Question

52. Comprehensive Problem (Tax Return Problem). Mr. and Mrs. Sam Morris retired on February 10, 2019, and call you in for tax advice. Both Sam and his wife Sarah have worked for many years. Sam is 65 years of age and his wife is 63. The Morrises three children gave their parents a gala retirement party. Many friends and relatives were invited. Gifts valued at over $1,000 were received by the couple. In October, Mrs. Morris entered a contest being run by a local bank. She submitted drawings for a bank logo. Her drawing was selected and she received $500. $9.900 7,000 5.500 Many years ago, Sam purchased an annuity policy for $9,000. Starting on March 3. 2019, he began receiving lifelong monthly payments of $60. 300 Facts Dependent child: Age 21 Social Security Benefits Salaries: Sam (January 1-February 10) Sarah (January 1-February 10) Interest Income: Port Authority of NY. Bonds Interest from Bank Deposits Corporate Bonds Highway Bonds of Ohio Dividend Income: Microsoft Common Stock General Electric Common Stock AGA Ltd. of England Net Rental Income 11.100 900 The Morrises' 21-year-old daughter is in college. She worked during the summer and earned $2.500. Interest on her savings accounts amounted to $500. Her parents paid for the college tuition of $4,000. 100 4,000 2,000 1,000 4,000 The Morrises have itemized deductions of $20,000. Determine the Morrises taxable income for 2019. One of their tenants moved out on July 14, 2019, and Sam determines that they had damaged the stove, and therefore returned only $50 of their $150 security deposit. 53. Research Problem. Larry Sorich, as part of his estate planning, assigned his $100,000 group-term life insurance policy to his niece. Larry's employer provided for only $50,000 of coverage; therefore, the niece paid for the premiums on the supplemental insurance. Larry did not include in gross income the premiums for the supplemental insurance. Larry's accountant challenged him on this arrangement. Who prevailed? See Rev. Rul. 71-587, 1971-2 CB 89. The Morrises' daughter borrowed $10,000 Two years ago to purchase a new automobile. She has made payments to her parents and on September 1, 2019. only $2.500 was still outstanding on the loan. On their daughter's birthday, they told her she no longer had to make payments. Sam was Vice President of a very large corporation. As part of his fringe benefit package, the corporation purchased for him $50,000 of group-term life insurance. The corporation continues to pay for his life insurance even after retirement.

Answer 1

Solution

Calculation of Morris's Taxable income for 2019

1. Income From Salary	Salary of both Sam and Sarah	$7000 + $5500 =$ 12500
2. Income from interest on bonds	$300 + $11100+$900 + $100	$12400
3. Income from rent		$4000
4. Security amount not refunded	Security deposit - returned amount	$ 150 - $50 =$ 100
5. Gift received		$1000
6. Award received		$500
7. Annuity Received	($9000 x $60)/1000	$ 540
8. Daughter Income		$2500
9. Total Income		$33540
less: Deduction		$20000
Taxable Income		$13540