Textbook: Income Tax Fundamentals 2022 w/Intuit ProConnect Tax Online, 40th Edition
Using the Intuit ProConnect Tax Online program, complete the Albert and Allison Gaytor cumulative tax return. The cumulative tax return covers the first eight chapters in your textbook and is completed by following the instructions in the Chapter Review section, Group 5: Cumulative Software Problem for Chapters 1 through 8. Note: We are not discussing Chapter 6 in this course but you will still have to complete the Chapter 6 instructions for the cumulative tax problem. Once you have completed the return through Chapter 8, answer the questions below. (Note: Some of the answers may be zero).
The Correct Answer and Explanation is :
To accurately complete the cumulative tax return for Albert and Allison Gaytor through Chapter 8 using Intuit ProConnect Tax Online, it’s essential to integrate all pertinent financial information provided across the chapters. Here’s a structured approach to guide you through the process:
1. Income Reporting:
- Wages: Albert received a Form W-2 from Coconut Grove Fishing Charters, Inc., reporting wages of $67,918.
- Interest Income: The Gaytors have interest income from multiple sources:
- $354.11 from a savings account.
- $826.33 from U.S. Treasury notes, with $148.76 as accrued interest. This accrued interest should be subtracted, resulting in taxable interest of $677.57.
- Dividend Income: They received dividends as follows:
- $1,200 in total ordinary dividends, with $1,100 qualifying for the lower tax rate.
- $400 in total ordinary dividends, with $380 as qualified dividends, and $150 as capital gains distribution.
- Gambling Winnings: Albert won $5,600 at a casino, with $1,500 federal income tax withheld, as reported on Form W-2G.
- Unemployment Compensation: Allison received $3,950 in unemployment benefits, with $225 federal income tax withheld, as per Form 1099-G.
2. Adjustments to Income:
- Alimony Paid: Albert pays $12,000 annually in alimony to his ex-wife, Iris, under a pre-2019 divorce decree, making it deductible.
3. Deductions and Credits:
- Standard Deduction: For Married Filing Jointly in 2021, the standard deduction is $25,100.
- Child Tax Credit: Their son, Crocker, qualifies for the Child Tax Credit.
- Education Credits: Crocker’s college expenses may qualify for education credits, such as the American Opportunity Credit.
4. Additional Considerations:
- Life Insurance Proceeds: Allison received $50,000 from a life insurance policy, which is non-taxable.
- Inherited Property: Albert inherited real estate valued at $72,000; this isn’t taxable income but may have future tax implications.
- Employee Benefits: Albert’s employer-paid health insurance premiums and parking fees are generally non-taxable fringe benefits.
5. Tax Computation:
- Total Income: Sum all income sources: wages, taxable interest, dividends, gambling winnings, and unemployment compensation.
- Adjusted Gross Income (AGI): Subtract adjustments, like alimony paid, from the total income.
- Taxable Income: Subtract the standard deduction from the AGI.
- Tax Liability: Calculate using the appropriate tax brackets, then apply any eligible credits.
6. Payments and Refunds:
- Withholdings: Include federal taxes withheld from Albert’s W-2, the gambling winnings, and Allison’s unemployment compensation.
- Refund or Amount Owed: Compare total payments to the tax liability to determine if a refund is due or if additional tax is owed.
By meticulously entering this information into Intuit ProConnect Tax Online, you can ensure an accurate and comprehensive tax return for the Gaytors. Always cross-reference entries with the provided documents to maintain precision.