Carmin Kovach is single and has two children from her previous marriage. Anika, 9, lives with Carmin. Julius, 11, lives with his father, Ray. Carmin pays alimony of $400 per month to Ray. The payments are to continue until Julius reaches age 18, when they will be reduced to $100.
Carmin is 34 and employed as a nuclear engineer with Atom Systems Consultants, Inc. (ASCI). Her annual salary is $80,000, and ASCI has an extensive fringe benefits program for its employees.
ASCI has a qualified pension plan that covers all employees. Under the plan, ASCI matches any contribution to the plan up to 8% of the employee’s annual salary.
Carmin makes the maximum allowable contribution of $6,400, and it is matched by ASCI.
ASCI provides medical coverage to all employees but not to their dependents.
Carmin’s medical coverage costs ASCI $3,000 during the current year. She receives $980 in reimbursements for her medical costs. ASCI also provides employees with a flexible benefits plan. Carmin pays $3,200 into the plan. She uses $2,400 to purchase medical coverage for Anika. Her medical, dental, and optometry costs not covered by insurance total $1,900; the flexible benefits plan reimburses her $800 for these costs. ASCI also provides employees with group term life insurance of twice their annual salary, up to a maximum coverage of $150,000. Carmin’s group term life insurance premiums cost $400. Because of the sensitive and sometimes dangerous nature of her work, ASCI also provides Carmin with a $300,000 whole life insurance policy. The whole life insurance policy costs $490. Taking advantage of ASCI’s educational assistance program, during the fall Carmin enrolls in two law school classes at a local university. ASCI pays her tuition, fees, books, and other course-related costs totaling $2,300. Carmin also receives certain other fringe benefits not available to all employees. She receives free parking in the company’s security garage that would normally cost $250 per month. In addition, ASCI pays the $1,000 cost of her nuclear engineer’s license and $600 per year in professional association dues and professional magazine subscriptions. ASCI also pays Carmin’s $900 dues to a health club that is located in the same building as her office.
Carmin routinely enters sweepstakes contests. This year, she is notified that she has won $5,000 in a breakfast cereal promotion. The prize is to be paid equally over 10 years. She receives the first payment December 28, although she doesn’t deposit the check in her checking account until January 3.
In February, Carmin’s father dies. Social Security pays her $600 as a survivor’s benefit. She also receives stock valued at $30,000 and her father’s house, which has a value of $90,000, as her share of her father’s estate. Carmin rents out her father’s house on August 1. The monthly rent is $400, and the lease agreement is for one year. The lease requires the tenant to pay the first and last months’ rent and a $400 security deposit. The security deposit is to be returned at the end of the lease if the property is in good condition. On August 1, Carmin receives $1,200 from the tenant per the terms of the lease agreement. In November, the plumbing freezes and several lines burst. The tenant has the repairs made and pays the $300 bill. In December, he reduces his rental payment to $100 to compensate for the plumbing repairs. Carmin pays other deductible costs for the rental that total $2,680. The allowable depreciation on the rental house is $1,080. Carmin owns several other investments. She receives the following amounts (all in cash) from the stocks and bonds she owns:
General Dynamics common stock $ 300
City of Toronto bonds 1,600
State of Nebraska bonds 400
New Jersey economic development bonds 300
Grubstake Mining Development stock 1,000
Carmin owns 1,000 shares of Grubstake Mining Development common stock.
Grubstake is organized as an S corporation and has 100,000 shares outstanding.
Grubstake reports taxable income of $200,000 during the current year.
Carmin sells the following securities during 2011:
Security Sale Date
Nebraska Bonds 3/14/11 10/22/08 $1,900 $ 80 $1,710
10/18/11 2/19/11 $8,900 $450 $9,630
Carmin purchased 500 shares of General Dynamics stock on July 22, 2008, at a
cost of $2,200. On June 15, 2011, she receives 50 shares of General Dynamics stock
as a dividend. The fair market value of General Dynamics stock on June 15, 2011,
was $3.50 per share.
Carmin slips on a wet spot in front of a computer store during the current year.
She breaks her ankle and is unable to work for two weeks. She incurs $1,300 in medical costs, all of which are paid by the owner of the store. The store also gives her $1,000 for pain and suffering resulting from the injury. ASCI continues to pay her salary during the two weeks she misses because of the accident. ASCI’s plan also pays her $1,200 in disability pay for the time she is unable to work. Calculate Carmin’s adjusted gross income on her 2011 tax return. Then do one or both of the following, according to your professor’s instructions:
a. Include a brief explanation of how you determined each item that affected adjusted gross income and any items you excluded from gross income. Your solution to the problem should contain a list of each item included in adjusted gross income and its amount, with the explanations attached.
b. Write a letter to Carmin explaining how you determined each item that affected adjusted gross income and any items you excluded from gross income. You should include a list of each item included in adjusted gross income and its amount.
Calculate Carmin’s adjusted gross income on her 2010 tax return. Then do one (or both) of the following, according to your professor’s instructions:
a. Include a brief explanation of how you determined each item that affected adjusted gross income and any items you excluded from gross income. Your solution to the problem should contain a list of each item included in gross income and its amount, with the explanations attached.
b. Write a letter to Carmin explaining how you determined each item that affected adjusted gross income and any items you excluded from gross income. You should include a list of each item included in gross income and its amount.