Business 237

Tax Return Project

Fall, 2004

Florence A. Smith is age 27 and single. She lives at 107 DeLongpre Avenue, Hollywood, California 90028. Her Social Security number is 432-11-2541; phone 323-757-4455.

a. Florence is employed as a make-up artist with ABC Movie Studios. Her Form W-2 for 2003 reflects the following information: wages of $44,800; FICA of $3,428; Federal income tax withheld of $3,597; and California state income tax withheld of $728.

b. Florence is single. Her parents passed away 7/8/02. Her younger sister, Betty B. Smith (age 12 and Social Security no. 145-59-8721) lives with and is supported by Florence.

c. Florence inherited a vacation property (basis $235,785) from her parents when they died which she rents out during the year. Florence actively manages the rental. The house has always been a rental property. It is located at 2421 Oceanside Dr., Venice Beach, California 90291. For 2003, Florence had the following income and expenses with respect to the rental property:

Rentals collected / $19,900
Advertising / 420
Cleaning and maintenance / 910
Insurance / 1,015
Mortgage interest / 11,480
Repairs / 560
Taxes / 3,010
Miscellaneous / 84
Depreciation / 8,574

d. Florence also inherited 25 acres of land in Nederland, Colorado. Her parents had acquired the land on 5/11/00 for $7,000. The land’s fair market value on 7/8/02 was $28,000. Florence sold the 25 acres on 2/14/03 for $29,400.

e. In 2003, Florence also had the following income:

Interest from savings account with
California National Bank / $630
Dividends from Stars Mutual Fund
(Qualified ordinary dividends of $224;
capital gain distributions $146, all subject
to the 15% tax rate) / 370


f. Information regarding other expenses incurred by Florence in 2003 is as follows:

Medical expenses / $ 560
Real estate taxes on personal residence / 1,700
Colorado estimated income taxes / 50 / Paid 4/15/03
Mortgage interest on personal residence (Form 1098) / 10,360
Cash charitable contributions (documentation received) / 1,120

g. In order to be gainfully employed, Florence paid Westside Childcare $3,640 to care for Betty during after school hours. The Center is located 399 LaMirada Avenue, Hollywood, California 90028, phone 323-856-8260, and its EIN is 83-2323478.

1. Compute net tax payable (or refund due) for Florence Smith’s 2003 income tax return. You will need Form 1040, Schedule A, Schedule B, Schedule D, Schedule E, Form 2441, and Form 8582. Florence does not want $3 to go to the Presidential Election Campaign Fund.

2. Compute the net tax payable (or refund due) on Florence Smith’s 2003 non-resident Colorado Income Tax Return. Florence will owe income taxes on the sale of the Nederland property. She will file Forms 104 and 104PN.

3. Compute the net tax payable (or refund due) on Florence Smith’s 2003 resident California Income Tax Return. Florence will claim two credits permitted under California law. She will file Form 540, Schedule S, and Form 3506.

Bus237TaxRetProj.F04.doc