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income tax return - David R. and Sherri N. Johnson [ages 45(1964) and 46(1963)] are married and l




Question;David R. and Sherri N. Johnson [ages 45(1964) and 46(1963)];are married and live Casper, WY 82609. David is consulting engineer;while Betty is a paralegal. They file a joint return and use the cash basis for;tax purposes.;1. Trained as a mining engineer, David has developed;considerable expertise in the treatment and disposition of waste material. He;also is well versed in the various Federal;and state requirements for land reclamation projects. David;maintains a consulting practice through which he renders advice on these;matters. David's business activity is 541990.Most of his clients are small and;medium size owners and operators located in Wyoming and contiguous states(e.g;Montana, Idaho, Utah). Characteristically, David is retained by a client on a;contract fee basis and is reimbursed for all out-of-pocket expenses. In;performing his service, David usually visits the job location and later submits;his recommendations in written report along with statement for his services and;expenses.;David was paid the following amounts relating to the;consulting practice in 2012;-Fees for services rendered $92,800;Airfare $8,200;Lodging $5,200;Meals $6,100;-Transportation (taxi,limo,rentals airports) $920;Expenses reimbursement $20,420;-Total received $113,220;2. The following fees for services rendered to mining;companies are not included in the receipts listed in item 1 above;-Echo mining: Payment received January 2013, work done;December 2012 - $5100;-Sesa mining: Payment received January 2012, work done;December 2011 $4,400;-Cormorant Mining: No payment received, work done March 2012;$3700;David did not incur travel expenses in any of these;engagements (i, e the work was done in his office). As Cormorant Mining is in;bankruptcy, David does not expect to collect any of this fee.;3. Other expenses paid by David in 2012 relating to his;practice are summarized below;Advertising in trade journals $2,400;Office supplies(including drafting materials) $1,200;Contribution to H.R. 10(KEOGH) plan $9,000;State occupation license $300;Subscriptions to trade journals $240;Membership dues to trade associations $180;Landscape models(amount paid to a topographer for several;land reclamation projects) $3,200;Business phone and internet service $860;Premiums on medical insurance (covering self, spouse, and;dependants) $3,800;4. To save on rent and as a matter of convenience, David;maintains an office in the home. Twenty percent of the 3,000-square-foot living;area is devoted to the office. David inherited the home on Cody Way from his;father, who died on June 6, 2003, when it had fair market value of $400,000 of;which $40,000 was allocated to the land, and David began to using his home;office the same year. The Johnsons moved into the home in 2003.It is current;fair market value is $500,000 ($50,000 allocated to the land). County land;records reflect that David's father bought the land in 1969 for $6,000 and;built the house in 1973 at cost of $60,000. David depreciates the business use;of his home using the MACRS, treating the home as a 39-year nonresidential;reality. Additional information regarding the property is listed below;Property/Casualty insurance $2,300;Repairs and maintenance $2,900;Utilities $4,800;The property taxes and mortgage interest on the property;paid in 2012 are listed in item 15 below.;In addition to the repairs and maintenance noted above David;had office repainted at cost of $1,200. The furniture in the office, including;business equipment(e.g computer, fax, machine, copier), was properly expensed;in the year bought and has zero basis. However, on March 5, 2012, David;purchased a heavy-duty, fire-resistant file cabinet with security-vault;features for $ 4,800. He made the acquisition to safeguard and maintain the;privacy of client data. If possible, David prefers to avoid capitalizing and;depreciating the cabinet.;5. On February4, 2011, David purchased for $41,000;(including sales tax) for an Infiniti crossover SUV (gross weight under 6,000;pounds), which he uses 90% of the time for business. No trade-in was involved;and he did not claim any section 179 expensing of the cost. Under the actual;operating cost method, he depreciates the SUV using MACRS (half-year;convention). {hint, see table 3 in the instruction to form 4562} His operating;expenses pertaining to the operation of the Infiniti for 2012 are as follows;Gasoline $3,300;Oil changes and lubrication $120;Auto insurance $ 1,600;Repairs $240;Auto club dues $180;License and registration $60;During business use, David received three moving traffic;violations (total fines of $680) and incurred tolls and parking charges of;$440. The Infiniti was driven a total of 14,500 miles during 2012(mileage was;incurred evenly during the year).;6. Sherri is a licensed paralegal and is employed on;part-time basis by several local attorneys. She commuted to work (using the;family Suburban) for a total of 813 miles and paid parking fees of $310. Her;earnings and job-related expenses are summarized below;Salary(from four employers) $38,000;Subscriptions and dues to professional organizations $180;Laptop computer $1,200;Occupational license fee $80;Continuing education correspondence course $120;She purchased the laptop computer on March 12 and uses it;about 80% of the time for business. The correspondence course is required for;retention of her license. Sherri is considering going to law school, so she;attend a series of LSAT preparation sessions at cost of $350. Because Sherri is a part-time employee, she is not covered;by any of her employers medical or retirement plans. During 2012 however, she;contributed $5,000 to a traditional IRA that she establish several years ago.;As to the family Suburban, the Johnsons use the automatic mileage method for;tax purposes.;7. With funds received from the settlement of his father's;estate, David purchased rental property at 4620 Cottonwood Land. Of the;$250,000 purchases price, $30,000 was allocated to the land. After a;substantial renovation to the house (e.g new flooring, roof, heating unit);costing $80,000, the property was rented beginning February 1, 2006. In 2010;the Johnsons decides that their investment would be more marketable if the;house was rented as furnished. Consequently, in May of that year they spent;$38,000 on new furniture(including grapes, carpeting, and appliances). Under;the current lease agreement, the property rents for $2,200 a month(payable at;the beginning of each month) with utilities not included. Information regarding;the property for 2012 appears below;Rent received $28,600;Property taxes $2,400;Property/Casual Insurance premium paid $3,100;Yard maintenance $1,200;Repairs $800;The amount of rent received included $2,200 for January;2013. Because the tenants were going on vacation during the Christmas/New Year;holidays, in mid December they pre-paid the rent for next month. The property;taxes listed above do not include a special assessment of $2,400 by the city of;Casper for repaving the street in front of the property. Regarding;depreciation, the Johnsons use MACRS to depreciate the rental home and the;furnishings within it(assume half-year convention for the personalty).;8. As another investment, the Johnsons own 1,000 share stock;in Cormorant Mining acquired on March 7,2011. David had performed services for;the company late 2010 and submitted a bill for $3,900. Because Cormorant was;experiencing a cash-flow problem, David accepted the stock as payment for such;a services. Cormorant currently is in bankruptcy(see item 2 below) and;expectations are that the shareholders will not recover anything on their stock;investment. The stock is not publicly traded.;9. On March 10, 1994, David's father gave the Johnsonss a;tract of the land located in Tenton County (WY) as an anniversary present. It;had a value of $150,000 and no gift tax was due on the transfer. The land had;been purchased by David's father on June 1, 1984, for $50,000. In December 2011;the Johnsons contracted by a real estate developer and offered $800,000 for the;property. After considerable negotiation, the following transactions took place;on March 4, 2012: the Johnsons transferred the Teton tract in return for $8,000;in cash and four city in Laramie WY worth $792,000. TheJohnsons considered the;city lots to be a good investment as they are locate near the state university.;All closing cost and legal fees were absorbed by the real estate developer.;10. One of the items David inherited from his father was an;antique gun collection-mainly large caliber rifles used for buffalo hunting.;Although David has no idea what his father's cost basis was, the collection had;a date of death value of $22,000. David sold it to a dealer for $29,000 on July 10,2012.;11. On July 12, 1998, using $50,000 of fund she had received;from an aunt's life insurance policy, Sherri purchased grazing land in Converse;Country WY. On August 2, 2011, she sold the land to a local rancher for;$75,000. Under the terms of the sale, Sherri received a down payment of $15,000;and 10 annual notes of $6,000 each. Sherri is also to receive Simple interest of 8% on outstanding balance;principle each year.. On August 4, 2012, Sherri;collected $10,800 (including interest of $4,800) on the maturity of the;first note.;12. Although the Johnsons had several Schedule D transaction;during 2011, they end up with a net short-term capital loss of $7,000. Of this;loss $3,000 was deducted in 2011 and $4000 carried over to 2012.;13. For several years, Sherris's widowed mother, Vivian;Olson, has lived with the Johnsons and has been claimed by them as a dependent.;On December 30,2011 Vivian suffered a heart attack. After six days in the ICU;of local hospital, Vivian died. In early February 2012, the Johnsons paid the;following expenses regarding Vivian;Medical expenses incurred in 2011 $4,200;Medical expenses incurred in 2012 $3,100;Burial expenses $4,400;Remainder of church pledge for 2012 $600;Fortunately, the balance of Vivian's medical expenses;($11,900) was covered by insurance. Besides personal and household effects;Vivian's major assetwas life insurance. As the designated beneficiary of the;policy, Sherri was paid the $20,000 proceeds on March 13,2012;14. Besides the items already mentioned, the Johnsons had;the following receipts during 2012;-Interest income;City of Cheyenne general purpose bonds $1,900;CD at Wells Fargo Bank $1,100;Money market account at Bank of America $400;Qualified dividend income issued on;Meadowlark Corporation common stock $700;Jury duty fees $420;Yard (garage)sale $950;In connection with;her jury duty assignment in June, Sherri drove Suburban 40 miles and incurred;expenses of $30 for parking and $45 for meals. The yard sale involved used;furniture, appliances, books, toys, and other household goods having an;estimated original cost value of $1,800.;15. In addition to the items already noted, the Johnsons had;the following expenditures for 2012;Medical and dental dills(including prescription drugs of;$400);Other than those relating to Vivian (see item13) $1,800;Ad valorem property taxes on personal residence $3,100;Interest on home equity loan used to finance the purchase of;personal items (e.g camper) $4,400;Charitable contributions (not include Vivian's pledge);$3,200;The Johnsons drove the Suburban 420 miles to various medical;and dental appointments. Wyoming has a no state or local income tax but does;imposes an additional local sales tax of 1%. Although they do not keep;track of their sales taxes, they;purchased a camper for $40,000 in May 2012. The sales tax ont his purchase was;$1,600.;16. Besides Vivian;(see item13) the Johnsons household include two daughters, Meredith (age19) and;Kirby (age18) and son Toby (age17). Kirby and Toby are full-time students in;highschool. Meredith graduate a year ago and works part-time earned $9,000;during 2012 which she deposits in a saving account.;17. For tax year 2011 the Johnsons had an overpayment of;$150 which they applied toward their 2012 income tax. Sherri's income tax;withholdings for the year are $5,100 and the Johnsons made quarterly payments;of $4,000 (for a total of $16,000).;Use the business activity code of 541990 again.;18.;Relevant Social Security numbers are noted below;David R. johnsonNNN-NN-NNNN/span>;Sheri Johnson-NNN-NN-NNNN/span>;Vivial Olson-;123-45-6786;Meredith Johnson -;123-45-6787;Kirby Johnsons;123-45-6788;Toby Johnson- 123-45-6789;Requirements;-Prepare an income tax return (with appropriate schedules);for the johnsons for 2012.;-Make necessary assumptions for information not given in the;problem but needed to complete the return.;-If any refund is due, apply it toward next year's taxes;-the Johnsons do not;wish to contribute to the Presidential election campaign fund.;I know that the total income is 128,139;The AGI is 105,343;Itemized deductions are 13,627;Taxable income is 72716;Tax (line 61) is 18008;And refund is 3242.


Paper#50503 | Written in 18-Jul-2015

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