Tax Accounting Facts: Dr. Thompson Peterson is an OB/GYN while his wife, Suzy, is personal injury… 1 answer below »

Tax Accounting Facts:

Dr. Thompson Peterson is an OB/GYN while his wife, Suzy, is personal injury attorney specializing in medical malpractice. Despite their perhaps counterintuitive marriage of professions, they have been married for 18 years and have three children under the age of 14. Their financial information for tax year 2017 is as follows:

· Thompsons Salary from a local hospital $500,000 . 1040 ln 7

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Federal Income Tax Withholding on Salary $135,000

· Interest Income from Nestle bonds $22,000 Schedule B 1040 ln 8

· Interest Income from Wells Fargo $5,000 Schedule B 1040 ln 8

· Interest Income from State of California Bonds $15,500 1040 ln 8b

· Gambling Winnings (in Las Vegas) $27,000 1040 ln 21

· Life Insurance Proceeds – Death of grandmother $1,750,000

· Inheritance from Grandmother $2,700,000

· Annuity Payments (investment=$100K, payout=300K) $30,000 1040 ln 16

· Short term capital gains from stocks held less than 1 year $17,000 Schedule D 1040 ln 13

· Dividends from Sysco (qualified) $18,500 Schedule B 1040 ln 9a/b

· Dividend from Scientific Atlanta (qualified) $25,000 Schedule B 1040 ln 9a/b

· Dividends from T-mobile Europe (non-qualified) $22,000 Schedule B 1040 ln 9a

· Alimony paid to Suzy’s ex-husband (ss# 231-45-0987) $30,000 1040 ln 31

· Mortgage Interest – Principal ($1.750,000) $72,000 Schedule A line 10

· Home Equity Interest – Principal ($375,000) $29,500 Schedule A

· Charitable Contributions to St. Mary’s Church $96,000 Schedule A line 15a

· Contributions to the Democratic National Committee $19,200

· Donation of property painting to local university $74,000 Schedule A line 16

· Investment interest expense $83,500 Schedule A line 13

· Real Estate Taxes – residence $29,250 Schedule A line 6

· Unreimbursed employee business expenses $28,250 Schedule A line 20

· Tax return preparation fees $6,000 Schedule A line 21

· Gambling Costs (lottery tickets, poker costs) $45,000 Schedule A line 27

· Quarterly Estimated Tax Payments by the Petersons $350,000 ($87,500 per quarter)

Other Capital Gain Information

On December 11, 2017, the Peterson’s sold 1,000 share of Microsoft for $91 per share. The commission on the trade was 1% of the sales proceeds. They originally purchased the shares on 2/5/1998 for a total purchase price of $65,850. Schedule D / 1040 ln 13 On January 15, 2017, the Peterson’s sold a mutual fund for $118,000 that they bought on 1/2/2014. They originally invested $88,000. Schedule d / 1040 ln 13 For tax year 2015, the couple received a substitute 1099 from the fund showing the following from the fund: Interest Income: $1,500 / Dividend Income: 1,750 / Short term capital losses of $2,750, and Long-term capital gains of $10,400. For tax year 2016, the couple received a substitute 1099 from the fund showing the following from the fund Interest Income: $3,500 / Dividend Income: 6,750 / Short term capital gains of $2,000, and Long-term capital gains of $9,400.

Business income for Suzy Peterson, Esq, a sole-proprietor that reports her income on Schedule C:

Revenue $1,385,000

Salaries paid to staff $328,000

KEOGH Contribution (retirement plan) $50,000 report on 1040 ln 28

Office expenses $22,500

Travel $33,000

Legal and professional fees $63,650

Rent expense $32,400

Business meals and entertainment $32,000

Country club memberships $15,000

Payroll tax expense $40,250

Section 179 & Depreciation Expense $408,000

Amortization of Goodwill and Purchased Customer Lists $90,000

Penalties and fines payable to State of Texas $19,500

Withdrawals by the business owner of cash $450,000

In addition to collecting a salary as an emergency OB/GYN surgeon for a local hospital, Thompson is also a partner in Baby’s R Us, LLP, an OB/GYN firm that operates as an LLP. He K-1 information for tax year 2017 is as follows:

Ordinary Income: K-1 Line 1: $550,000 report on Sch. E. page 2

Guaranteed payment K-1 Line 4: $50,000 report on Sch E. page 2

KEOGH Contributions K-1 Line 13: $45,000 report on Schedule A ln 15a

Self Employment Income K-1 Line 14: $600,000 report on Schedule SE

Cash Distributions K-1 Line 19: $400,000

Requirements:

Prepare the following questions using Microsoft Excel. Prepare them in the order shown.

What is Suzy’s 2017 net profit from her legal practice Calculate the Peterson’s Self Employment Tax (FICA Cap is $127,200) What is the Peterson’s 2017 Gross Income (i.e., line 22 of Form 1040) What is the Peterson’s 2017 Adjusted Gross Income? What is the Peterson’s 2017 Itemized Deductions – use 2016 sales tax calculator from IRS.gov for sales tax deduction. What is the Peterson’s 2017 Taxable Income & Tax Refund or Payment Due

 

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