Assignment: Kate & Sam Smith - Tax Return information

It is the end of the tax-year, and Kate and Sam Smith need your help completing pages 1 and 2 of Schedule 1040 and Schedule A.

Kate Smith (SS # 555-55-5555)
Sam Smith (SS# 444-44-4444)

33 Oak Street Drive

San Diego, California 91911

The taxpayers are 52 years old, file Married Filing Jointly, and have two children:

Elizabeth Smith (SS # 333-33-3333)
Jonathan Smith (SS# 222-22-2222).

For this problem, assume their gross income is $185,300.

This year Kate got a new job, and the Smiths moved to a new city. The new job was located within the same state about 650 miles away from their old house. Before the move, the family went on a house hunting trip that cost them $700. They also hired a moving company for $2,800. On their way to their new house they spent $50 on meals, and $75 on a hotel room. They also stopped by an amusement park and spent $80 on tickets for the day.

The Smiths paid $12,000 in interest on their home mortgage this year, and $2,500 in real estate taxes on their new home. They also paid $1,200 in personal credit card interest, and Kate paid $850 in interest on student loans.

Sam was hospitalized with a heart condition this year, which required him to undergo surgery. The Smiths incurred $25,000 in medical expenses as a result of Sam's illness. Of this amount, $18,000 was reimbursed by the insurance company.

During the year the Smiths contributed $1,500 cash to the Salvation Army. Before their move, the family donated clothes and furniture that they had purchased for $650 to Goodwill. At the time of donation the items were worth $300. They also gave some old baby furniture to their friends that was valued at $150.

Sam Smith paid $200 in union dues for the year, and the family pays $250 for tax return preparation services.

You are a manager at a local accounting firm, and Kate and Sam Smith are your clients. It is the end of the year, and they have come to ask your advice on some tax planning strategies, as well as help preparing their tax return.

This project is split into four parts with one part due each week of the course. Based on your readings, use of technology, literature, and other sources do the following:

Part 1

Early next year, Kate and Sam Smith will inherit $200,000. Kate and Sam are trying to decide how to invest this money and have asked you, their tax accountant, to look into some potential investment opportunities. Please see the attached excel spreadsheet, where you will complete the annual after-tax rates of return column for each investment opportunity you have identified. Include a paragraph on the spreadsheet where you list the three basic tax planning strategies, and the features of taxation each of them exploits.

Part 2

It is the end of the tax-year, and Kate and Sam Smith need your help completing pages 1 and 2 of Schedule 1040 and Schedule A.Please see the attached document with the information you will need to complete these forms, and submit a draft return.Tax forms can be obtained from the IRS website. **Be sure you save the form to your computer BEFORE you fill in any information or your data will be lost when you save the file with the data entered. Once saved, access the saved form from your computer, not the web browser. **

Part 3

Based on the feedback you received last week, finalize the Smith's tax returns.Write a 4-page letter to Kate and Sam Smith which:

a. Walks them through their current year tax return.Detail which expenses they incurred that were nondeductible for tax purposes, and explain why.

b. Looks forward to the next tax year.

i. Regarding the investment opportunities, you calculated in week 1, explain:

1. Which investment opportunity you would recommend.

2. What the conversion tax planning strategy is, and which of these investments employ this strategy.

3. How "implicit taxes" may limit the benefits of the conversion strategy.

ii. Jonathan Smith will be headed to college in the fall, provide an overview of the various education tax credits they may be able to take advantage of on next year's return.

Part 4

Present your findings as if you were presenting them to the clients in a PowerPoint.

Summary of instructions

Part 1: Submit a spreadsheet calculating the annual after-tax rate of return.

Part 2: Submit a draft of the appropriate tax forms.

Part 3: Submit the final tax forms and a letter to the clients.

Part 4: Present and discuss your ideas using PowerPoint.

Attachment:- Project_Smith_Investment_Opportunities.xls