Joe (age 30) and Jill (age 27) Smith have brought you the following information regarding their income and expenses for the year. They are not sure which of these items must be used to calculate taxable income:
Income:
Joe's salary (sales) $27,200
Jill's wages (accounting clerk) $18,200
Insurance reimbursement (for repairs from an auto accident) $ 500
Gift from Uncle Mark $ 2,000
Interest income from Lodge State Bank $ 640
Federal income taxes withheld:
Joe's salary $ 3,300
Jill's wages $ 1,850
Expenses:
Client entertainment and meals $ 2,300
Professional dues $ 800
Business travel (includes $500 of meals) $ 1,500
Business journal subscriptions $ 300
Country club annual dues $ 1,200
Itemized deductions:
Home mortgage interest $ 8,400
State income taxes $ 1,900
The Smiths support Joe's parents, Nick and Jessica (social security numbers: 123-45-6777 and 144-66-3838, respectively) Smith, who live in their own home. Joe and Jill live at 1919 Park Ave, Bluebell, ME 04104, and their social security numbers are 343-44-4648 (Joe) and 123-34-4448 (Jill). Joe's parents meet both the support test and the gross income test.
4.Include a 1-page narrative of tax planning options that the Smiths should consider.
1.Are there areas in which the Smiths could reduce their taxable income?
2.What possibilities exist?
3.Conclude the narrative with a final paragraph describing the importance of individual income tax accounting rules and their impact on tax planning considerations.