TAX CASE: ACCT 3350 FALL 2014
Thomas E. and Mary R. Hill (ages 42 and 41) are married and live at 5555 Orange Blossom Trail, Dallas, TX 75080. Thomas is the regional manager for a gaming company (MGM), while Mary is a self-employed CPA. They file a joint return and use the cash basis for tax purposes.
1. Thomas receives a yearly salary of $90,000, 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. Thomas's bonus is $15,000 for 2013 (received in 2014) and $33,000 for 2013 (received in 2013). Thomas participates in his employer's group health insurance plan to which he contributed $6,100 in 2013 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. Thomas did not contribute to the plan in 2013. The company provides an office for Thomas's use that is located at Suite 419, 110 Palm Boulevard, Dallas, TX.
2. Thomas's employment-related expenses (which MGM reimbursed Thomas a total of $9,000) for 2013 are as follows:
Airfare $5,000
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, Thomas was caught in several small-town (Palmer Texas) speed traps and paid fines of $750.
3: Mary 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 2013 are summarized below:
Supplies $4,000
Legal $10,000
CPA license fee $1,500
Subscriptions to professional journals $7,500
Dues to professional organizations $250
In addition, she drove the family Acura (purchased on June 7, 2009) 6,000 miles on her job assignments. Regarding the Acura, Mary uses the automatic mileage method for tax deduction purposes. She drove the car for 30,000 miles during the year.
4. One of Mary's clients was interested in building a shopping center on a tract of land she owned in Levy County. Mary inherited the property from her aunt when she died on June 6, 1990. At that time, the land was worth $400,000. It has since been rezoned for commercial use and has a current value of $1,000,000. On February 10, 2013, the following exchange took place in the office of an attorney: Mary exchanged the Levy parcel for a similar tract in Dixie County (worth $700,000) and $300,000 in cash.
5. Home office: Mary uses 200 sq. feet of a 2,000 sq. foot house as her office. The office has a door and used to be a bedroom. A few times a year when the Hill's have guests the guests spend the night in the room on a hide a bed sofa. The house has the following expenses:
Ad valorem taxes on personal residence $7,000
Interest on home mortgage $15,000
Repairs to roof $2,000
Utilities $3,000
6. On September 2, 2013, Mary 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, Mary received cash of $100,000 and four notes of$100,000 each payable at one-year intervals with simple interest of 8% provided for. To the extent allowed, Mary wants to defer recognition of gain as long as possible.
7. On August 5, 2008, Thomas purchased 5,000 shares of Groupon common stock for $10 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 2013, Groupon was taken over by creditors, and its stock became worthless.
8. Besides the items previously noted, the Hill's had the following receipts for 2013:
Mary's consulting income $50,000
Interest income:
City of Dallas bonds $8,000
Ford Motor Company bonds $9,000
Loan repayment by Sarah Duval $3,000
Cash gifts from Mary's parents $5,000
Federal income tax refund (2012 return) $9,000
Mary's consulting income includes a $7,000 payment for work she did in 2012 (collected in 2013) but does not include $15,000 she billed in November for work performed in 2013 (collected in 2014). One client who has owed her $6,000 for work done in 2013 was convicted of arson in 2013 and is serving time in state prison. Mary feels certain that she will never collect the $6,000.
9. In addition to the items already mentioned, the Hill's had the following expenditures
for 2013:
Life insurance premiums $4,000
Medical and dental expense not covered by insurance $14,000
Taxes:
State and local sales taxes $7,000
Contributions-
Salvation Army (Tampa branch) $500
Texas governor's election campaign fund $1,000
During 2013, the Hill's had gambling winnings of $9,200 and losses of $1,200-all supported by records.
10. The Hill's maintain a household that includes two children, Anna Marie (age 18) and Tyler (age 17). Anna Marie graduated from high school on May 18, 2013, and is undecided about college. Tyler is a junior in high school. Anna Marie is an accomplished vocalist and during 2013 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.
11. Thomas's Form W-2 from MGM shows $35,000 withheld for Federal income tax. The Hill's also have made 4 quarterly income tax payments of $9,000 each. Mary's professional activity code is 541310. Relevant Social Security numbers are noted below:
Social Security
Name Number Birth Date
Thomas J. Hill 111-11-1111 07/01/1968
Mary N. Hill 123-45-6781 03/20/1969
Anna Marie Hill 123-45-6784 05/02/1995
Tyler Hill 123-45-6788 06/30/1996
REQUIREMENTS
Prepare an income tax return (with appropriate schedules) for the Hill's for 2013. Make necessary assumptions for facts not stated in the problem. If a refund results, the taxpayers want it sent to them. The Hill's do not wish to contribute to the Presidential Election Campaign Fund. In the past several years, the Hill's have itemized their deductions from AGI (have not claimed the standard