Diana and Ryan Workman were married on January 1 of last year. Diana has an eight-year-old son, Jorge, from her previous marriage. Ryan works as a computer programmer at Datafile Inc. (DI) earning a salary of $96,000. Diana is self-employed and runs a day care center. The Workmans reported the following financial information pertaining to their activities during the current year. a) Ryan earned a $96,000 salary for the year. b) Ryan borrowed $12,000 from DI to purchase a car. DI charged him 2 percent interest ($240) on the loan, which Ryan paid on December 31. DI would have charged Ryan $720 if interest had been calculated at the applicable federal interest rate. c) Diana received $2,000 in alimony and $4,500 in child support payments from her former husband. They divorced in 2016. d) Diana won a $900 cash prize at her church-sponsored Bingo game. e) The Workmans received $500 of interest from corporate bonds and $250 of interest from a municipal bond. Diana owned these bonds before she married Ryan. f) The couple bought 50 shares of ABC Inc. stock for $40 per share on July 2. The stock was worth $47 a share on December 31. The stock paid a dividend of $1.00 per share on December 1. g) Diana’s father passed away on April 14. She inherited cash of $50,000 from her father and his baseball card collection, valued at $2,000. As the beneficiary of her father’s life insurance policy, Diana also received $150,000. h) The couple spent a weekend in Atlantic City in November and came home with gross gambling winnings of $1,200. i) Ryan received $400 cash for reaching 10 years of continuous service at DI. j) Ryan was hit and injured by a drunk driver while crossing a street at a crosswalk. He was unable to work for a month. He received $6,000 from his disability insurance. DI paid the premiums for Ryan, but it reported the amount of the premiums as compensation to Ryan on his year-end W-2. k) The drunk driver who hit Ryan in part (j) was required to pay his $2,000 medical costs: $1,500 for the emotional trauma he suffered from the accident, and $5,000 for punitive damages. l) For meeting his performance goals this year, Ryan was informed on December 27 that he would receive a $5,000 year-end bonus. DI (located in Houston, Texas) mailed Ryan’s bonus check from its payroll processing center (Tampa, Florida) on December 28. Ryan didn’t receive the check at his home until January 2. m) Diana is a 10 percent owner of MNO Inc., a Subchapter S corporation. The company reported ordinary business income for the year of $92,000. Diana acquired the MNO stock two years ago. n) Diana’s day care business collected $35,000 in revenues. In addition, customers owed her $3,000 at year-end. During the year, Diana spent $5,500 for supplies, $1,500 for utilities, $15,000 for rent, and $500 for miscellaneous expenses. One customer gave her use of his vacation home for a week (worth $2,500) in exchange for Diana allowing his child to attend the day care center free of charge. Diana accounts for her business activities using the cash method of accounting. o) Ryan’s employer pays the couple’s annual health insurance premiums of $5,500 for a qualified plan. Required: a) Assuming the Workmans file a joint tax return, determine their gross income. b) Using your answer in part (a), complete page 2 of Form 1040 through line 6 and Schedule 1 for the Workmans. c) Assuming the Workmans live in California, a community property state, and that Diana and Ryan file separately, what is Ryan’s gross income? d) Using your answer in part (c), complete page 2 of Form 1040 through line 6 and Schedule 1 for Ryan Workman.

John Benson, age 40, is single. His Social Security number is 111-11-1111, and he resides at 150 Highway 51, Tangipahoa, LA 70465. John has a 5-year-old child, Kendra, who lives with her mother, Katy. As a result of his divorce in 2016, John pays alimony of 6,000 per year to Katy and child support of 12,000. The 12,000 of child support covers 65% of Katys costs of rearing Kendra. Kendras Social Security number is 123-45-6789, and Katys is 123-45-6788. Johns mother, Sally, lived with him until her death in early September 2019. He incurred and paid medical expenses for her of 15,588 and other support payments of 11,000. Sallys only sources of income were 5,500 of interest income on certificates of deposit and 5,600 of Social Security benefits, which she spent on her medical expenses and on maintenance of Johns household. Sallys Social Security number was 123-45-6787. John is employed by the Highway Department of the State of Louisiana in an executive position. His salary is 95,000. The appropriate amounts of Social Security tax and Medicare tax were withheld. In addition, 9,500 was withheld for Federal income taxes and 4,000 was withheld for state income taxes. In addition to his salary, Johns employer provides him with the following fringe benefits. Group term life insurance with a maturity value of 95,000; the cost of the premiums for the employer was 295. Group health insurance plan; Johns employer paid premiums of 5,800 for his coverage. The plan paid 2,600 for Johns medical expenses during the year. Upon the death of his aunt Josie in December 2018, John, her only recognized heir, inherited the following assets. Three months prior to her death, Josie gave John a mountain cabin. Her adjusted basis for the mountain cabin was 120,000, and the fair market value was 195,000. No gift taxes were paid. During the year, John reported the following transactions. On February 1, 2019, he sold for 45,000 Microsoft stock that he inherited from his father four years ago. His fathers adjusted basis was 49,000, and the fair market value at the date of the fathers death was 41,000. The car John inherited from Josie was destroyed in a wreck on October 1, 2019. He had loaned the car to Katy to use for a two-week period while the engine in her car was being replaced. Fortunately, neither Katy nor Kendra was injured. John received insurance proceeds of 16,000, the fair market value of the car on October 1, 2019. On December 28, 2019, John sold the 300 acres of land to his brother, James, for its fair market value of 160,000. James planned on using the land for his dairy farm. Other sources of income for John are: Potential itemized deductions for John, in addition to items already mentioned, are: Part 1Tax Computation Compute Johns net tax payable or refund due for 2019. Part 2Tax Planning Assume that rather than selling the land to James, John is considering leasing it to him for 12,000 annually with the lease beginning on October 1, 2019. James would prepay the lease payments through December 31, 2019. Thereafter, he would make monthly lease payments at the beginning of each month. What effect would this have on Johns 2019 tax liability? What potential problem might John encounter? Write a letter to John in which you advise him of the tax consequences of leasing versus selling. Also prepare a memo addressing these issues for the tax files.

Ellie purchases an insurance policy on her life and names her brother, Jason, as the beneficiary. Ellie pays 32,000 in premiums for the policy during her life. When she dies, Jason collects the insurance proceeds of 500,000. As a result, how much gross income does Jason report?

Jed, age 55, is married with no children. During 2019, Jed had the following income and expense items: a. Three years ago, Jed loaned a friend 10,000 to help him purchase a new car. In June of the current year, Jed learned that his friend had been declared bankrupt and had left the country. There is no possibility that Jed will ever collect any of the 10,000. b. In April of last year, Jed purchased some stock for 5,000. In March of the current year, the company was declared bankrupt, and Jed was notified that his shares of stock were worthless. c. Several years ago Jed purchased some 1244 stock for 120,000, This year he sold the stock for 30,000. d. In July of this year, Jed sold some land that he had held for two years for 60,000. He had originally paid 42,000 for the land. e. Jed received 40,000 of interest income from State of Minnesota bonds. f. In September, Jeds home was damaged by an earthquake; Jeds county was declared a Federal disaster area by the President. Jeds basis in his home was 430,000. The value of the home immediately before the quake was 610,000. After the quake, the home was worth 540,000. Because earthquake damage was an exclusion on Jeds homeowners insurance policy, he received no insurance recovery. g. Jed received a salary of 80,000. h. Jed paid home mortgage interest of 14,000. i. If Jed files a joint return for 2019, determine his NOL. for the year.

Jerry and his wife, Joanie, own a successful concrete company that is organized as a corporation. Jerry spends all his time running the company, whereas Joanie has a full-time job as a legal secretary. The corporation pays Joanie a salary of 45,000 a year as vice president.

Paul Barrone is a graduate student at State University. His 10-year-old son, Jamie, lives with him, and Paul is Jamies sole support. Pauls wife died in 2018, and Paul has not remarried. Paul received 320,000 of life insurance proceeds (related to his wifes death) in early 2019 and immediately invested the entire amount as shown below. Paul had 42,000 of taxable graduate assistant earnings from State University and received a 10,000 scholarship. He used 8,000 of the scholarship to pay his tuition and fees for the year and 2,000 for Jamies day care. Jamie attended Little Kids Daycare Center, a state-certified child care facility. Paul received a statement related to the Green bonds saying that there was 45 of original issue discount amortization during 2019. Paul maintains the receipts for the sales taxes he paid of 735. Paul lives at 1610 Cherry Lane, Bradenton, FL 34212, and his Social Security number is 111-11-1111. Jamies Social Security number is 123-45-6789. The university withheld 2,000 of Federal income tax from Pauls salary. Paul is not itemizing his deductions. Part 1Tax Computation Compute Pauls lowest tax liability for 2019. Part 2Tax Planning Paul is concerned because the Green bonds were worth only 18,000 at the end of 2019, 5,000 less than he paid for them. He is an inexperienced investor and wants to know if this 5,000 is deductible. The bonds had original issue discount of 2,000 when he purchased them, and he is curious about how that affects his investment in the bonds. The bonds had 20 years left to maturity when he purchased them. Draft a brief letter to Paul explaining how to handle these items. Also prepare a memo for Pauls tax file.

Sandy and John Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2022, Sandy worked as a computer technician at a local university earning a salary of $153,700, and John worked part time as a receptionist for a law firm earning a salary of $30,700. Sandy also does some Web design work on the side and reported revenues of $5,700 and associated expenses of $1,600. The Fergusons received $1,140 in qualified dividends and a $285 refund of their state income taxes. The Fergusons always itemize their deductions, get the full benefit of deducting the entire amount of state income taxes paid, and their itemized deductions were well over the standard deduction amount last year. Use Exhibit 8-10, Tax Rate Schedule, Dividends and Capital Gains Tax Rates, 2022 AMT exemption for reference. The Fergusons reported making the following payments during the year: • State income taxes of $4,825. Federal tax withholding of $21,000. • Alimony payments to Sandy's former…

Sandy and John Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2022, Sandy worked as a computer technician at a local university earning a salary of $152,500, and John worked part time as a receptionist for a law firm earning a salary of $29,500. Sandy also does some Web design work on the side and reported revenues of $4,500 and associated expenses of $1,000. The Fergusons received $900 in qualified dividends and a $225 refund of their state income taxes. The Fergusons always itemize their deductions, get the full benefit of deducting the entire amount of state income taxes paid, and their itemized deductions were well over the standard deduction amount last year. Use Exhibit 8-10, Tax Rate Schedule, Dividends and Capital Gains Tax Rates, 2022 AMT exemption for reference. The Fergusons reported making the following payments during the year: State income taxes of $4,525. Federal tax withholding of $21,000. Alimony payments to Sandy's former spouse…

Sandy and John Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2022, Sandy worked as a computer technician at a local university earning a salary of $152,600, and John worked part time as a receptionist for a law firm earning a salary of $29,600. Sandy also does some Web design work on the side and reported revenues of $4,600 and associated expenses of $1,050. The Fergusons received $920 in qualified dividends and a $230 refund of their state income taxes. The Fergusons always itemize their deductions, get the full benefit of deducting the entire amount of state income taxes paid, and their itemized deductions were well over the standard deduction amount last year. Use Exhibit 8-10, Tax Rate Schedule, Dividends and Capital Gains Tax Rates, 2022 AMT exemption for reference. The Fergusons reported making the following payments during the year: State income taxes of $4,550. Federal tax withholding of $21,000. Alimony payments to Sandy's former spouse…

Sandy and John Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2022, Sandy worked as a computer technician at a local university earning a salary of $152,100, and John worked part time as a receptionist for a law firm earning a salary of $29,100. Sandy also does some Web design work on the side and reported revenues of $4,100 and associated expenses of $800. The Fergusons received $820 in qualified dividends and a $205 refund of their state income taxes. The Fergusons always itemize their deductions, and their itemized deductions were well over the standard deduction amount last year. Use Exhibit 8-10, Tax Rate Schedule, Dividends and Capital Gains Tax Rates, 2022 AMT exemption for reference. The Fergusons reported making the following payments during the year: State income taxes of $4,425. Federal tax withholding of $21,000. Alimony payments to Sandy's former spouse of $10,050 (divorced 12/31/2014). Child support payments for Sandy's child with…

Sandy and John Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2022, Sandy worked as a computer technician at a local university, earning a salary of $152,200, and John worked part time as a receptionist for a law firm, earning a salary of $29,200. Sandy also does some Web design work on the side and reported revenues of $4,200 and associated expenses of $850. The Fergusons received $800 in qualified dividends and a $210 refund of their state income taxes. The Fergusons always itemize their deductions, get the full benefit of deducting the entire amount of state income taxes paid, and their itemized deductions were well over the standard deduction amount last year. Use Exhibit 8-10. Tax Rate Schedule, Dividends and Capital Gains Tax Rates, 2022 AMT exemption for reference. The Fergusons reported making the following payments during the year: State income taxes of $4,450. Federal tax withholding of $21,000. Alimony payments to Sandy's former spouse…

Sandy and John Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2023, Sandy worked as a computer technician at a local university earning a salary of $153,500, and John worked part time as a receptionist for a law firm, earning a salary of $30,500. Sandy also does some Web design work on the side and reported revenues of $5,500 and associated expenses of $1,500. The Fergusons received $1,100 in qualified dividends and a $275 refund of their state income taxes. The Fergusons always itemize their deductions, get the full benefit of deducting the entire amount of state income taxes paid, and their itemized deductions were well over the standard deduction amount last year. Use Exhibit 8-10, Tax Rate Schedule, Dividends and Capital Gains Tax Rates, 2023 AMT exemption for reference. The Fergusons reported making the following payments during the year: • State income taxes of $4,775. Federal tax withholding of $21,000. • Alimony payments to Sandy's former…

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