Carrie A. Morgan, age 45, is single and lives with her dependent mother atXXXXX Allentown, PA 18105. Her social security number isNNN-NN-NNNN 

1. Carrie is a licensed hairstylist and operates her own business. Located atXXXXX Allentown, PA 18105, the business is conducted under the name of “Carrie's Coiffures.” Carrie's business activity code is 812112. In addition to 10 workstations (i.e., stylist chairs) and a small reception area, the shop has display and storage areas for the 
products Carrie sells (see item 2 below). During the year, Carrie leased nine of the stations to other hairstylists. As is common practice in similar businesses in the area, the other stylists are considered to be self-employed. In fact, the IRS sanctioned the self-employment classification for the stylists in an audit of one of Carrie's prior tax returns. Each stylist pays Carrie a fixed rent for the use of a workstation, resulting in 
$68,000 of rents received during 2012. From her own station, Carrie earned $44,000 
(including tips of $12,000) for the styling services she provided to her own clients. 

2. Carrie's Coiffures is the local distributor for several beauty products (e.g., conditioners, 
shampoos) that cannot be purchased anywhere else. Carrie buys these items from the 
manufacturers and sells them to regular patrons, walk-in customers, and other 
beauticians (including those who lease chairs from her). Carrie's Coiffures is also 
known for the selection and quality of its hairpieces (i.e., wigs, toupees). Through the 
shop, Carrie made the following sales during the year: 

Hairpieces and wigs $69,000 
Beauty products 48,000 

3. Although Carrie operates her business on a cash basis, she maintains inventory 
accounts for the items she sells as required by law. Relevant information about the 
inventories (based on lower of cost or market) is summarized below. 
4. 
12/31/11 12/31/12 
Hairpieces and wigs $10,700 $12,600 
Beauty products 11,400 9,900 

5. Carrie's purchases for 2012 were $30,500 of hairpieces and wigs and $26,100 of beauty 
products. 

6. Carrie's Coiffures had the following operating expenses for 2012: 

Utilities (i.e., gas, electric, telephone) $12,900 
Ad valorem property taxes: 
On realty (e.g., shop building and land) $4,200 
On personalty (e.g., equipment, inventory) 1,800 6,000 
Styling supplies (e.g., rinses, dyes, gels, hair spray) 5,700 
Fire and casualty insurance 4,100 
Liability insurance 4,000 
Accounting services 3,800 
Janitorial services 2,400 
Sewer service, garbage pickup $ 2,300 
Water 2,200 
Occupation licenses (city and state) 1,500 
Waiting room supplies (e.g., magazines, coffee) 1,300 
7. As Carrie prefers to avoid employer-employee arrangements and the payroll tax
complexities, she retains outside agencies to handle her accounting and janitorial 
needs. 

8. In early 2012, Carrie decided to renovate the waiting room. On May 10, she spent 
$10,400 for new chairs, a sofa, various lamps, coffee bar, and other furnishings. Carrie 
follows a policy of claiming as much depreciation as soon as possible. The old 
furnishings were thrown away or given to customers. For tax purposes, the old 
furnishings had a zero basis. 

9. Carrie's Coiffures is located in a building Carrie had constructed atXXXXXin 
March 1998. The shop was built for a cost of $300,000 on a lot she purchased earlier 
for $35,000. Except for a down payment from savings, the cost was financed by a 20-
year mortgage. For tax purposes, MACRS depreciation is claimed on the building. 
During 2012, the following expenses were attributable to the property: 

Repainting (both exterior and interior) $8,000 
Repairs (plumbing and electrical) 1,900 

10. In May (after her accident settlement discussed in item 11 below), Carrie paid the 
balance due on the business mortgage. To do so, she incurred a prepayment penalty of 
$4,400. Prior to paying it off, she paid regular interest on the mortgage in 2012 of 
$6,000. 

11. In February 2012, Carrie's Coiffures was cited by the city for improper disposal of 
certain waste chemicals. Carrie questioned the propriety of the proposed fine of $2,000 
and retained an attorney to represent her at the hearing. By pleading nolo contendere, 
the attorney was able to get the fine reduced to $500. Carrie paid both the fine of $500 
and the attorney's fee of $600 in 2012. 

12. In August 2012, Carrie saw an ad in a trade publication that attracted her attention. 
The owner of a well-respected styling salon in Reading (PA) had died, and his estate 
was offering the business for sale. Carrie traveled to Reading, spent several days 
looking over the business (including books and financial results), and met with the 
executor. Carried treated the executor to dinner and a music concert. Immediately after 
the concert, Carrie made an offer for the business, but the executor rejected it. Her 
expenses in connection with this trip were as follows: 

Car rental $140 
Entertainment of executor 280 
Motel (August 6-7) 220 
Meals 110 

13. In March 2011, Joan Myers, one of Carrie's best stylists, left town to get away from a 
troublesome ex-husband. In order to help Joan establish a business elsewhere, Carrie 
loaned her $7,000. Joan signed a note dated March 3, 2011, that was payable in one 
year with 6% interest. On December 30, 2012, Carrie learned that Joan had declared 
bankruptcy and was awaiting trial on felony theft charges. Carrie never received 
payment from Joan, nor did she receive any interest on the loan. 

14. At Christmas, Carrie gave each of her 35 best customers a large bottle of body lotion. 
Each bottle had a wholesale cost to Carrie of $12 but a retail price of $24. Carrie also 
spent $3 to have each bottle gift wrapped. (Note: The lotion was special order 
merchandise and was not part of the business's inventory or purchases for the year—see item 2 above.) She also gave each of the nine stylists who leased chairs from her a 
basket of fruit that cost $30 (not including $5 delivery cost). 

15. In March 2012, the Pennsylvania Department of Revenue audited Carrie's state income 
tax returns for 2009 and 2010. She was assessed additional state income tax of $340 
for these years. Surprisingly, no interest was included in the assessment. Carrie paid 
the back taxes promptly. 

16. On a morning walk in November 2011, Carrie was injured when she was sideswiped by 
a delivery truck. Carrie was hospitalized for several days, and the driver of the truck 
was ticketed and charged with DUI. The owner of the truck, a national parcel delivery 
service, was concerned that further adverse publicity might result if the matter went to 
court. Consequently, the owner offered Carrie a settlement if she would sign a release. 
Under the settlement, her medical expenses were paid and she would receive a cash 
award of $200,000. The award specified that the entire amount was for physical pain 
and suffering. Because she suffered no permanent injury as a result of the mishap, she 
signed the release in April 2012 and received the $200,000 settlement. 

17. In January 2012, Carrie was contacted by the state of Pennsylvania regarding a tract of 
land she owned in York County. The state intended to convert the property into a 
district headquarters, barracks, and training center for its highway patrol. Carrie had 
inherited the property from her father when he died on August 11, 2011. The property 
had a value of $140,000 on that date and had been purchased by her father on March 
3, 1980, for $30,000. On July 25, 2012, after considerable negotiation and after the 
state threatened to initiate condemnation proceedings, she sold the tract to the state 
for $158,000. Since Carrie is not comfortable with real estate investments, she does not 
plan to reinvest any of the proceeds received in another piece of realty. 

18. When her father died in 2011, Carrie did not know that he had an insurance policy on 
his life (maturity value of $50,000) in which she was named as the beneficiary. When 
her mother told her about the policy in July 2012, Carrie filed a claim with the carrier, 
Falcon Life Insurance Company. In August 2012, she received a check from Falcon for 
$51,500 (including $1,500 interest). 

19. Upon the advice of a client who is a respected broker, Carrie purchased 1,000 shares of 
common stock in Grosbeak Exploration for $40,000 on March 4, 2012. In the months 
following her purchase, the share value of Grosbeak plummeted. Disgusted with the 
unexpected erosion in the value of her investment, Carrie sold the stock for $28,000 on 
December 23, 2012. 

20. While on her way to work in 2011, Carrie was rear-ended by a hit-and-run driver. The 
damage to her Lexus was covered by her insurance company, General Casualty, except 
for the $1,000 deductible she was required to pay. In 2012, the insurance company 
located the driver who caused the accident and was reimbursed by his insurer. 
Consequently, Carrie received a $1,000 refund check from General Casualty in May 
2012 to reimburse her for her $1,000 deductible. 

21. After her father's death, Carrie's mother (Mildred Morgan, Social Security number NNN-NN-NNNN moved in with her. Mildred's persistent back trouble made it difficult for 
her to climb the stairs to the second-floor bedrooms in Carrie's house. So Carrie had an 
elevator installed in her personal residence at a cost of $12,000 in January 2012. A 
qualified appraiser determined that the elevator increased the value of the personal 
residence by $7,000. The appraisal cost $400. The operation of the elevator during 
2012 increased Carrie's electric bill by $300. 

22. As a favor to a long-time client who is a drama professor at a local state university, 
Carrie spent a weekend as a stylist preparing hairdos for the key actresses in the annual Theater Department fund-raising event. The drama professor supplied all of the 
resources that Carrie needed to provide her services. Carrie estimates that she would 
have charged $800 for the services she donated to this charitable event. 

23. In addition to the items already mentioned, Carrie had the following receipts during 
2012: 

Interest income— 
CD at Scranton First National Bank $900 
City of Lancaster general purpose bonds 490 
Money market account at Allentown State Bank 340 $1,730 
Qualified dividends on stock investments— 
General Motors $470 
AT&T common 380 850 
Federal income tax refund (for tax year 2011) 791 
Pennsylvania state income tax refund (for tax year 2011) 205 

24. Expenditures for 2012, not previously noted, are summarized below. 
Contribution to pension plan $10,000 
Medical— 
Premiums on medical insurance $4,800 
Dental bills 1,400 6,200 
Property taxes on personal residence 3,800 
Interest on home mortgage 3,200 
Professional expenses— 
Subscriptions to trade journals $ 180 
Dues to beautician groups 140 320 
25. The $10,000 contribution to the pension plan is to a § 401(k) type of plan she 
established in 2011. Previously, she had contributed to an H.R. 10 (Keogh) plan but 
found that the § 401(k) retirement arrangement provides more flexibility and is less 
complex. The medical insurance policy covers Carrie and her dependents and was 
issued in the name of the business (i.e., “Carrie's Coiffures”). It does not cover dental 
work or capital modifications to a residence (see item 16 above). 

26. During 2012, Carrie made the following total estimated tax payments with respect to 
her 2012 tax returns: 

Federal estimated income tax payments $20,800 
Pennsylvania estimated income tax payments 2,400 
Allentown City estimated income tax payments 800 

Requirements

 

 

 

Prepare an income tax return (with appropriate schedules) for Carrie for 2012. In doing this, use the 
following guidelines:

 


1) Make necessary assumptions for information not given in the problem.

 

 

 

2) Carrie has itemized deductions ever since she became a homeowner many years ago.

 

 

 

3) The sales tax option was not chosen in 2011, and Carrie had no major purchases that 
qualify for the sales tax deduction in 2012.

 

 

 

4) Carrie has substantiation (e.g., records, receipts) to support the transactions involved.

 

 

 

5) If a refund results, Carrie wants it sent to her.

 


6) Carrie is preparing her own return (i.e., no preparer is involved).

 

 

 

7) Carrie does not wish to contribute to the Presidential Election Campaign Fund.

 

    • Posted: 6 years ago
    A+ Answers - Most Economical - Most Accurate

    Purchase the answer to view it

    blurred-text
    Save time and money!
    Our teachers already did such homework, use it as a reference!
    • Tax Return Assistance

      PLEASE PROVIDE ALL FORMS AND EXPLANATIONS REQUESTED.

      The forms can be located through http://www.irs.gov/.

      1) Form 1040

      2) Form 1040 Schedule A

      3) Form 1040 …

    • Carrie A. Morgan, age 45, is single and lives with her dependent mother at 426 Allentown, PA 18105. Her social security number is XXXXX

      1. Carrie is a licensed hairstylist and operates her own …

    • Not rated

      Carrie Morgan

      1) Form 1040 2) Form 1040 Schedule A 3) Form 1040 Schedule B 4) Form 1040 Schedule C 5) Form 1040 Schedule D 6) Form 1040 Schedule SE 7) Form 8949 8) Form 4562 Carrie A. Morgan, age 45, is single and …

    • Carrie A. Morgan, age 45, is single and lives with her dependent mother at 426 Allentown, PA 18105. Her social security number is XXXXX



      1. Carrie is a licensed hairstylist and operates her own …

    • PROVIDE ALL FORMS AND EXPLANATIONS REQUESTED. 1) Form 1040 2) Form 1040 Schedule A 3) Form 1040 Schedule B 4) Form 1040 Schedule C 5) Form 1040 Schedule D 6) Form 1040 Schedule SE 7) Form 8949 …

    • PLEASE PROVIDE ALL FORMS AND EXPLANATIONS REQUESTED. The forms can be located through http://www.irs.gov/. 1) Form 1040 2) Form 1040 Schedule A 3) Form 1040 Schedule B 4) Form 1040 Schedule C 5) Form …

    • 1) Form 1040 2) Form 1040 Schedule A 3) Form 1040 Schedule B 4) Form 1040 Schedule C 5) Form 1040 Schedule D 6) Form 1040 Schedule SE 7) Form 8949 8) Form 4562 Carrie A. Morgan, age 45, is single and …

    • Not rated

      Carrie Morgan

      The forms can be located through http://www.irs.gov/. 1) Form 1040 2) Form 1040 Schedule A 3) Form 1040 Schedule B 4) Form 1040 Schedule C 5) Form 1040 Schedule D 6) Form 1040 Schedule SE 7) …

    • Not rated

      Carrie Morgan

      The forms can be located through http://www.irs.gov/.





      1) Form 1040


      2) Form 1040 Schedule A


      3) Form 1040 Schedule B


      4) Form 1040 Schedule C


      5) Form 1040 Schedule D


      6) Form 1040 Schedule SE


      7) Form 8949


      8) …

    • Carrie A. Morgan, age 45, is single and lives with her dependent mother atXXXXX Allentown, PA 18105. Her social security number isNNN-NN-NNNN 1. Carrie is a licensed hairstylist and operates her own …