ACCT 5400

GROUP PROJECT

TAX RETURN PROBLEM #1

The following is a tax return problem for 2011. The assignment is to manually prepare the client’sfederal income tax return (Form 1040 and appropriate schedules) for this year. You are notrequired to complete a state tax return. Necessary tax forms may be obtained from the library, theIRS, or from the IRS’ Internet location (www.irs.gov). All information necessary to complete thisreturn is contained in the following information supplied by your client. Care should be taken tocompute the tax correctly and not let your client’s misconceptions of the tax law cloud your  professional judgment.

The return is due on October 11, 2012 at the beginning of class. No late assignments will be

accepted. The problem must be completed as a group assignment. One grade is assigned to eachgroup solution, and this grade is earned by each member of the group. No solo projects will beaccepted! Please note, I will NOT answer questions regarding this return IN CLASS. Rather, Iwill only answer questions posted on the eLC discussion thread entitled “Tax Return 1 Questions.”I will respond to the posts on eLC. This allows everyone to receive identical responses from me. Iwill only answer questions posted prior to 5pm on October 10, 2012. It is your duty to read all previous questions before posting a new one as it is unprofessional to disregard informationalready provided (and your professionalism grades will suffer). This allows everyone to see allquestions and receive identical responses from me.

Before handing in the project, please:

1. include all necessary calculations on separate schedules for potential credit, and

2. identify the group members that worked on the project on the front page of your  project.

Staple the return together on the left corner and do not use folders and/or envelopes.

INFORMATION FROM TAX FILES

Mr. Vog Vandy is married and works for S-Holmes, Inc. He was born on April 6, 1944. Hisannual salary is $150,000 and the company provides the following benefits to all employees:

Medical Insurance - the cost of Mr. Vog Vandy’s policy is $10,000. This year Vog isreimbursed $1,000 for medical expenses covered by the company policy.

Group Term Life Insurance policy - each employee is provided with $110,000-worth of coverage under the policy.

Qualified pension plan – Plastics, Inc. matches employee contributions up to $1,500. Vogcontributes 10% of his salary to his employer’s qualified pension plan.

 

 Additionally, Vog Vandy has the following items that he thinks may affect his current-year taxes:

Mrs. Vandy pays for her mother, Ima Burden, to live in an assisted living facility for seniors. For 2011, the facility costs $12,000 for meals and room (i.e., her total support for 2011), of which $10,000 was paid by Mrs. Vandy and $2,000 came from Ima’s socialsecurity. Ima’s social security number is 400-44-0004.

Vog receives $2,000 per month from an annuity that he purchased from Viva’s GeneralLife Assurance Co. The annuity cost $60,000. Vog is to receive the annuity for his life. He began receiving the payments in September 2008.

Vog makes monthly payments of $800 to his previous wife, Violet, as decreed in their divorce agreement. Vog and Violet divorced in 2002 and their two children are now adults.Her social security number is 000-00-0009.

Vog received a $1,800 refund of last year’s state income taxes during the current year.Last year, his itemized deductions were $21,000. In the current year, Vog’s total itemizeddeductions (including every itemized deduction) are $2,300.

Vog has a separate medical policy that he purchased to cover costs that his employer- provided policy does not cover. He pays $500 for the policy, which reimburses him for $2,000 of his medical expenses.

During 2011, Vog and Viola received $550 in interest from Athens city bonds, $1,070interest from U.S. Treasury bonds, and $65 interest from their savings account at Super Credit Union.

Vog owns a dirt parking lot in Athens, GA. Vog leases the parking lot and receives$10,000 in rents. Vog incurs $3,000 of other interest expense and $2,200 of real estatetaxes associated with leasing the parking lot.

On October 1, Vog gives $150,000 of GE Corporation bonds he owns to hisgranddaughter. The bonds pay annual interest of 8% on December 31.

Vog paid $200 per month this year to E-Z Life for his membership to the exercise spa.Additionally, because he overpaid for his membership last year, E-Z Life sent him a refundof $200 from last year’s expenses. Last year, Vog paid $2,600 to E-Z Life.

Vog’s social security number is 987-77-4321. His wife, Viola Vandy, was born onJanuary 24, 1969, and had income of $36,825 in 2011. Her social security number is 876-54-3210. This year Vog had $34,500 withheld for federal income taxes and $600 for stateincome taxes, while Viola had $5,524 withheld for federal income taxes and $300 withheldfor state taxes. Vog and Viola live at 618 Penny Lane, Athens, GA 30602.