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PART 1: Project Information: You are a manager at a local accounting firm, and Kate and Sam Smith are your clients. It is the end of the year, and they have come to ask your advice on some tax planning strategies, as well as help preparing their tax return. Week 1 Writing Assignment Part 1: This project is split into four (4) parts with one (1) part due each week of the course. Based on your readings, use of technology, research of literature, and other sources do the following: Week 1: Early next year, Kate and Sam Smith will inherit $200,000. Kate and Sam are trying to decide how to invest this money and have asked you, their tax accountant, to look into some potential investment opportunities. Please see the attached excel spreadsheet, where you will complete the annual after-tax rates of return column for each investment opportunity you have identified. Include a paragraph on the spreadsheet where you list the three basic tax planning strategies, and the features of taxation each of them exploits. Due Dates: This project is completed over several weeks so be sure to follow the due dates carefully. Grading Rubric: Please refer to the grading rubric specific requirements. Criteria Points Description Content/Use of Software 0-85 Thoroughness: The software document contains related material for the topic assigned. Appropriate formulas, functions, commands, and other features of the assigned software are used to obtain accurate solutions. The report(s) submitted from the software demonstrates an understanding of the use of the software. Timeliness: Assignment submitted by the assigned due date. Formatting 0-15 The software documents are logically organized and formatted properly for a professional look. PART 2: Week 2: It is the end of the tax-year, and Kate and Sam Smith need your help completing pages 1 and 2 of Schedule 1040 and Schedule A. Please see the attached document with the information you will need to complete these forms and submit a draft return. Tax forms can be obtained from the IRS website. **Be sure you save the form to your computer BEFORE you fill in any information or your data will be lost when you save the file with the data entered. Once saved, access the saved form from your computer, not the web browser.** Due Dates: This project is completed over several weeks so be sure to follow the due dates carefully. Grading Rubric: Please refer to the grading rubric specific requirements. Criteria Points Description Content/Use of Software 0-85 Thoroughness: The software document contains related material for the topic assigned. Appropriate formulas, functions, commands, and other features of the assigned software are used to obtain accurate solutions. The report(s) submitted from the software demonstrates an understanding of the use of the software. Timeliness: Assignment submitted by the assigned due date. Formatting 0-15 The software documents are logically organized and formatted properly for a professional look. WEEK 3: Write a 4-page letter to Kate and Sam Smith which: a. Walks them through their current year tax return. i. Detail which expenses they incurred that were nondeductible for tax purposes and explain why. The Smiths have always itemized deductions instead of taking the standard deduction on their tax return. Explain how this may no longer be the best tax strategy due to changes in tax law under the TCJA. ii. Regarding the investment opportunities you calculated in week 1, explain: 1. Which investment opportunity you would recommend. 2. What the conversion tax planning strategy is, and which of these investments employ this strategy. 3. How “implicit taxes” may limit the benefits of the conversion strategy. iii. Kate and Sam are considering purchasing a vacation home.They plan on spending several months each year vacationing in the home and renting out the property the rest of the year. Provide an overview of the key tax considerations they should take into account when making this decision. SMITH TAX RETURN INFORMATION: It is the end of the tax-year, and Kate and Sam Smith need your help completing pages 1 and 2 of Schedule 1040 and Schedule A. Kate Smith (SS # 555-55-5555) Sam Smith (SS# 444-44-4444) 33 Oak Street Drive San Diego, California 91911 The taxpayers are 52 years old, file Married Filing Jointly, and have two children: Elizabeth Smith (SS # 333-33-3333) Jonathan Smith (SS# 222-22-2222). For this problem, assume their gross income is $185,300. This year Kate got a new job, and the Smiths moved to a new city. The new job was located within the same state about 650 miles away from their old house. Before the move, the family went on a house hunting trip that cost them $700. They also hired a moving company for $2,800. On their way to their new house they spent $50 on meals, and $75 on a hotel room. They also stopped by an amusement park and spent $80 on tickets for the day. The Smiths paid $12,000 in interest on their home mortgage this year, and $2,500 in real estate taxes on their new home. They also paid $1,200 in personal credit card interest, and Kate paid $850 in interest on student loans. Sam was hospitalized with a heart condition this year, which required him to undergo surgery. The Smiths incurred $25,000 in medical expenses as a result of Sam’s illness. Of this amount, $18,000 was reimbursed by the insurance company. During the year the Smiths contributed $1,500 cash to the Salvation Army. Before their move, the family donated clothes and furniture that they had purchased for $650 to Goodwill. At the time of donation the items were worth $300. They also gave some old baby furniture to their friends that was valued at $150. Sam Smith paid $200 in union dues for the year, and the family pays $250 for tax return preparation services. Answer Key – After TCJA Taxable income is $161,300, computed as follows: Gross Income$ 185,300 AGI $185,300 Itemized Deductions: Medical Expenses0 Mortgage Interest12,000 Real Estate Taxes2,500 Charitable Contributions1,800 16,300** Standard Deduction: Married Filing Jointly$24,000 Taxable income$ 161,300 Notes: 1.None of the moving expenses are deductible. 2.Student loan interest is not deductible because the Smith’s AGI exceeds the threshold amount of income. 3.Personal credit card interest is not deductible. 4.Medical expenses do not exceed the floor limitation of 10 percent of AGI so are non-deductible. 5.The Smith’s can deduct the $1,500 cash donation, and the $300 of items contributed to Goodwill. They cannot deduct the furniture given to their friends. 6. Union dues of $200 and tax return preparation fees of $250 are no longer deductible. ** Total itemized deductions are not as high as the standard deduction. Therefore, this year the client should take the standard deduction. Sheet1 Name: Kate and Sam Smith Investment Opportunities Here are the three different investment opportunities you have identified for the Smiths, all with the same amount of risk: 1.Taxable corporate bonds that pay 4.75 percent interest annually. 2.A high-dividend stock that pays 4 percent dividends annually but has no appreciation potential. 3.Tax-exempt municipal bonds that pay 3.5 percent annually. Kate and Sam have a marginal tax rate of 30 percent (capital gains rate of 15 percent). Investment ChoiceComputationAfter-Tax Return 1.Corporate Bond 2.High-dividend stock 3.Municipal bond Here are the three basic tax planning strategies, and the features of taxation each of them exploits: