Alton Newman, age 67, is married and files a joint return with his wife, Clair,

Question

Alton Newman, age 67, is married and files a joint return with his wife, Clair, age 65. Alton and Clair are both retired, and during 2014, they received Social Security benefits of $10,000. Alton's Social Security number is 111-11-1111, and Clair's is 123-45-6789. They reside at 210 College Drive, Columbia, SC 29201. Tax Return Problem Alton, who retired on January 1, 2014, receives benefits from a qualified pension plan of $2,750 a month for life. His total contributions to the plan (none of which were deductible) were $168,250. In January 2014, he received a bonus of $2,000 from his former employer for service performed in 2013. Although the former employer accrued the bonus in 2013, it was not paid until 2014. Clair, who retired on December 31, 2013, started receiving benefits of $1,400 a month on January 1, 2014. Her contributions to the qualified pension plan (none of which were deductible) were $74,100. On September 27, 2014, Alton and Clair received a pro rata 10% stock dividend on 600 shares of stock they owned. They had bought the stock on March 5, 2007, for $20 a share. On December 16, 2014, they sold the 60 dividend shares for $55 a share. On October 10, 2014, Clair sold the car she had used in commuting to and from work for $17,000. She had paid $31,000 for the car in 2008. On July 14, 2006, Alton and Clair received a gift of 1,000 shares of stock from their son, Thomas. Thomas's basis in the stock was $35 a share (fair market value at the date of gift was $25). No gift tax was paid on the transfer. Alton and Clair sold the stock on October 8, 2014, for $24 a share. On May 1, 2014, Clair's mother died, and Clair inherited her personal residence. In February 2014, her mother had paid the property taxes for 2014 of $2,100. The residence had a fair market value of $235,000 and an adjusted basis to the mother of $160,000 on the date of her death. Clair listed the house with a real estate agent, who estimated it was worth $240,000 as of December 31, 2014. Clair received rent income of $6,000 on a beach house she inherited three years ago from her uncle Charles. She had rented the property for one week during the July 4 holiday and one week during the Thanksgiving holidays. Charles's adjusted basis in the beach house was $150,000, and its fair market value on the date of his death was $240,000. Clair and Alton used the beach house for personal purposes for 56 days during the year. Expenses associated with the house were $3,700 for utilities, maintenance, and repairs; $2,200 for property taxes; and $800 for insurance. There are no mortgages on the property. Clair and Alton paid estimated Federal income tax of $3,100 and had itemized deductions of $6,800 (excluding any itemized deductions associated with the beach house). If they have overpaid their Federal income tax, they want the amount refunded. Both Clair and Altonwant $3 to go to the Presidential Election Campaign Fund. Compute their net tax payable or refund due for 2014. If you use tax forms for your computations, you will need at a minimum Form 1040 and Schedule D. 14-3314-34 (Hoffman, 20150414, pp. 14-33-14-34) Hoffman, W. H. (20150414). South-Western Federal Taxation 2016: Individual Income Taxes, 39th Edition [VitalSource Bookshelf version]. Retrieved from https://bookshelf.vitalsource.com/books/9781305893573 The citation provided is a guideline. Please check each citation for accuracy before use.

Explanation / Answer

Alton, who retired on January 1, 2012, receives benefits from a qualified pension plan of $750 a month for life. His total contributions to the plan (none of which were deductible) were $68,250. In January 2012, he received a bonus of $2,000 from his former employer for service performed in 2011. Although the former employer accrued the bonus in 2011, it was not paid until 2012.
Clair, who retired on December 31, 2011, started receiving benefits of $900 a month on January 1, 2012. Her contributions to the qualified pension plan (none of which were deductible) were $74,100.
Clair had casino winnings for the year of $4,500 and casino losses of $2,100, while
Alton won $17,000 on a $1 lottery ticket.
On September 27, 2012, Alton and Clair received a 10% stock dividend on 600 shares of stock they owned. They had bought the stock on March 5, 2005, for $20 a share. On
December 16, 2012, they sold the 60 dividend shares for $55 a share.
Tax Return Problem
On October 10, 2012, Clair sold the car she had used in commuting to and from work for $17,000. She had paid $31,000 for the car in 2006.
On July 14, 2004, Alton and Clair received a gift of 1,000 shares of stock from their son, Thomas. Thomas’s basis in the stock was $35 a share (fair market value at the date of gift was $25). No gift tax was paid on the transfer. Alton and Clair sold the stock on
October 8, 2012, for $24 a share.
On May 1, 2012, Clair’s mother died, and Clair inherited her personal residence. In
February 2012, her mother had paid the property taxes for 2012 of $2,100. The residence had a fair market value of $235,000 and an adjusted basis to the mother of $160,000 on the date of her death. Clair listed the house with a real estate agent, who estimated it was worth $240,000 as of December 31, 2012.
Clair received rent income of $6,000 on a beach house she inherited three years ago from her Uncle Chuck. She had rented the property for one week during the July 4 weekend and one week during the Thanksgiving holiday. Uncle Chuck’s adjusted basis in the beach house was $150,000, and its fair market value on the date of his death was $240,000. Clair and Alton used the beach house for personal purposes for 56 days during the year. Expenses associated with the house were $3,700 for utilities, maintenance, and repairs; $2,200 for property taxes; and $800 for insurance. There are no mortgages on the property.
Clair and Alton paid estimated Federal income tax of $3,100 and had itemized deductions of $6,800 (excluding any itemized deductions associated with the beach house and gambling). If they have overpaid their Federal income tax, they want the amount refunded. Both Clair and Alton want $3 to go to the Presidential Election Campaign Fund.
Compute their net tax payable or refund due for 2012. If you use tax forms for your computations, you will need Form 1040 and Schedule D. Suggested software: H&R
BLOCK At Home.
100. Devon Bishop, age 40, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131.
His Social Security number is 111-11-1111. Devon does not want $3 to go to the Presidential
Election Campaign Fund.
Devon was divorced in 2008 after 15 years of marriage. He pays alimony of $18,000 a year to his former spouse, Ariane. Ariane’s Social Security number is 123-45-6789.
Devon’s son, Tom, who is age 16, resides with Ariane. Devon pays child support of $12,000 per year. Ariane has provided Devon with a signed Form 8332 in which she releases the dependency deduction to him for 2012. Tom’s Social Security number is
123-45-6788.
Devon owns a sole proprietorship for which he uses the accrual method of accounting.
His revenues and expenses for 2012 are as follows:
Sales revenue $740,000
Cost of goods sold 405,000
Salary expense 88,000
Rent expense 30,000
Utilities 8,000
Telephone 6,500
Advertising 4,000
Bad debts 5,000
Depreciation 21,000
Health insurance* 26,000
Accounting and legal fees 7,000
Supplies 1,000 * $18,000 for employees and $8,000 for Devon.
Other income receivCity of Asheville bonds 17,000
Lottery winnings (tickets purchased cost $500) 10,000
During the year,Devon and his sole proprietorship had the following property transactions:
a. Sold Blue, Inc. stock for $45,000 on March 12, 2012. He had purchased the stock on
September 5, 2009, for $50,000.
b. Received an inheritance of $300,000 from his Uncle Henry. Devon used $200,000 to purchase Green, Inc. stock on May 15, 2012 and invested $100,000 in Gold, Inc. stock on May 30, 2012.
c. Received Orange, Inc. stock worth $9,500 as a gift from his Aunt Jane on June 17,
2012. Her adjusted basis for the stock was $5,000. No gift taxes were paid on the transfer. Aunt Jane had purchased the stock on April 1, 2006. Devon sold the stock on July 1, 2012, for $22,000.
d. On July 15, 2012, Devon sold one-half of the Green, Inc. stock for $40,000.
e. Devon was notified on August 1, 2012, that Yellow, Inc. stock he purchased from a colleague on September 1, 2011, for $52,500 had become worthless. While he perceived that the investment was risky, he did not anticipate that the corporation would declare bankruptcy.
f. On August 15, 2012, Devon received a parcel of land in Phoenix worth $220,000 in exchange for a parcel of land he owned in Tucson. Because the Tucson parcel was worth $245,000, he also received $25,000 cash. Devon’s adjusted basis for the Tucson parcel was $210,000. He originally purchased it on September 18, 2009.
g. On December 1, 2012, Devon sold the condominium in which he had been living for the past 10 years. The sales price was $480,000, selling expenses were $28,500, and repair expenses related to the sale were $9,400. Devon and Ariane had purchased the condominium as joint owners for $180,000. Devon had received Ariane’s ownership interest as part of the divorce proceedings. The fair market value at that time was $240,000.
Devon’s potential itemized deductions, exclusive of the aforementioned information, are as follows:
Medical expenses (before the 7.5% floor) $ 9,500
Property taxes on residence 5,300
State income taxes 4,000
Charitable contributions 10,000
Mortgage interest on residence 9,900
Sales taxes paid 5,000
During the year, Devon makes estimated Federal income tax payments of $40,000.
Compute Devon’s lowest net tax payable or refund due for 2012 assuming that he makes any available elections that will reduce the tax. If you use tax forms for your computations, you will need Forms 1040, 4562, 8332, and 8824 and Schedules A, B, C, D, and SE. Suggested software: H&R BLOCK At Home.
101. Alice Honeycutt, age 35, is a self-employed accountant. Alice’s Social Security number is 123-45-6789. Her address is 101 Glass Road, Hammond, LA 70402. Her income and expenses associated with her accounting practice for 2013 are as follows:
Revenues (cash receipts during 2013) $185,000
Expenses
Salaries $ 95,000
Office supplies 3,200
Postage 2,900
Depreciation of equipment 42,000
Telephone 800 $143,900
Because Alice is a cash method taxpayer, she does not record her receivables as revenue until she receives cash payment. At the beginning of 2013, her accounts receivable were $48,000, and the balance had decreased to $8,000 by the end of the year.
Alice used one room in her 10-room house as the office for her accounting practice (400 square feet out of a total square footage of 4,000). She paid the following expenses related to the house during 2013:
Utilities $4,500
Insurance 2,100
Property taxes 5,200
Repairs 3,500
Alice had purchased the house on September 1, 2012, for $400,000 (exclusive of land cost).
Alice has one child, Adolph, age 16. Adolph’s Social Security number is 123-45-6788.
Adolph lives with his father during the summer and with Alice for the rest of the year.
Alice can document that she spent $16,000 during 2013 for the child’s support. The father normally provides about $10,000 per year, but this year he gave Adolph a new car for Christmas. The cost of the car was $24,000. The divorce decree is silent regarding the depend

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