ACC 5170 Tax Return Project – 2016
Tax Return Project
Use the following information to prepare the various schedules/forms for Luke and Ann that are indicated on the class schedule of assignments. You will also use this information (and the information from the various schedules that you will have prepared) to prepare a federal form 1040 for Luke and Ann for 2015. Be sure to include all necessary forms and schedules to complete the tax return even if they were not prepared as individual assignments. Also, please put all forms for your completed Form 1040 in the proper order per the IRS attachment instructions. You may obtain the necessary forms and instructions from the IRS website: www.irs.gov which has a forms and publications tab. The tax return submitted and the various schedules MUST BE HAND WRITTEN.
For the individual form submissions and for the final form 1040, you must prepare the cover sheet (last page of this document) that details any assumptions made regarding issues on the individual forms or on the tax return as a whole. Place the completed assumptions sheet on top of your forms or tax return when you submit the finished products. (Make sure your completed tax forms are consistent with your final stated assumptions.) The cover sheet may be typed. You may add additional rows to the cover sheet if necessary.
Also, if you combine any numbers to place them on the forms or the tax return please show the detail on the assumptions sheet. Also be sure to label any items placed on the forms or tax return so they can be identified.
Special instructions for your initial submission of Schedule A:
**Note: these instructions only apply to the schedule that will be submitted before the final return is due.
For purposes of the initial Schedule A, use $100,000 as the Adjusted Gross Income amount. (For the final Schedule A you will use your computed AGI amount, so you will need to revise the Schedule A to reflect the computed AGI before you turn it in with your final tax return.)
Any questions, post to the discussion forum for this project and e-mail me that you have posted a question to the discussion forum.
Luke Thompson, 48, Social Security Number 123-45-6789, is a self-employed architect. His gross income is $205,000. In 2015, he paid estimated taxes of $33,800. His wife, Ann, 45, Social Security Number 123-48-9012, is an elementary school teacher. Her W-2 earnings were $46,000. She had $6,050 withheld in federal tax.
Luke and Ann’s son, Samuel, 23, Social Security number, 456-23-4556, a full-time college student, graduated from college in May of 2015 but still lives at home and his parents pay his living expenses. His W-2 earnings were $25,000; he had $4,000 withheld in federal taxes. Samuel is saving his earnings for graduate school which he hopes to attend in a couple of years.
Their daughter, Jennifer, 9, Social Security Number 245-78-8978, is in elementary school and has income of $9,500 from a part time modeling job. All her earnings are deposited in an investment account for her future.
Ann’s mother, Mary McIntyre, 77, Social Security Number 345-67-8910, has lived with the family since November 2013, except for four months in 2015, when she was convalescing in a nursing home from a hip fracture. She receives $12,000 from Social Security. Mary also receives a taxable pension, reported as $8,000 on her 1099-R.
Luke has a few business expenses. They include:
- $5,821 on office supplies.
- 1,350 for advertising.
- $6,700 on blueprints for jobs.
- $350 for printing.
- $1,100 on permits for jobs.
- $1,423 for home show fees.
- $10,000 for a part-time employee.
- Total Social Security taxes relating to this employee of $1,240, and Medicare taxes of $290 (includes both the employer and employee portions). Federal income taxes (withholding) were also paid, as well as $56 in federal unemployment taxes.
- $349 for professional journals related to architecture.
- $2,400 (a $200 monthly flat rate) for his cell phone, which is used 85% for business.
- $543 for long distance business phone calls placed on his home phone.
- Luke belongs to several local Chambers of Commerce. During 2015, he paid $360 in dues.
- $2,348 for various tickets to football games that he took his clients to.
- Luke paid $15,000 in country club dues for the 2015 tax year. The entire family uses the club for swimming, sports activities, and dining. Luke used the club to entertain several of his clients during the year. His use of the club was 18% of the total use of the club. He spent $3,320 for business meals at the country club and $4,950 for golf fees when he and his clients played golf at the club. Each time he entertained clients, business was discussed before, during and/or after golfing or meals at the club.
- Luke also incurred the following business expenses to attend several architecture conferences during the tax year. All conferences were in the United States.
- Airfare $2,650
- Hotel 1,229
- Meals 2,142
- Transportation 220
- Conference fees 1,190
He uses one room of the house as an office (1/16 of the total square footage of the house). The house was purchased on August 5, 2012 for $401,000, of which $75,000 was allocated to the purchase price of the lot. The home is 2,800 square feet. Ann also often uses this room to work on her craft projects. The room is also used for out of town guests who visit. Some expenses related to this home office include
Utilities (total for the house) 2,590
Insurance (total for the house) 1,450
Painting of the room 600
In June of 2015 Luke purchased the following assets for use in his business. (All other assets he uses in his business were purchased a number of years ago and were either expensed or have been completely depreciated before this year.) All the recently purchased assets are used 100% for business. Because he anticipates his income increasing substantially next year, he does not wish to expense any of the purchases nor claim any additional first year depreciation he might be eligible for.
Used Desk $3,750
File Cabinet 2,450
Luke has carefully kept a log of his 12,900 miles spent driving to clients and returning to his home office each day. He visits only one client a day. He drives a 2012 Volkswagen Passat, which they paid off in 2013. He purchased the car for $28,700. He kept no gas, maintenance or any other auto-expense receipts.
Luke’s employer identification number for his business is 38-6543210.
Ann completed her Masters degree in elementary education in 2015, having decided that the advanced degree would improve her work skills and increase her salary and marketability. Continuing education is also required to keep her teaching certification under state law, so like a lot of teachers she felt it made sense to work on a Masters and not just take various classes. In 2015, she fully paid tuition of $7,500.
Ann also subscribes to a number of teaching journals. She feels they help her improve her skills at work and make her a better employee. She spent $250 on these journals and she also spent $350 on supplies for her classroom.
Ann, who also likes to make and sell crafts, had gross receipts of $7,320 from this activity. The materials for the crafts she sold cost her $4,315; other miscellaneous expenses (marketing and craft show fees and postage) totaled $1,805. This is the first year that Ann has attempted to sell any of her crafts. Since she feels she was successful, she plans to continue this activity into the future as a part time business.
In 2015, Luke and Ann took out a home equity loan of $75,000. Of that sum, they spent $26,000 on a new Ford Fusion which Ann drives and for which they also paid $1,560 in sales tax. They used $24,000 to pay the nursing-home bill that Mary couldn’t pay herself. They paid $2,550 in interest on the home equity loan.
Luke and Ann earned taxable interest of $2,002 from First National Bank.
Ann had $830 in interest from an interest bearing checking account at Chase Bank.
Luke had $150 in interest from an interest bearing checking account at Second National Bank.
Luke received $6,740 in interest from U.S. Treasury Bonds.
Ann received $4,780 in interest from State of Kentucky bonds.
Ann received $2,402 in ordinary (and qualifying) dividends from General Electric stock she held individually
Samuel received $112 in interest from an interest bearing checking account at PDQ Bank.
Jennifer received $1,360 in ordinary (and qualifying dividends) from her investment account at TD Ameritrade. These dividends were reinvested in the account.
Luke received $2,440 in ordinary (and non-qualifying) dividends from Intel stock he held individually.
They paid $9,500 in real estate taxes and $15,100 in interest on their original mortgage. (Mortgage amount is less than $1,000,000)
They made monetary charitable contributions of $12,530 and have receipts. Luke also contributed design services that were auctioned off by the Alachua Animal Shelter (a qualified charitable organization) on August 15, 2015. He normally charges $500 for such services and the winning bid at the auction was $300. The Thompsons also donated old clothes to the Salvation Army, Gainesville, Florida. The clothes’ thrift shop value was $350 and the Thompsons purchased them at various times for $1,000.
Luke and Ann and their children had $3,200 of medical expenses and $5,400 of dental expenses that were not covered by insurance (The family’s insurance is provided by Ann’s employer as a part of her fringe benefit package. The value of the insurance premiums for 2015 is $14,500. The Thompsons also spent $275 on over the counter drugs during the year. Ann spent $650 on eyeglasses and exams that weren’t covered by insurance.
The Thompson family lives in Gainesville, Florida at 3908 143rd Street. They pay no state or local income taxes.
The Thompson’s had a garage sale this year and made $5,750. They sold old clothes, old children’s toys, used furniture, and other used household goods.
Luke received a $25,000 gift from his parents during the year.
During 2015, Luke had the following stock sales:
|Date Purchased||Basis||Date Sold||Amount Realized|
|Barnes & Noble||7/14/2007||$18,665||3/11/2015||$10,155|
Tax Return Project 1
|Filing status||Married filing jointly||married at year end|
|Number of dependents claimed|