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INDIVIDUAL TAX RETURN PROBLEM 5

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Question;Required;? Use the following information to complete Paul and Judy Vance?s 2011 federal;income tax return. If information is missing, use reasonable assumptions to fill;in the gaps.;? You may need the following forms and schedules to complete the project;Form 1040, Schedule A, Schedule B, Schedule C, Schedule D, Schedule E;Appendix CC-7;Schedule SE, Form 2106-EZ, Form 4562 (for the dental practice), Form 4562;(for the rental property), Form 4797, and Form 8863. The forms, schedules;and instructions can be found at the IRS Web site (www.irs.gov). The;instructions can be helpful in completing the forms.;Facts;1. Paul J. and Judy L. Vance are married and file a joint return. Paul is self employed;as a dentist, and Judy is a college professor. Paul and Judy have;three children. The oldest is Vince who lives at home. Vince is a law student;at the University of Cincinnati and worked part-time during the year, earning;$1,500, which he spent for his own support. Paul and Judy provided $6,000;toward Vince?s support (including $4,000 for Vince?s fall tuition). They also;provided over half the support of their daughter, Joan, who is a full-time;student at Edgecliff College in Cincinnati. Joan worked part-time as an independent;contractor during the year, earning $3,200. Joan lived at home until;she was married in December 2011. She filed a joint return with her husband;Patrick, who earned $20,000 during the year. Jennifer is the youngest and;lived in the Vances? home for the entire year. The Vances provide you with the;following additional information;? Paul and Judy would like to take advantage on their return of any;educational expenses paid for their children.;? The Vances do not want to contribute to the presidential election;campaign.;? The Vances live at 621 Franklin Avenue, Cincinnati, OH 45211.;? Paul?s birthday is 3/5/1957 and his Social Security number is 333-45-6666.;? Judy?s birthday is 4/24/1960 and her Social Security number is 566-77-8888.;? Vince?s birthday is 11/6/1988 and his Social Security number is 576-18-7928.;? Joan?s birthday is 2/1/1992 and her Social Security number is 575-92-4321.;? Jennifer?s birthday is 12/12/1999 and her Social Security number is;613-97-8465.;? The Vances do not have any foreign bank accounts or trusts.;2. Judy is a lecturer at Xavier University in Cincinnati, where she earned $30,000.;The university withheld federal income tax of $3,375, state income tax of;$900, Cincinnati city income tax of $375, $1,260 of Social Security tax and;$435 of Medicare tax. She also worked part of the year for Delta Airlines.;Delta paid her $10,000 in salary, and withheld federal income tax of $1,125;state income tax of $300, Cincinnati city income tax of $125, Social Security;tax of $420, and Medicare tax of $145.;3. The Vances received $800 of interest from State Savings Bank on a joint;account. They received interest of $1,000 on City of Cincinnati bonds they;bought in January with the proceeds of a loan from Third National Bank of;Cincinnati. They paid interest of $1,100 on the loan. Paul received a dividend;of $540 on General Bicycle Corporation stock he owns. Judy received a dividend;of $390 on Acme Clothing Corporation stock she owns. Paul and Judy;received a dividend of $865 on jointly owned stock in Maple Company. All of;the dividends received in 2011 are qualified dividends.;4. Paul practices under the name ?Paul J. Vance, DDS.? His business is located at;645 West Avenue, Cincinnati, OH 45211, and his employer identification number;is 01-2222222. Paul?s gross receipts during the year were $111,000. Paul uses;C-8Appendix C;the cash method of accounting for his business. Paul?s business expenses are as;follows;Advertising $ 1,200;Professional dues 490;Professional journals 360;Contributions to employee benefit plans 2,000;Malpractice insurance 3,200;Fine for overbilling State of Ohio for work 5,000;performed on welfare patient;Insurance on office contents 720;Interest on money borrowed to refurbish office 600;Accounting services 2,100;Miscellaneous office expense 388;Office rent 12,000;Dental supplies 7,672;Utilities and telephone 3,360;Wages 30,000;Payroll taxes 2,400;In June, Paul decided to refurbish his office. This project was completed and the;assets placed in service on July 1. Paul?s expenditures included $8,000 for new;office furniture, $6,000 for new dental equipment (seven-year recovery period);and $2,000 for a new computer. Paul elected to compute his cost recovery;allowance using MACRS. He did not elect to use ?179 immediate expensing;and he chose to not claim any bonus depreciation.;5. Judy?s mother, Sarah, died on July 2, 2006, leaving Judy her entire estate.;Included in the estate was Sarah?s residence (325 Oak Street, Cincinnati, OH;45211). Sarah?s basis in the residence was $30,000. The fair market value of the;residence on July 2, 2006, was $155,000. The property was distributed to Judy;on January 1, 2007. The Vances have held the property as rental property and;have managed it themselves. From 2007 until June 30, 2011, they rented the;house to the same tenant. The tenant was transferred to a branch office in;California and moved out at the end of June. Since they did not want to bother;finding a new tenant, Paul and Judy sold the house on June 30, 2011. They;received $140,000 for the house and land ($15,000 for the land and $125,000 for;the house), less a 6 percent commission charged by the broker. They had;depreciated the house using the MACRS rules and conventions applicable to;residential real estate. To compute depreciation on the house, the Vances had;allocated $15,000 of the property?s basis to the land on which the house is;located. The Vances collected rent of $1,000 a month during the six months;the house was occupied during the year. They incurred the following related;expenses during this period;Property insurance $500;Property taxes 800;Maintenance 465;Depreciation (to be computed);6. The Vances sold 200 shares of Capp Corporation stock on September 3;2011, for $42 a share (minus a $50 commission). The Vances received the;stock from Paul?s father on June 25, 1980, as a wedding present. Paul?s;father originally purchased the stock for $10 per share in 1967. The stock;was valued at $14.50 per share on the date of the gift. No gift tax was paid;on the gift.;Appendix CC-9;7. Judy is required by Xavier University to visit several high schools in the Cincinnati;area to evaluate Xavier University students who are doing their practice teaching.;However, she is not reimbursed for the expenses she incurs in doing this. During;the spring semester (January through April 2011), she drove her personal automobile;6,800 miles in fulfilling this obligation. Judy drove an additional 6,700 personal;miles during 2011. She has been using the car since June 30, 2010. Judy uses;the standard mileage method to calculate her car expenses.;8. Paul and Judy have given you a file containing the following receipts for expenditures;during the year;Prescription medicine and drugs (net of insurance reimbursement) $ 376;Doctor and hospital bills (net of insurance reimbursement) 2,468;Penalty for underpayment of last year?s state income tax 15;Real estate taxes on personal residence 4,762;Interest on home mortgage (paid to Home State Savings & Loan) 8,250;Interest on credit cards (consumer purchases) 595;Cash contribution to St. Matthew?s church 3,080;Payroll deductions for Judy?s contributions to the United Way 150;Professional dues (Judy) 325;Professional subscriptions (Judy) 245;Fee for preparation of 2010 tax return paid April 14, 2011 500;9. The Vances filed their 2010 federal, state, and local returns on April 14, 2011.;They paid the following additional 2010 taxes with their returns: federal income;taxes of $630, state income taxes of $250, and city income taxes of $75.;10. The Vances made timely estimated federal income tax payments of $1,500 each;quarter during 2011. They also made estimated state income tax payments of;$300 each quarter and estimated city income tax payments of $160 each quarter.;The Vances made all fourth-quarter payments on December 31, 2011. They would like to receive a refund for any over payments.

 

Paper#53107 | Written in 18-Jul-2015

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