Carson, Age 34 and Single, Is an Electrical Engineer Employed

question 83

Essay

Carson, age 34 and single, is an electrical engineer employed by Summit Corporation. Carson's annual salary is $84,000. Summit Corporation's qualified pension plan matches employee's contributions to the plan up to 5% of the employee's annual salary. During the current year, Carson contributes the $4,200 maximum to the plan, which is matched by Summit. Due to high cost of medical insurance, the corporation does not provide any medical insurance to its employees. Instead, it offers a flexible benefits plan that employees can use to pay for medical insurance, unreimbursed medical costs, and childcare costs. Carson elects to have $2,500 paid into the plan. Carson uses the plan to purchase medical insurance costing $2,100. Carson spends an additional $650 from the plan on eyeglasses and dental costs. Carson has asked you to prepare his tax return. Your initial interview with him discloses that he has $1,050 of allowable deductions for adjusted gross income and $3,700 of allowable itemized deductions.
a. Compute Carson's taxable income and his tax liability.
After your initial interview, Carson calls you and says that he just received two statements concerning sales of investments that he had forgotten about. On January 15, he sold shares of stock for $5,500. Carson purchased the stock in November for $4,500. He also received $2,000
b. on March 15 from the sale of some land that he had received as an inheritance from his grandfather in 2000. He has a statement from the executor of his grandfather's estate listing his basis in the land at $10,000. Explain the effect of these two sales on Carson's taxable income and his tax liability.

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Definitions:

Outstanding Checks

Checks that have been written and recorded by an entity but not yet cleared or cashed by the recipient.

Control Environment

The control environment forms part of an organization’s internal control framework, setting the tone for discipline and structure regarding the internal controls and operational processes.

Risk Assessment

The process of identifying, analyzing, and evaluating the likelihood and impact of risks on a project or organization.

Control Procedures

Policies and procedures that are put in place by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.