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

question 57

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.
b.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 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:

Commercial Allies

Countries or organizations that engage in mutual cooperation to enhance economic growth, trade relations, and business development.

Foreign Allies

Countries that form partnerships or alliances with one another, often for mutual benefit such as defense, security, or economic cooperation.

Union Officers

Military leaders or officials in the Union army during the American Civil War.

Confederacy

A league or alliance, especially of states or groups. Historically, it also refers to the Confederate States of America, a collection of 11 southern states that seceded from the United States in 1860-1861.