Accounting Taxes problems
A. Data Carlos Cruz Rivera and Jennifer Smith Johnson, married to each other, (will be referred as “the couple”) have the following information related to their tax liability for the year 2019. B. Personal Information Carlos Cruz Rivera Social Security 584-44-3322 Date of BirthMarch 15 1974 Profession entrepreneur Jennifer Smith Johnson Social Security 317-15-7321 Date of BirthAugust 17 1976 Profession Professor Physical and postal address: 3612 Scotch Haven Dr, Rosslyn, VA 22181 Dependents: none C. INCOME (Except Businesses and Conduit Entities) The couple generated the following income during 2019: 1. Jennifer generated $ 25,000 in wages as a part-time teacher at a local university. The University made the following withholdings at source for tax on Income: Federal $ 2,500. In addition, it withheld $ 1,550 for social security and $ 363 for Medicare. 2. Sale of 1,000 shares of Latitude Entertainment Corporation acquired as an investment a. Sale Price $ 20,000 b. Sale DateAugust 1,2019 c. Cost of Shares$ 15,000 d. Date of PurchaseJuly 15, 2015 e. Selling Cost$100 3. Sale of bonds of the Commonwealth of Puerto Rico: a. Sale Price $ 18,000 b. Sale DateFebruary 1,2019 c. Cost of Shares$23,000 d. Date of PurchaseJuly 1, 2006 e. Selling Cost$200 4. Dividends a. Magic Sport Corporation (qualified dividends) $10,000 b. Barcelona Fountain Corporation (non-qualified dividends) $3,000 5. Interests a. Virginia State Bonds1,000 b. Vista Steel Corporation Bonds2,000 D. REVENUE (BUSINESS AND DUTY ENTITIES) 1. Rental Activity Jennifer has an apartment that she rented throughout 2019 with a lease fee $ 500 per month. The expenses incurred in the operations are detailed below: a. (property taxes)2800 b. Insurance1,500 c. Maintenence 465 d. Depreciation 5,635 2. West Virginia Windows Partnership The couple has a 25% participation in West Virginia Windows Partnership and its participation is passive. During 2019, the entity reported in Schedule K (Schedule K) of the Form 1065 (U.S. Return of Partnership Income) the following information: a. Ordinary Business Income16,000 b. Interest Revenue5,000 The entity distributed to the couple $ 10,000 during 2019. 3. Excel Beauty Interior Designer Carlos owns Excel Beauty Interior Designer, a self-employed business dedicated to providing interior design, residential and commercial services in the United States. Below are the results of its operations for taxable year 2019 under the cash method (Cash Basis): Income Statement December 31, 2019 Service revenues600,000 Expenses: Salaries · Employee 1 30,000 · Employee 220,000 · Employee 38,000 · Employee 4 5,000 Federal payroll tax expense X Rent 52,0001 Professional Services26,0002 Public services (water, electricity, internet)19,500 Telephone12,000 Materials8,000 Miscellaneous10,000 Interests7,000 Government imposed penalty5,000 Employee health insurance18,000 Health Insurance Carlos6,000 Publicity12,000 Food16,000 Entertainment15,000 1 The monthly rental fee is $ 2,000 and was duly paid until September 30, 2019. In October 1, 2019 the taxpayer paid the landlord $ 30,000 for the rent from October 2019 to December 2020. 2 The $ 26,000 is distributed as follows: (a) $ 10,000 incurred in 2018 and paid on January 31, 2019; (b) $ 9,000 incurred and paid in 2019; and (c) $ 7,000 incurred in January 2020 and paid on December 30, 2019. E. Property Transactions 1. Donation: Uncle Samuel gave Carlos a car on February 1, 2019. Samuel bought the car in 2012 for $ 25,000. As of the date of the donation, it has a market value of $ 12,000. However, Carlos preferred to sell the car on October 20, 2019 in the amount of $ 9,000 and save the funds for an emergency. F. PERSONAL DISBURSEMENTS 1. Interests: a. Mortgage: Primary Residence in Virginia14,000 b. Mortgage: Secondary Residence in Miami (The couple lived in this property for 30 days during 2019 and it wasn’t rented)6,500 The mortgage loans for each residence do not exceed $ 500,000. 2. Contributions: a. Property tax3,900 3. IRA and Certificates of Deposits a. Both spouses contributed the maximum amount allowed by law to their IRA account for the year 2019. Neither spouse participates in the retirement plan of their employers b. During the premature withdrawal of a Certificate of Deposits, the bank withheld the amount of $ 500 as a penalty. 4. Other Disbursements: a. Carlos made four payments of $ 5,000 each to the IRS for the tax on estimated income applicable to taxable year 2019 b. Carlos made four payments of $ 2,000 each to the IRS for the contribution for the Self-Employment Tax applicable to tax year 2019. QUESTIONS 1. Calculate the profit or loss for each sale transaction and / or disposition of property that the Taxpayer made during the taxable year and determine its classification (character)3. 2. For self-employed business Excel Beauty Interior Designer: a. Compute Federal Payroll Tax Expenditure for 2019. Assume that the State of Virginia, where the business is located, imposes 5.4% state unemployment. b. Prepare a table to present the conversion of the Statement of Income and Expenses of “Book Basis to Tax Basis. 3. For rental activity determine rental income or loss 4. Compute total income (Item reported on Form 1040, Line 7b) 5. Compute Adjusted Gross Income 6. Determine deductions from Adjusted Gross Income (from AGI) and Net Income Subject to Contribution. Ignore the "Qualified Business Income Deduction". 7. Calculate Income tax and Self Employment Tax 8. Determine each of the applicable tax credits and compute the tax payable or refund. 9. Prepare: a. The “Schedule 1: Additional Income and Adjustments to Income”, corresponding to the Form 1040 of 2019. (It has only one page) b. Pages one (1) and two (2) of the 2019 Form 1040 (US Individual Income Tax Return). 3 Classify each gain or loss between a capital gain or loss or ordinary income INSTRUCTIONS 1. Work must be done on word 2. Tax forms can be located on irs.gov