Question 1

Complete the tax return on form 540, Schedule CA (540), and form 3506. Bea and Bill Morris live at 456 So. Sherman St., Placerville, CA 95667. They have one dependent child, Barbara, age 2, and Bill’s parents Maggie and Mel Morris also live with them. Maggie’s income was $3,054 and Mel’s income was $3,066, and their combined income was less than half the cost of their support. The Morris’ federal adjusted gross income was $107,460. Included in that amount, are wages of $61,000 and $48,485, California income tax refund of $320, interest on a U.S. series HH bond of $165, capital gains of $2,090, and California lottery winnings of $400. They did not include interest income on City of Sacramento bonds of $625. They also had an IRA deduction of $5,000. Their federal itemized deductions included $11,350 for home mortgage interest, $3,200 for California income tax, $270 for State Disability Insurance, $82 for foreign income tax, $2,890 real property tax, $490 personal property tax on automobiles, $80 in gambling losses (California lottery), and $1,620 in charitable contributions. Bea and Bill paid $1,690 for child care expenses when Bill’s parents were unable to baby sit.

 

Question 2

Complete the tax return on form 540, Schedule CA (540), and form 3506. Bret and Bonnie Garry live at 2849 Florida St., Alpine, CA 91901. They have two children, Bob and Bart, ages 6 and 19. Bart is taking a break from the University of San Diego this year. He lives with Bret and Bonnie and works part-time at the Bank of America, earning $4,230. The Garry’s federal adjusted gross income was $96,450 which included $95,598 in wages, $160 interest from a savings and loan, $6,340 self-employment income, $448 as the deductible portion of self-employment tax, and ($3,000) capital asset loss. Not included in that amount was $3,600 interest on City of San Diego bonds, and $980 interest on Michigan State bonds. They also had tuition and fees deduction of $2,200. Federal itemized deductions that were claimed (after all reductions) were $19,100 and include: • Home mortgage interest $9,200 • Home equity loan interest $540 • Real property tax $3,400 • Personal property tax on autos $670 • California income tax $3,900 • State disability insurance $345 • Contributions $800 • Miscellaneous expenses $245 Bonnie and Bret paid child care expenses of $2,300 when Bart was unable to assist. Bonnie’s earned income for completing form 3506 is the self-employment income. The Garrys elect to contribute $100 to the California Cancer Research Fund (code 413).