Comprehensive Tax ProblemJoseph and Diane Smith1580 West StreetChatham, VA 24531Joseph and Diane are both 35 and have no dependents. If your clients receive a refund, they want the full amount refunded to them. Diane is currently pregnant and will give birth during the next tax year. Joseph – SSN: 400-20-0100Diane – SSN: 200-40-8000Joseph works as a salesman. During the current year, Joseph earned a total compensation from his job of $125,000. Following are the deductions from his pay. Federal Withholding $20,000 FICA (Social Security) Withholding $ 7,347 Medicare $ 1,813 Virginia Withholding $ 4,000Diane is a nurse and earned total compensation of $45,400. Following are the deductions from her pay. Federal Withholding $ 5,000 FICA (Social Security) Withholding $ 2,815 Medicare $ 658 Virginia Withholding $ 2,000Joseph and Diane have investments in stocks and have a saving account at a local bank. During the current year, they earned $1,450 in interest from the Bank of Virginia. They received qualified stock dividends of $5,950 from GE stock. They also traded in the stock market during the year and had the following results (just enter net amounts in the proper schedule). Long Term Capital Gain $ 4,900 Long Term Capital Loss $(3,200) Short Term Capital Gain $ 0 Short Term Capital Loss $(7,800)They have no loss carryover from previous years.Joseph also owns side consulting business which he runs as a sole proprietor. He uses the cash method to account for this activity. He uses a room in his home exclusively for activities related to this business. Joseph has opted to use the simplified method for a deduction for the business use of his home amounting to $1,500. During the year, Joseph earned and received $12,500 from clients related to this business. His expenses were as follows:Advertising $175Supplies $500Legal Fees $750Liability Insurance $600The couple have the following additional expenses for the year: Health Insurance (after-tax) $ 4,400 Doctor bills $ 470 Real estate taxes $ 2,200 Personal property taxes $ 400 Mortgage Interest $15,600 Charitable contributions – cash $ 9,000 Charitable contributions – Stock GE stock owed 5 years: Fair Market Value (FMV) $ 8,000 Adjusted basis $ 2,000 Tax preparation fees $ 750Enter the appropriate information in Part I and Part IICheck the appropriate boxes in Part III – the taxpayers have no foreign interests
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