You are on page 1of 6

Tax Return-Individual Number Five (after Chapter 12)

Instructions:
Please complete the required federal individual income tax return forms for Joseph
and Diana Cohen for the 2013 tax year. Ignore the requirement to attach the
Form(s) W-2 to the front page of the Form 1040. If required information is missing,
use reasonable assumptions to fill in the gaps.
Joseph and Diana Cohen live in Pleasantville, New Jersey. Joseph is the Vice
President of Sales at a small start-up company. Diana is a former advertising
executive who currently consults with former clients. She also serves on the board
of directors of an advertising company. The Cohens have three children: Rebecca
(age 18), Alan (age 15), and David (age 12). In January, Rebecca left home to attend
a liberal arts college. All three children qualify as Joseph and Dianas federal income
tax dependents. The Cohens plan to file a joint tax return. The Cohens provided the
following information:
Josephs social security number is 598-94-2583
Dianas social security number is 301-52-2942
Rebeccas social security number is 887-44-8710
Alans social security number is 810-42-9092
Davids social security number is 855-11-3021
The Cohens mailing address is 85 North Maple Drive, Pleasantville, New
Jersey 08233
Joseph Cohen reported the following the following information relating to his
employment during the year:
Company

Gross Wages

Alternative Energy

$115,325

Federal Income
Tax Withholding
$29,230

State Income Tax


Withholding
$14,400

The above amounts do not reflect any income items described below. Josephs
employer withheld all payroll taxes it was required to withhold.
Diana Cohen received the following revenue during the year (she uses the cash
method of accounting).
Consulting revenue reported to her on a Form 1099-MISC, Box 7
High-end Retail
$32,000
Jensens Health Products
$8,500
Strategic Solutions
$3,750
Board of director compensation reported to her on a Form 1099-MISC, Box 7
Natural Sunshine, Inc.
$6,500

During the year, Diana paid the following business expenses:


Consultant-related:
Airfare
Hotel
Meals
Parking

$2,900
$1,450
$390
$320

Diana drove 290 business miles for her consulting-related activities (she has
documentation to verify)

Board of Director-related:
Meals
Hotel

$125
$225

Diana drove 315 business miles for her board of director activities (she has
documentation to verify)
Neither of Dianas business activities s required the filing of Form(s) 1099 to report
payments she made during the tax year. In addition, Ms. Cohen drove a 2011 Lexus
purchased on January 1, 2011 for all of her business mileage. She drove the vehicle
a total of 10,605 miles during the year for all purposes. Diana has written
documentation to support the mileage amounts. She also has access to another
vehicle for personal purposes.
The Cohens also received the following during the year:
Interest income from First Bank of New Jersey
$320
Interest income from Patterson, New Jersey School District $200
Interest income from U.S. Treasury Bond
$350
Interest income from General Mills corporate bond
$400
Qualified dividend income from Rio Tinto
$1,500
Qualified dividend income from Microsoft
$750
Qualified dividend income from Cooper Tire
$200
Qualified dividend income from Cardinal Health
$425
Qualified dividend income from Union Pacific
$140
Qualified dividend income from Procter & Gamble
$190
Qualified dividend income from PepsiCo
$225
Qualified dividend income from Kellogg
$200
Qualified dividend income from Abbott Labs
$275
Qualified dividend income from 3M
$350
Dividend income (not qualified) from China Fund
$2,000
The Cohens did not own, control or manage any foreign bank accounts nor were
they a grantor or beneficiary of a foreign trust during the tax year.
2

The Cohens had the following activity in their brokerage account during the year (all
transactions were reported on a form 1099-B with Box A checked):
Sold 2,000 shares of Microsoft
Sold 75 shares of Apple
Sold 350 shares of Cooper Tire
Sold 1,000 shares of Cardinal Health
Sold 50 shares of Union Pacific
Purchased 100 shares of Procter & Gamble
Purchased 75 shares of Apple
Purchased 350 shares of Cooper Tire
Purchased 350 shares of PepsiCo
Purchased 300 shares of Kellogg

7/1/13
4/15/13
10/14/13
9/3/13
1/7/13
7/10/13
4/18/13
11/1/13
5/14/13
10/14/13

$22,500
$28,750
$14,700
$35,000
$2,750
$7,700
$29,000
$14,000
$32,000
$21,000

Relevant tax basis/holding period information related to sales of securities in the


current year:
Purchased 2,000 shares of Microsoft on 5/1/13 for $21,000
Purchased 200 shares of Apple on 3/8/2011 for $90,000
Purchased 300 shares of Cooper Tire on 1/12/2010 for $9,000
Purchased 50 shares of Cooper Tire on 6/28/13 for $2,000
Received 1,000 shares of Cardinal Health from Dianas father as a gift on 10/10/97.
The donors basis was $7,000. Fair market value of the stock at the date of the gift
was $41,000
Purchased 100 shares of Union Pacific on 9/5/12 for $6,000
The Cohens have a $43,000 long-term capital loss carryover from their prior tax
year.
The Cohens received a New Jersey state income tax refund of $400 in May of 2013.
The Cohens received the refund because they had overpaid their New Jersey state
individual income tax in 2012. On their 2012 Federal income tax return, the Cohens
deducted and received tax benefit for all of the state tax income taxes they paid in
2012.
Diana is a 10% owner in an advertising agency named Bright Ideas (BI) (EIN 201234567). BI is a Subchapter S corporation. The company reported ordinary
business income for the year of $150,000. Sarah acquired the stock several years
ago. Her basis in the stock before considering her 2013 income allocation was
$92,000. Sarah is a passive owner with respect to this entity.
Diana is also a 20% owner in Natural Sunshine, Inc. (NS) (EIN 24-9876543). NS is
a Subchapter S corporation. The company reported an ordinary business loss for
the year of ($80,000). Sarah acquired the stock several years ago. Her basis in the
stock before considering her 2013 loss allocation was $45,000. Sarah is a passive
owner with respect to this entity.
Joseph received 5,000 shares of restricted (common) stock from his employer on
July 1, 2013. The terms of the restricted stock grant are such that if Joseph is still
employed by Alternative Energy on July 1, 2018 the entire 5,000 shares will vest
4

and become his property. Joseph, upon the advice of his tax advisor, prepared and
filed an IRC Section 83(b) election on July 8, 2013. On July 1, 2013, shares were
valued at $5 per share. Joseph estimates the value of the shares in five years will
be at least $150 per share. Joseph notified Alternative Energy about the IRC Section
83(b) election in a timely manner. None of the income tax consequences of this
restricted stock grant were included in the $115,325 reported as part of Josephs
gross wages (see above).
In May, Joseph was injured in a home accident. The injury prevented Joseph from
working for about a month. During this time, Joseph received $15,000 in disability
payments attributable to a disability insurance policy. The disability policy
premiums were paid on Josephs behalf as a nontaxable fringe benefit.
The Cohens paid the following expenses during the year:
Dentist (unreimbursed by insurance)
$1,500
Doctors (unreimbursed by insurance)
$ 2,425
Prescriptions (unreimbursed by insurance)
$ 675
Real property taxes on residence
$7,525
Vehicle property tax based upon value
$1,250
Mortgage interest on principal residence
$12,550
Margin interest paid to broker
$600
Contribution to United Way
$2,000
Contribution to American Cancer Society
$5,000
Contribution to neighborhood drive to oppose development project
$500
Contribution to the Temple Mount Synagogue
$12,000
Fee paid to Mouser, Johnson, and Hintze CPAs for tax preparation $450
The Cohens also donated clothing, electronics, furniture and other household goods
to the Salvation Army of Pleasantville, New Jersey on April 15, 2013. Estimated thrift
value of the goods donated is $275.
Miscellaneous Information
On September 1, the Cohens paid $200 in foreign taxes attributable to the dividend
received from the China Fund.
During the year, the Cohens paid a portion of Rebeccas tuition to attend The
College of Liberal Arts of New Jersey (CLA). They also purchased Rebeccas school
books. Rebecca attended the spring/summer and the fall semesters as a full-time
student. In total, the Cohens paid $9,000 for tuition and $2,000 for books. Rebecca
used $6,000 from a scholarship she received from CLA to pay the remaining $6,000
of tuition for the year. Rebecca was not required to perform any services as a
condition of accepting the scholarship. Rebecca was not employed during the year.
CLAs address and employer identification number (EIN) is as follows:
The College of Liberal Arts of New Jersey
65 Ivory Tower
Penns Grove, NJ 08069
EIN- 22-5698324
5

The Cohens would like to contribute to the Presidential Election Campaign. The
Cohens would also like to receive a refund (if any) of tax they may have overpaid for
the year. Their preferred method of receiving the refund is by check.