income tax of $$14,000$ and the appropriate amount of FICA tax from her wages.

Alimony of $$10,000$ received from her former husband, Omar Guzman; divorce was finalized on December $2,2013,$ and no changes have been made to the divorce decree since that time.

Interest income of $$800$ on City of Boca Raton bonds.

Denise made estimated Federal tax payments of $$2,000.$

Use the IRS$$s Sales Tax Deduction calculator to determine Denise$$s available sales tax deduction for $2023($apps$.$irs.gov$/$app$/$stdc$/$general$/).$

Property taxes on her residence of $$3,200.$

Charitable contribution of $$2,500$ to her alma mater, Citrus State College.

On November $1,2023,$ Denise was involved in an automobile accident. At the time of the accident, her automobile$$s FMV was $$45,000.$ After the accident, the automobile$$s FMV was $$38,000.$ Denise acquired the car on May $2,2022,$ at a cost of $$52,000.$ Denise$$s car was covered by insurance, but, because the policy had a $$5,000$ deduction clause, Denise decided not to file a claim for the damage.

Part $1$Tax Computation

Compute Denise Lopez$$s $2023$ Federal income tax payable $($or refund due$),$ and complete her $2023$ Federal tax return using appropriate forms and schedules. Suggested software: ProConnect Tax.

Part $2$Tax Planning

In $2024,$ Denise plans to continue her job with Legal Services, Inc. As a result, items a$,$ d$,$ and l will recur in $2024.$ Denise plans to continue her typing services business $($refer to item b$)$ and expects gross receipts of $$34,000.$ She projects that all business expenses $($refer to item h$)$ will increase by $10\%,$ except for office rent, which, under the terms of her lease, will remain the same as in $2023.$ Items e$,$ f$,$ g$,$ j$,$ k$,$ and s will not recur in $2024.$ Items c$,$ i$,$ m$,$ n$,$ p$,$ q$,$ and r will be approximately the same as in $2023.$

Based on this information, Denise would like you to provide a tentative computation of her $2024$ taxable income. Prepare a memo for her tax files that details this computation.