INDIVIDUAL TAX RETURN PROBLEM 2
Required:
• Use the following information to complete Karl and Ellie Frederickson’s 2011
federal income tax return. If information is missing, use reasonable
assumptions to fill in the gaps.
• You may need the following forms to complete the project: Form 1040 and
Schedule A. The forms, schedules, and instructions can be found at the IRS
Web site (www.irs.gov). The instructions can be helpful in completing the
forms.
•An Excel spreadsheet with all your detailed calculations and narratives explaining how you arrived at your numbers are REQUIRED for this assignment.
Facts:
1. Karl Frederickson is employed as a human resources manager for Toys
Unlimited, Inc., and Ellie is a financial planner for her mother’s company,
Frederickson Investments, Inc., a full service wealth planning firm. They
provide the following information:
• They both want to contribute to the presidential election campaign.
• They live at 9876 Fighting Irish Lane, South Bend, IN.
• Karl’s birthday is XXXXX and his Social Security number is XXXXX
• Ellie’s birthday is XXXXX and her Social Security number is XXXXX
• Karl or Ellie do not have any foreign bank accounts or trusts.
2. Karl received a Form W-2 from Toys Unlimited, Inc. that contained the following
information:
• Line 1 Wages, tips, other compensation: $45,000
• Line 2 Federal income tax withheld: 7,500
• Line 3 Social Security wages: 45,000
• Line 4 Social Security tax withheld: 1,890
• Line 5 Medicare wages and tips: 45,000
• Line 6 Medicare tax withheld: 653
• Line 17 State income tax: 2,200
3. Ellie received a Form W-2 from Frederickson Investments, Inc. that contained
the following information:
• Line 1 Wages, tips, other compensation: $85,000
• Line 2 Federal income tax withheld: 12,500
• Line 3 Social Security wages: 85,000
• Line 4 Social Security tax withheld: 3,570
• Line 5 Medicare wages and tips: 85,000
• Line 6 Medicare tax withheld: 1,233
• Line 17 State income tax: 4,200
Appendix C C-3
4. Karl and Ellie incurred the following medical expenses for the year:
• Transportation to Chicago for Karl’s cancer treatment: 2,000 miles
• Unreimbursed hospital charges for Karl: $6,500
• Unreimbursed prescription drug charges for Karl and Ellie: 1,750
• Unreimbursed physician charges for Karl and Ellie: 2,200
• Unreimbursed prescription glasses for Ellie: 150
• Laser hair treatment for Ellie (so that she will no longer
need to shave her legs) 2,000
5. Karl and Ellie paid $12,000 of interest payments on their primary residence
(acquisition debt of $225,000). They also paid $1,750 of interest expense on
Ellie’s car loan and $500 of interest on their Visa card.
6. Karl and Ellie paid $4,000 of real estate taxes on their home and $1,000
of real estate tax on a vacant lot they purchased with the hope of building
their dream home in the future. They also paid $3,000 in sales tax
on Ellie’s car and other purchases and $1,000 of ad valoreum tax on
their cars.
7. Karl and Ellie made the following contributions this year:
• American Red Cross $ 200
• United Way 150
• St. Joseph’s Catholic Church 8,000
• Food for the family of Hannah Barbara (a neighbor 225
who suffered a tragic car accident this past year).
• Stock transfer to the University of Notre Dame (originally 750
purchased for $1,000 in 2005)
8. Karl incurred $4,000 of unreimbursed meals and entertainment related to his
job. Ellie incurred $1,200 of expenses for investment publications, and last year
they paid their CPA $500 to prepare their tax return.
9. The roof on Karl and Ellie’s house was severely damaged in a hail storm. They
had to replace the roof ($7,500), which unfortunately was not covered by insurance
because of their high deductible ($10,000).
10. Karl won $5,000 in the state lottery. He has been playing the lottery for years
($10 in lottery tickets every week ($520 in total) that he saves to keep track of
the numbers he plays).
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