Schedules And A Memorandum For The Taxable Income
Steve and Mary Anderson were married on January 1, 2019. Mary has a seventeenyear-
old son, George Taylor, from her previous marriage. George is a student with no
income. George lives with Steve and Mary who have provided all of George’s support
since their marriage.
Steve’s SS# is 999-11-1111; Mary’s SS# is 666-22-2222; and George’s SS# is 777-
00-0007.
The Andersons live at 5432 Ordinary Street, Everywhere, VA 20XXX. They do not
want the $3 to go to the Presidential Fund and did not have any virtual currency
transactions in 2021.
Steve and Mary were born in 1970 and neither is blind.
Steve works as a computer programmer at Compu-Job Inc. (CJI). Mary is selfemployed
and runs a day care center. The Andersons reported the following
financial information pertaining to their activities during the 2021 calendar year.
a. Steve earned a $155,000 salary for the year.
b. Steve borrowed $12,000 from his employer, CJI, to purchase a car. CJI
charged him 2 percent interest on the loan, which Steve paid on December
31, but would have charged Steve $720 if interest was calculated at the
applicable federal interest rate. Assume that tax avoidance was not a motive
for the loan.
c. Mary won a $900 cash prize at her church-sponsored Bingo game.
d. The Andersons received $500 of interest from an XRS Corp. corporate bond
and $250 of interest from a municipal bond from Anytown, VA. Mary owned
these bonds before she married Steve.
e. The couple bought 50 shares of ABC Inc. stock for $40 per share on July 2.
The stock was worth $47 a share on December 31. The stock paid a
dividend of $1.00 per share on December 1. The Andersons still own the
stock.
f. Mary’s father passed away on April 14. She inherited cash of $50,000 and
his baseball card collection, valued at $2,000. As beneficiary of her father’s
life insurance policy, Mary also received $150,000.
g. The couple spent a weekend in Atlantic City in November and came home
with gambling winnings of $1,200.
h. Steve received $400 cash for reaching 10 years of continuous service at CJI.
i. For meeting his performance goals this year, Steve was informed on
December 27 that he would receive a $5,000 year-end bonus. CJI (located
in Houston, Texas) mailed Steve’s bonus check from its payroll processing
center (Tampa, Florida) on December 28th. Steve didn’t receive the check at
his home until January 2.
j. Mary’s daycare business collected $45,000 in revenues. In addition,
customers owed her $3,000 at year-end. During the year, Mary spent $5,500
for supplies, $1,500 for utilities, $15,000 for rent, and $500 for miscellaneous
expenses. One customer gave her use of his vacation home for a week
(worth $2,500) in exchange for Mary allowing his child to attend the day care
center free of charge. Mary accounts for her business activities using the
cash method of accounting.
k. Steve’s employer pays the couple’s annual health insurance premiums of
$5,500 for a qualified plan.
l. Mary incurred some extra medical expenses to treat a broken wrist from a
mountain biking accident. In April, Mary broke her wrist in a mountain biking
accident. She paid $2,000 for a visit to the hospital emergency room and
follow-up visits with her doctor. While she recuperated, Mary paid $300 for
prescription medicine and $700 to a therapist for rehabilitation. Mary’s
insurance reimbursed her $1,840 for these expenses. Steve drove Mary 110
miles back and forth from the doctor’s office and the physical therapist’s
facility during the period Mary was being treated for her broken wrist. Mary
incurred $1,214 additional amounts of unreimbursed qualifying medical
expenses.
m. Steve paid $31,154 withheld of Federal Taxes and $6,700 of state income
taxes through withholding from his paycheck.
n. Mary and Steve paid $2,700 of real estate taxes on their personal residence
and $850 of real estate taxes on an investment property she owns in
Oklahoma. Finally, Mary paid $180 as a registration fee for her automobile
(the fee is based on the year the automobile was manufactured, not its
value).
o. Mary and Steve acquired their home on February 15, 2021, for $300,000
(also its value throughout the year). They purchased it by paying $40,000 as
a down payment and borrowing $260,000 from a credit union. In January
2021, they paid points of $2,600 to obtain the loan and during 2021 they paid
$6,567 in interest on the loan. Their home is the collateral for the loan.
p. This year they donated $1,700 to the Red Cross. Mary also gave $200 in
cash to various home-less people she met on the streets during the year.
Once a month, Steve does volunteer work at a Goodwill Industries outlet
about 20 miles from their home. Altogether, Steve traveled 500 miles during
the year driving to and from the Goodwill outlet. Steve has determined that
the services she provided during the year are reasonably valued at $1,500.
Prior to moving into their new home, Steve and Mary donated excess
possessions to Goodwill Industries. They estimated that they paid over $900
for these items, including clothing, a table, and a couch. However, although
the items were in excellent condition, they were worth only $160.