Chapter D: Additional Comprehensive Tax Return Problems Appendix Contents
D
Appendix
Additional Comprehensive Tax Return Problems Comprehensive Problem One Comprehensive Problem Two Chapter D: Additional Comprehensive Tax Return Problems Appendix Contents
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Chapter D: Additional Comprehensive Tax Return Problems Comprehensive Problem One
Comprehensive Problem One Noah and Joan Arc’s Tax Return Noah and Joan Arc live with their family at 4342 Josie Jo, Santee, CA 92071. Noah’s Social Security number is 434113311; Joan’s is 456875432. Both are in their mid30s and enjoy good health and eyesight. Noah owns and operates a pet store and Joan is a firefighter for the city. 1. The Arcs have two children, a son named Billie Bob (Social Security number 59801 2345), who is 7 years old, and a daughter named Mary Sue (Social Security number 554332411), who is 4 years old. The Arcs paid $3,200 to the Roundup Day Care Center to take care of Mary Sue while they worked. Because Joan is a firefighter, she was home in the afternoon to care for Billie Bob after school. 2. For the current year, Joan’s W2 from the city fire department is located. Noah made estimated federal income tax payments of $12,000 and estimated state income tax payments of $1,020 during the current year.
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3. Noah’s pet store is located at 18542 Mission Road, Santee, CA 92071. The name of the store is “The Arc,” and its taxpayer ID number is 959876556. The beginning inventories and ending inventories are both $10,000. The revenue and expenses for the year are as follows:
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Sales revenue
$ 144,300
Expenses: Cost of sales
$61,900
Insurance
780
Accounting fees
1,800
Wages
25,100
Payroll taxes
2,250
Business meals (total)
400
Utilities
2,650
Rental expense
7,600
4. Noah and Joan paid the following amounts during the year (all by check):
5. Noah likes to invest in the stock market. His Form 1099B showed the following information for Noah’s stock sales:
Date Stock
Acquired
Date Sold
Sales
Cost
Price
Basis
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Blue Co.
02/11/06
08/15/16
$ 4,500
$2,400
Yellow Co.
01/31/16
06/05/16
6,000
5,300
Red Co.
10/02/07
10/07/16
12,200
1,600
The expenses of sale are included in the cost basis. Noah has a longterm capital loss carryover from last year of $2,350. 6. During the year, Noah and Joan received the following qualifying dividends:
All stocks, bonds, and savings accounts were purchased or established with community property. 7. Noah and Joan own rental property located at 6431 Gary Ct., San Diego, CA 92115. The revenue and expenses for the year are as follows:
8. All members of the Arc household were covered for the entire year under health care insurance through Joan’s employer. 9. The Arcs paid California general sales tax of $976 during the year. Required: Although Noah and Joan do not believe their tax return will be unduly complicated, they do realize their limitations and come to you for assistance. You are to prepare their federal income tax return in good form, signing the return as the preparer. Do not complete a California state income tax return. Noah and Joan have completed a tax organizer and have also given you several IRS forms that they were not sure what
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to do with. Make realistic assumptions about any missing data (addresses, etc.) that you may need. The following forms and schedules are required:
Form 1040
Schedule E
Schedule A
Schedule SE
Schedule B
Form 2441
Schedule C
Form 8949
Schedule D
Qualified Dividends and Capital Gain Tax Worksheet
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Note: The forms included in Appendix D are provided for the student to work on only one of the two comprehensive problems. If desired, additional forms may be obtained from the IRS website at www.irs.gov. 6/7
Chapter D: Additional Comprehensive Tax Return Problems Comprehensive Problem Two
Comprehensive Problem Two Gregory and Lulu Clifden’s Tax Return Gregory R. and Lulu B. Clifden live with their family at the Rock Glen House Bed & Breakfast, which Gregory operates. The Bed & Breakfast (B&B) is located at 33333 Fume Blanc Way, Temecula, CA 92591. Gregory’s Social Security number is 543889756 and Lulu’s is 25643 8819. Both are in their mid40s and enjoy good health and eyesight. 1. The Clifdens have three sons, Gerald A. (SS# 466741131), Gary T. (SS# 46576 8375), and Glenn E. (SS# 475231426). Gerald is 17 years old, Gary is 12 years old, and Glenn is 10 years old. 2. The Rock Glen House Bed & Breakfast is operated as a sole proprietorship and had the following income and expenses for the year:
Room rental income
$139,250
Vending machine income
2,325
Advertising expense
4,810
Depreciation
18,100
Mortgage interest on the B&B
33,010
Wages of maid
15,450
Taxes and licenses
6,420
Supplies
8,870
Business insurance
6,300
Laundry expenses
4,290
Accounting fees
1,850 1/29
Office expenses
2,400
Utilities
6,350
All of the above amounts relate to the business portion of the Bed & Breakfast; the personal portion is accounted for separately. The Rock Glen House Bed & Breakfast uses the cash method of accounting and has no inventory. The employer tax ID number is 951234567. 3. The Clifdens made estimated federal income tax payments of $2,000 and estimated state income tax payments of $6,000 (all made during 2016). 4. Lulu is a substitute schoolteacher with the local school district. For the current year, Lulu’s Form W2 from the school district showed the following:
Wages Federal income tax withheld
$10,200 1,650
State income tax withheld
380
FICA (OASDI & Medicare)
780
5. Gregory is retired from the U.S. Navy. His annual statement from the Navy, Form 1099 R.
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6. Gregory and Lulu paid (and can substantiate) the following amounts during the year:
Mastercard interest Dental expenses California state income tax (for 2015)
$1,480 2,600 450
Charitable contributions
1,875
Mortgage interest on home purchase
7,600
(personal portion) Real estate taxes (personal portion)
820
Life insurance premiums
845
Investment interest expense Automobile registration fees (deductible
3,100 450
portion) Tax return preparation fee Contributions to George Clinton’s
475 1,000
reelection campaign
None of the investment interest is related to amounts borrowed to purchase the City of Atlanta taxexempt bonds. 7. During the year, Gregory and Lulu received the following qualifying dividends and interest: 4/29
Also, Lulu owns Series EE U.S. savings bonds. During the year, the bond redemption value increased by $1,300. Lulu has not elected the accrual method for these bonds. There were no Irish taxes paid on the interest from the Bank of Ireland. All the above stocks, bonds, and bank accounts are community property. 8. Lulu has a stock portfolio. During the year, she sold the following stock, shown on her Forms 1099B as follows:
9. Lulu paid her exhusband $6,000 alimony in the current year, as required under the divorce decree. Her exhusband’s name is Hector Leach and his Social Security number is 566235431. 10. Gregory does all the significant work in the Bed & Breakfast and therefore he pays self employment tax on 100 percent of the earnings from the B&B. 11. During the year, Gregory’s uncle Martin died. Martin had a $50,000 life insurance policy that named Gregory as the beneficiary. Gregory received the check for the benefits payable under the policy on November 30 of the current year. Martin also left Gregory a small nonoperating farm with an appraised value of $120,000. 12. Two years ago, Gary won a contest and received a cash prize. The money is in a savings account in Gary’s name. His interest on the savings account in the current year is $3,400. Instead of having Gary fill out a tax return and pay the “kiddie tax,” Gregory and Lulu elect to report the interest income on their joint tax return.
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13. Lulu was not eligible for health care benefits due to the parttime nature of her job thus health insurance for the Clifden household was purchased by Gregory. The Clifdens are not eligible from an exemption from coverage. The Clifdens purchased health insurance through the Covered California program and received the Form 1095A. They had no other health insurance during 2016. Assume that the selfemployed health insurance deduction is $384. The Clifdens did not claim an advance premium credit. Required: Gregory and Lulu have come to you to prepare their 2016 federal income tax return. Do not complete a California state income tax return. Gregory and Lulu have completed a tax organizer and have also given you several IRS forms that they were not sure what to do with. Make realistic assumptions about any missing data (addresses, etc.) that you need. Do not file a federal Form 4562, Form 4952, Form 8829, or claim the Earned Income Credit (even if they qualify) for the Clifdens. The following is a list of the forms and schedules that you will need to complete the tax return:
Form 1040
Schedule
Child Tax Credit Worksheet
SE Schedule A
Form 8812
Qualified Dividends and Capital Gain Tax Worksheet
Schedule B
Form 8814
Schedule C
Form 8849
Schedule D
Form 8962
Shared Responsibility Payment Worksheet
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Note: The forms included in Appendix D are provided for the student to work on only one of the two comprehensive problems. If desired, additional forms may be obtained from the IRS website at www.irs.gov.
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Shared Responsibility Payment Worksheet If you or another member of your tax household had neither minimum essential coverage nor a coverage exemption for any month during 2016, use the Shared Responsibility Payment Worksheet, below, to figure your shared responsibility payment. You will enter the amount from line 14 of the worksheet on Form 1040, line 61; Form 1040A, line 38; or Form 1040EZ, line 11.
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Flat Dollar Amount Worksheet
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Chapter D: Additional Comprehensive Tax Return Problems Comprehensive Problem Two
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