Computation of Income Statement of Mr & Mrs Waden -ForM 1040

Computation of income statement of Mr & Mrs
Waden-FORM 1040
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FORM 1040 - U.S. INDIVIDUAL INCOME TAX RETURN
Assume that the taxpayers, George A. Warden (social security number 333-33-3330) and Mary S. Warden (social
security number 444-44-4440) file a joint return. Both are 50-years old, have good eyesight, and live with their three
children, Edward, John and Ruth, at 789 N. Code Drive, Chicago, Illinois 60699. The Warden's home phone number is
312-555-9999. Mr. Warden elects to have $3 of his income tax go to the Presidential Election Campaign Fund. Mrs.
Warden elects not to contribute.
The Wardens' son, Edward, is a junior in college and he is 20 years old. He worked during the summer and earned
$4,000. Their other son, John, is 17 and a high school student. He earned $3,600 during the summer and worked parttime dur ing the remainder of the year. Neither son had any additional income. Their daughter, Ruth, is eight years
old and an elementary school student. She had no earned or unearned income during the year. Edward's social
security number is 300-11-000t John's social security number is 300-22-0002, and Ruth's social security number is
300-33-0003. In August, the Wardens paid $4,000 in tuition for their son, Edward, for the academic period that started
in September.
The Wardens claim Mrs. Warden's mother, Grace D. Taylor, as a dependent under a multiple-support agreement. The
total support of Mrs. Taylor is $6,000, received from the following three sources:
•

$3,000 from Mary Warden,

•

$1,000 from another daughter, Thelma Taylor, and

•

$2,000 in social security benefits.

Mrs. Grace D. Taylor lived with the Wardens during all of 2012. Her social security number is 400-44-0004. Thelma
Taylor provides the Warden's with a written, signed statement, that she will not claim her mother as a dependent in
2012. Thelma Taylor lives at 1425 S. 62nd Street, Chicago, IL 60699, and her social security number is 500-55-0005.
The Wardens use You, a professional tax preparer, to prepare their income tax return. Your PTIN is P98765432, and you
work for E&Z Tax Preparation (EIN #36-0987654), which is located in a nearby suburb of Middle America (tele phone
number 312-555-1040). However, the Warden's do not authorize you to discuss their return with the IRS.

INCOME AND EXPENSES GENERALLY
During 2012, Mrs. Warden was employed as a salesperson by XPert Publishing Inc. Her Form W-2 for 2012 reports
the following:

Box 1.Wages, tips and other compensation
$75,000 Box 2. Federal income tax withheld
$4,950
Box 4. Social security tax withheld
$4,650 Box 6. Medicare tax
withheld $1,088
Box 17. State income tax
$2,250
Mrs. Warden is not covered by her employer's retirement plan. In addition, Mr. Warden is a self-employed individual
who does not maintain a Keogh or a SEP plan. Mrs. Warden made a $1,500 contribution to a traditional IRA and a
$2,000 contribution to a Roth IRA in 2012. Mr. Warden decided against making a contribution to a traditional IRA.
The Wardens received a $30 state income tax refund. They itemized in the prior year and elected to take their $2,000
state income tax payment as a deduction. The Wardens also received a $20 federal income tax refund.

Form 1040,
Schedule A
The Wardens made federal estimated tax payments of $2,000 for
2012. The Wardens incurred the following medical expenses
during 2012:
•

prescription drugs, $1,000;

•

doctor bills, $3,550;

•

hospital bills, $1,750;

•

transportation, $100; and

•

eyeglasses, $500.

In addition, Mr. Warden, who is self-employed, paid $3,750 in premiums for health insurance coverage
for himself and his family.

The Wardens paid their 2011 real estate taxes of $1,810 on July 1,2012. In addition, they sold their
residence on September 13, 2012. They allowed the buyer a credit equal to 70% of the estimated real
estate taxes of $2,000 for 2011. The real estate taxes on the new property they purchased on May 1,
2012, are not payable until2013. There was no taxable gain on the sale of their prior residence.
Mr. and Mrs. Warden paid $3,878 in deductible home mortgage interest to a bank. They also paid $3,000
in points when they purchased their new home. They paid the following personal interest in 2012:
•

$600 to finance Mrs. Warden's car, and

•

$400 in credit card interest.

The Wardens gave $1,500 in cash to various recognized charities; no individual gift was $250 or more;
all charities sent an acknowledgment of the contribution.

For
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Secti
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During 2012, a burglar entered their home and stole a ring and a coin collection. The ring had been
purchased in May 15, 1990 at a cost of $3,000. Mrs. Warden had purchased the coin collection in July 15,
1991 at a cost of $1,100. An insurance company appraised the ring at a fair market value of $5,000, but
limited its loss coverage on jewelry under a homeown ers' policy to $1,500. The insurance company
excluded the coin collection from the insurance policy because of its policy restrictions on such items. At
the time of the theft, the fair market value of the coin collection was $2,000.

Form2441
During 2012, the Wardens' daughter, Ruth, attended two child care centers. They were: Happy Day Care, 4210 W.
Maple, Chicago, Illinois 60699, whose identification number is 36-0987654; and Greenfields Day Care, 901 N.
Ash, Chicago, Illinois 60699, whose identification number is 36-1234567. The Wardens paid $3,720 to Happy
Day Care and $1,860 to Greenfields
Day Care. The Wardens did not receive employer-provided dependent care benefits.