George (445-42-5432) and Christina Campbell (993-43-9878) are married with two children, Victoria, 7, and Brad, 2. Victoria and Brad’s social security numbers are 446-75-4389 and 449-63-4172, respectively. They live at 10137 Briar Creek Lane, Tulsa, OK 74105. George is the district sales representative for Red Duck, a manufacturer of sportswear. His principal job is to solicit orders of the company’s products from department stores in his territory, which includes Oklahoma and Arkansas. The company provides no office for him. Christina is a maker of fine quilts which she sells in selected shops in the surrounding area. The couple uses the cash method of accounting and reports on the calendar year. Their records for the year reveal the following information:
1. George received a salary of $65,000 and a bonus of $5,000. His employer withheld Federal income taxes of $5,000 and the proper amount of FICA taxes.
2. Christina’s income and expenses of her quilting business, Crazy Quilts, include
Quilt sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,000
Costs of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ….600
Telephone (long-distance calls) . . . . . . . . . . . . . . . . . . . . . . . . . . . . …100
Christina makes all of the quilts at home in a separate room that is used exclusively for her work. This room represents 10 percent of the total square footage of their home. Expenses related to operating the entire home include utilities, $2,000; and insurance, $500. Depreciation attributable solely to the home office is $800.
Christina computes her deduction relating to use of her car using actual expenses, which included gas and oil, $900; insurance, $300; and repairs, $100. The car is fully depreciated. Her daily diary revealed that, for the year, she had driven the car a total of 20,000 miles, including the following trips:
Trip Description Miles
Home to sales outlets and return . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Between sales outlets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ..2,000
Miscellaneous personal trips. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .. 8,000
3. George incurs substantial expenses for travel and entertainment, including meals and lodging. He is not reimbursed for these expenses. This is the second year that George has used the standard mileage rate for computing his automobile expenses. During the year he drove 50,000 miles; 40,000 of these were directly related to business. Expenses for parking and tolls directly related to business were $90. Total meal and lodging costs for days that he was out of town overnight were $600 and $1,200, respectively. Entertainment expenses were $400.
4. This is George’s second marriage. He has one child, Ted (age 11), from his first marriage to Hazel, who has custody of the child. He provides more than 50 percent of the child’s support. The 2007 divorce agreement between George and Hazel provides that George is entitled to the exemption for Ted. George paid Hazel $4,800 during the year, $1,600 as alimony and the remainder as child support. Ted’s Social Security number is 122-23-3221.
5. The couple’s other income and expenses included the following:
Dividends (IBM stock owned separately by George). . . . . . . . . . . . . $ 400
Interest on redeemed Treasury bills . . . . . . . . . . . . . . . . . . . . . ……. . . 700
Interest on City of Reno bonds . . . . . . . . . . . . . . . . . . . . . . .. . ….. . ….566
Interest paid on home mortgage . . . . . . . . . . . . . . . . . . . . . .. . . … 10,000
Real property taxes on home. . . . . . . . . . . . . . . . . . . . . . . . . . ……. . .. 900
Safety deposit box fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ……. . . ….50
State income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . …4,000
6. Both taxpayers elect to give to the Presidential campaign fund.
Compute the couple’s tax liability for the year. If forms are used, complete
Form 1040 for the year, including Schedules A, B, C, SE, and Form 2106. Ignore any alternative minimum tax.
"Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!"
