Accounting Tax Return Problem

Tax Return Problem Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 2014. Alfred and Beulah will file a joint return for 2016. Alfred’s Social Security number is 111-11-1112. Beulah’s Social Security number is 123-45-6789, and she adopted “Old” as her married name. They live at 211 Brickstone Drive, Atlanta, GA 30304.

Alfred was divorced from Sarah Old in March 2014. Under the divorce agreement, Alfred is to pay Sarah $1,250 per month for the next 10 years or until Sarah’s death, whichever occurs first. Alfred pays Sarah $15,000 in 2017. In addition, in January 2017, Alfred pays Sarah $50,000, which is designated as being for her share of the marital property. Also, Alfred is responsible for all prior years’ income taxes. Sarah’s Social Security number is 123-45-6788.

Alfred’s salary for 2017 is $150,000, and his employer, Cherry, Inc. (Federal I.D. No. 98-7654321), provides him with group term life insurance equal to twice his annual salary. His employer withheld $24,900 for Federal income taxes and $8,000 for state income taxes. The proper amounts were withheld for FICA taxes.

Beulah recently graduated from law school and is employed by Legal Aid Society, Inc. (Federal I.D. No. 11-1111111), as a public defender. She receives a salary of $40,000 in 2017. Her employer withheld $7,500 for Federal income taxes and $2,400 for state income taxes. The proper amounts were withheld for FICA taxes.

Beulah has $2,500 in qualified dividends on Yellow Corporation stock she inherited. Alfred and Beulah receive a $1,900 refund on their 2016 state income taxes. They itemized deductions on their 2016 Federal income tax return (total of $15,000). Alfred and Beulah pay $4,500 interest and $1,450 property taxes on their personal residence in 2017. Their charitable contributions total $2,400 (all to their church). They paid sales taxes of $1,400, for which they maintain the receipts. Both spouses had health insurance for all months of 2017 and do not want to contribute to the Presidential Election Campaign.

Compute the Olds’ net tax payable (or refund due) for 2017 and 2018. You will need Form 1040 and Schedules A and B. Suggested software: Intuit for 2017. You are also required to compute Cranes tax liability under tax reform for 2018 assuming the return is for 2018.This can be done in excel file attached.

Make sure you prepare the federal tax return with all the required schedules and statements that would be filed with the IRS. Do not prepare the state return.

You will also need to document all your assumptions of WHY you treated each item in the problem as taxable, non taxable, deductible or not deductible for 2017 and 2018. Failure to provide explanations will result in a reduction of 25 points on the assignment. Lastly, the Intuit 2017 return is prepared under law prior to Tax Reform. (the word document is most important part!!!)