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John and Kathy are married with two children. John has two children from a previous marriage. He…
John and Kathy are married with two children. John has two children from a previous marriage. He paid alimony of $25,000 and child support of $15,000 to his ex-spouse. John has a written agreement as the non-custodial parent to claim the two children that live with his ex-spouse as his dependents.
John has wages of $140,000 ($21,000 in withholding) and Kathy has wages of $25,000 ($1,250 in withholding). John received $900 in interest from is savings account. He also received dividends of $800 from his stock invested in Exxon. Kathy received $2,000 in unemployment ($200 in withholding).
John has rental property (an apartment) that he receives $15,000. He paid the following expenses for the rental property: $200-advertising, $400 in cleaning, $1,000 for insurance, $250 in legal fees related to preparing the rental agreement, $2,000 for the mortgage interest, $900 supplies, $100 in repairs, and $1,200 in real estate taxes. His original basis in the property was $100,000 (should calculated depreciation of $3,636 using straight-line depreciation). He did not materially participate in the business.
Kathy has a small bookkeeping business. Her father gave her a gift of $10,000 in order to start her business. Her gross sales are $45,000. She paid the following expenses for her business: $200 in advertising, $8,000 for contract labor, $800 for insurance, $1,000 in legal fees for setting her business up, $4,000 for rent, $1,000 for office supplies, $500 for licenses, $2,000 for utilities, and $500 for miscellaneous office expenses.
Additional expenses included the following:
1. Medical expenses of $20,000—no insurance reimbursement
2. Real estate taxes on home of $4,000
3. Mortgage interest on home of $6,000
4. Cash contributions to United Way-$500; St. Jude-$100; KERA-$100; UNT-$250
5. Contributed clothing articles to Goodwill-estimated FMV 0 (drove 15 miles to make contributions).
6. Tax preparation fees of $400
7. Attorney fees of $4,000 for IRS audit
8. Tax advice of $150
9. Bank fees of $50 for investment activities account
10. Safe deposit box of $50 for investment activities account
11. Employee business expenses:
a) Business mileage 1200 miles, total mileage for year 12,000; daily commute round trip 45 miles (5 days/week; 50 weeks); car placed in service 8/1/12 (use standard mileage of .565)
b) Meals-use standard rate of $46/day for 18 days
c) Parking fees and tolls-$250
d) Overnight ravel expense-,000
e) Other job related expenses-$500
f) Reimbursed 3,200 for everything but meals (reimbursed $428 for meals)
Use the attached 1040 forms and supporting schedules to calculate the taxable income. Standard deduction for married individuals, filing joint returns is $12,200.