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Jimmy J. and Kimberly S. Johnson are married and live at 105




Question;Jimmy J. and Kimberly S. Johnson are married and live;a Jackson, WY 83001. They file a joint return and are calendar year, cash;basis taxpayers.;1. Jimmy is;a self-employed insurance agent (professional activity code is 524210) for;several major casualty insurance companies. He maintains an office atXXXXX;Suite 130, Fort Wayne, IN 46802. He shares the suite with several other;professionals and has no employees. A receptionist handles all calls and is;provided by the landlord as part of the services offered to tenants. Jimmy?s;work-related expenses for 2013 are as follows;Office rent;$8,100;Utilities 3,000;Accounting services;1,200;Office expenses (supplies, use of copier, etc.) 1,100;Legal services (see item 9. below) 300;State and local license fees;900;Renter?s insurance (covers personal liability, casualty;theft) 1,500;Replacement of reception room furnishings (6/5/2013) 2,200;Professional dues and subscriptions to trade publications 400;Business lunches;1,400;Contribution to H.R. 10 (Keogh) plan 8,000;Medical insurance premiums;5,000;The business meals Jimmy paid for were to entertain various;visiting executives from the insurance companies he does business with. As is;the case with all of Jimmy?s business transactions, the lunches are properly;documented and supported by receipts. Because the reception room furnishings;were looking shabby, Jimmy and his suite-mates had them replaced. The $2,200;Jimmy spent was his share (i.e., a sofa and coffee table) of the cost. Jimmy;follows a policy of avoiding depreciation by utilizing the Section 179 election;to expense assets. All of Jimmy?s office equipment (e.g., desk, chairs, file;cabinets, computer, etc.) has previously been expensed. Of 10,000 total miles;in 2013, Jimmy drives his car (a Ford Explorer purchased on 6/1/2011) 3,200;miles for business (not including commuting) and has business parking and toll;charges of $310. The Johnsons use the automatic mileage method of claiming;automobile expenses.;2. Kimberly;is a registered nurse employed on a part-time basis by Home Care Services. She;generally is assigned to provide medical services at the residences of patients;recently discharged from the hospital. Her employer does not provide her with;an office, and she has no separate office in her home. She does, however;maintain her business records at home and lists it as her business address.;After receiving her assignments by phone, she drives the family Buick;(purchased on 7/1/2009) directly to the residence of the patient. Home Care;Services requires all of its nurses to wear uniforms while on duty. As Kimberly;is not a full-time employee, she is not covered by Home Care?s health or retirement;plans. Kimberly?s work-related expenses for 2013 appear below;Mileage (total Buick miles in 2013 = 10,000) 3,000 miles;Professional dues and subscriptions $180;Continuing education programs (required to;maintain license);320;Annual license fee;150;Nursing supplies (e.g., masks, gloves) 260;Uniforms purchased (including $240 for shoes) 410;Laundering of uniforms;210;3. At a;foreclosure sale on May 8, 2013, the Johnsons purchased a house to be held as a;rental investment. The property cost $300,000 (of which $40,000 is allocated to;the land) and is located atXXXXX Morgantown, IN 46515. After making minor;repairs and placing the property in service on June 1, the Johnsons were;fortunate in that they were able to rent it immediately for $1,500 a month;(payable on the first of each month). Information regarding the rental property;for 2013 is summarized below;Rent received ($1,500 x 8 months) $12,000;Refundable damage deposit;2,000;Property taxes 1,800;Interest on mortgage;1,500;Repairs 400;Insurance;2,500;Street paving assessment;1,200;Although the property was rented for only seven months, in;late December 2013 the tenants prepaid the January 2014 rent because they were;going to be out of town on New Year?s Day. The special assessment was levied by;the city of Elkhart to resurface the street in front of the house. The Johnsons;plan to use MACRS straight-line depreciation, assuming the mid-month;convention.;4. On her;birthday on May 9, 2006, Kimberly received as a gift from her father unimproved;land located in Marshall County (IN). The land cost her father $20,000 in 1974;and had a value of $90,000 on the date of the gift. No gift tax was due as a;result of the transfer. On May 1, 2013, Kimberly sold the land to an adjoining;property owner for $100,000. Under the terms of the sale, Kimberly received a;down payment of $10,000 and six notes maturing annually for $15,000 each with;interest payable at the rate of 8%. Kimberly did not elect out of the;installment method.;5. When;Kimberly?s father died in 2012, he had a life insurance policy issued by Condor;Assurance with a maturity value of $100,000. As the designated beneficiary of;the policy, Kimberly picked a settlement option of $23,000 annually, payable;over five years. In 2013, she receives a check from Condor for $23,000.;6. Based on;a tip from a friend who is an investment adviser, on November 6, 2012, Jimmy purchased;14,000 shares of common stock in Eagle Corporation for $14,000. Eagle, a;manufacturer of auto parts, was experiencing financial difficulties and was;contemplating bankruptcy. Nevertheless, the adviser was sure that its;liquidation value would far exceed the cost of the stock. Eagle went into;receivership in early March 2013, and by October 15 of this year, it was;determined that its common stock was worthless.;7. In 2012;a hit-and-run driver severely damaged Jimmy?s Ford while it was parked in front;of his office. Jimmy?s insurance carrier, Peregrine Company, paid the cost of;repairing the vehicle, but he was charged $1,000 under the deductible;provision. In 2013, the authorities located the driver who caused the accident;and Peregrine recovered on the loss. As a result, in February 2013 Peregrine;reimbursed Jimmy for the $1,000 deductible. Although they itemized when they;filed the 2012 income tax return, the Johnsons were unable to claim any;deduction for casualty losses.;8. In July;2013, the Johnson?s state income tax returns for 2010 and 2011 were audited by;the Department of Revenue. A no-change determination was made for 2010, but the;audit resulted in an additional assessment of $300 for 2011. Jimmy immediately;paid this amount to the State of Indiana.;9. Besides;those previously noted, the Johnsons had the following receipts for 2013;Payment for services rendered as an insurance agent;(as supported on Forms 1099 issued by several;payor insurance companies);$72,000;Nursing wages (Form W-2 issued by Home Care;Services);39,000;Cash payments received by Jimmy from numerous;repair facilities and building contractors that he;deals with frequently;10,500;Income tax refunds for tax year 2012;Federal tax;$1,200;State tax;350 1,550;Interest income--;City of South Bend bonds;$900;Interest on Wells Fargo Bank CD 800;1,700;Garage sale;4,200;Loan repayment;20,000;The cash payments were delivered to Jimmy during the;Christmas season by special courier. They were enclosed in an envelope marked;?GIFT? with a note expressing thanks for the business referrals. No arrangement;exists, contractual or otherwise, that requires Jimmy to be compensated for any;referrals he makes. Although Jimmy realizes that kickbacks are not uncommon in;the repair business, he was concerned about the legality of the procedure.;During 2013 he retained an attorney, who shares his suite, to research the;matter. Without passing judgment on the status of the payors, the attorney;found that Jimmy?s acceptance of the payments does not violate any state or;local law. Since he is a friend, the attorney charged Jimmy a modest $300 for;his advice (see item 1. above).;The garage sale involved mostly items Kimberly inherited;from her father (e.g., boat and trailer, camper, hunting and fishing;equipment). Kimberly has no proof as to the cost of these assets, nor does she;know their value at the time of his death (no estate tax return had to be;filed).;Three years ago, Jimmy had loaned his younger sister, Marcie;$20,000 to help start a business. No note was signed, no interest was provided;for, and no due date was specified. Much to Jimmy?s surprise, Marcie repaid the;loan in late 2013.;Not mentioned above were two tickets that the Johnsons won;in a church raffle. The tickets to an Indianapolis opera benefit performance;were worth $240 but cost the church only $100. The Johnsons accepted the;tickets, but no one in the family wanted to attend.;10. In;addition to any items previously noted, the Johnsons had the following expenses;for 2013;Medical and dental expenses not covered by;Insurance;$8,000;Ad valorem property tax on personal residence 5,200;Interest?;Home mortgage;$3,800;Interest on home equity loan;1,200 5,000;Charitable contributions;3,000;Tax return preparation fee (60% relates to;Jimmy?s business);400;Of the $8,000 in medical expenses, $5,000 was used to pay;for Zoe Johnson?s gall bladder operation. Zoe is Jimmy?s mother who lives with;them and would otherwise qualify as their dependent except for the gross income;test.;During 2013, Kimberly borrowed $20,000 under a home equity;loan arrangement. The money was used to help pay family credit card debt and to;help pay for her younger sister Clara?s wedding.;11. Besides;Zoe, the Johnsons? household includes their three children: Dale (age 17), Dana;(age 16), and Kirk (age 14). All are full-time students. Dale is very;proficient with the bagpipes and during the year earned $4,400 playing at;special occasions (i.e., mainly funerals). Dale is saving his earnings for;college.;12. Kimberly?s;Form W-2 from Home Care Services shows $2,000 withheld for Federal income tax;and $941 for state income tax. Jimmy made equal quarterly payments of $2,600;(Federal) and $500 (state). Relevant Social Security numbers are noted below.;Social Security;Name Number Birth Date;Jimmy L. Johnson;XXX-XX-XXXX 07/01/1967 07/01/1967;Kimberly S. Johnson;XXX-XX-XXXX 02/20/2968 02/20/1968;Dale Johnson;XXX-XX-XXXX 04/09/1996 04/09/1996;XXXXX XXXXX;XXX-XX-XXXX 12/06/1997 12/06/1997;Kirk Johnson;XXX-XX-XXXX 07/29/1999 07/29/1999;Zoe Johnson;XXX-XX-XXXX 01/03/1939;REQUIREMENTS;Prepare an income tax return (with appropriate schedules);for the Johnsons for 2013. In doing this, use the following guidelines;? Make;necessary assumptions for information not given in the problem but needed to;complete the return. Be aware of the possible application of certain tax;credits.;? The;taxpayers have the necessary substantiation (e.g., records, receipts) to;support the transactions involved.;? If a;refund results, the taxpayers want it sent to them.;? The;Johnsons do not wish to contribute to the Presidential Election Campaign fund.;? In the;past several years, the Johnsons have itemized their deductions from AGI (have;not claimed the standard deduction option).


Paper#42474 | Written in 18-Jul-2015

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