TAX RETURN PROBLEM *****(Please fill out forms 1040, 1040 Schedule SE, 1040 Sche
ID: 2494854 • Letter: T
Question
TAX RETURN PROBLEM
*****(Please fill out forms 1040, 1040 Schedule SE, 1040 Schedule C)*****
Julie is a freelance writer and she calls her business Writing on the Side. Julie is a cash basis taxpayer. Her business office is located at 120 N. Main St., Wheaton, IL 60187
Julie had the following income and expense items associated with her business:
Income from sale of articles: $143,000
Rent on her office space: $21,900
Office utilities: $8,300
Office supplies: $5,450
Liability insurance for her business: $9,880
Business meals while travelling on company business: $4,500
Other business travel expenses: $6,000
None of these expenses require the filing of a form 1099.
Julie purchased and placed in service the following new fixed assets for her business:
Office Furniture and fixtures costing $40,000 on January 10, 2014
Computer equipment costing $20,000 on March 28, 2014
Automobile (2014 BMW) costing $39,000 on January 5, 2014. Total business mileage for the year was 8,400 (70% for business use). Total mileage for the year was 12,000. Julie will use the actual cost method for the auto. She will not elect Section 179 for the auto. Additional expenses of operating the car for the entire year are as follows:
Gasoline: $3,650
Repairs and Maintenance: $570
Comprehensive insurance coverage premiums: $1,160
___________________________________________________________________
This is the whole problem I only need the part in bold answered all parts needed to answer the problem have been provided:
Alan (45) and Julie (42) Fisher are married with 2 children (Jennifer K. and Jason D.) who qualify as their dependents. Jennifer was age 20 and Jason was age 12 at the end of 2014. Jennifer is a full-time student at Local University; she lives at home and commutes to school. The Fisher family lives at 1501 Maple St. in Wheaton, IL 60187. Alan works as a project manager and Julie is self-employed. They do not wish to contribute to the presidential election campaign fund. Relevant social security numbers are:
Alan: 342-55-6897
Julie: 389-14-5239
Jennifer: 378-66-8985
Jason: 320-21-7551
Alan received a Form W-2 from his employer (XYZ Electric Co.; West Chicago, IL; FEIN : 36-1723493) showing the following:
Federal Taxable Wages
$ 158,000
Federal Income Tax Withheld
$ 18,100
State Income Tax Withheld
$ 5,450
Note: Federal Taxable Wages are wages after deducting any pre-tax items.
Alan and Julie had the following items for 2014:
Insurance premiums for the Fisher family health insurance coverage totaled $21,450. Half of this amount was paid by Alan’s employer with the remainder being paid by Alan on a pre-tax basis through a salary reduction (cafeteria) plan.
Interest from First State Bank of $3,500. Alan and Julie have no foreign bank accounts and no interest in any foreign trusts.
Dividends of $12,000 as follows:
PepsiCo dividend of $5,900, all of which are qualified dividends
GM dividend of $3,780, all of which are qualified dividends
Dividend from Evergreen Total Return Mutual Fund of $2,320, of which $820 are qualified dividends
Non-business bad debt due to a loan to a friend of $5,000. Alan loaned the money to his friend on June 1, 2008. He discovered that his friend declared bankruptcy on September 8, 2014.
Stock from Bolling Drill Corporation was sold on June 1, 2014 for $140,000. The stock was acquired on September 1, 2010 for $188,000. This stock qualifies as Section 1244 stock.
On November 10, 2014, they sold 1,000 shares of Dotcom stock for $1,925. They had purchased the Dotcom stock the previous year on October 2 for $2,900. On September 12, 2014, they sold 800 shares of Microserf stock for $4,000. They had purchased the Microserf stock on April 22, 2010, for $3,050. The proceeds from these sales were reported on the Form 1099-B they received from their broker but basis was not reported.
The rental apartment building they own and actively manage, located at 1140 Farnsworth Avenue in Aurora, generates the following income and expenses:
Rental income of $70,000
Rental expenses excluding depreciation as follows:
Property insurance $15,600
Repairs and maintenance $ 6,500
Property taxes $15,700
Utilities $ 9,800
The apartment building was purchased in June of 2009 for $700,000. The cost of the land was estimated at 20 % of the total value.
Furniture for the apartment building office and lobby was purchased in March of 2010 for $50,000. Section 179 and additional first year bonus depreciation were NOT claimed in 2010.
None of the above expenses require the filing of a form 1099.
The Fishers’ personal use ski boat was destroyed in a boating accident on August 10, 2014. The boat cost $20,000 when the Fishers purchased it on May 19, 2009 and had a fair market value of $14,000 at the time of the accident. This loss is not covered by insurance.
Julie is a freelance writer and she calls her business Writing on the Side. Julie is a cash basis taxpayer. Her business office is located at 120 N. Main St., Wheaton, IL 60187
Julie had the following income and expense items associated with her business:
Income from sale of articles: $143,000
Rent on her office space: $21,900
Office utilities: $8,300
Office supplies: $5,450
Liability insurance for her business: $9,880
Business meals while travelling on company business: $4,500
Other business travel expenses: $6,000
None of these expenses require the filing of a form 1099.
Julie purchased and placed in service the following new fixed assets for her business:
Office Furniture and fixtures costing $40,000 on January 10, 2014
Computer equipment costing $20,000 on March 28, 2014
Automobile (2014 BMW) costing $39,000 on January 5, 2014. Total business mileage for the year was 8,400 (70% for business use). Total mileage for the year was 12,000. Julie will use the actual cost method for the auto. She will not elect Section 179 for the auto. Additional expenses of operating the car for the entire year are as follows:
Gasoline: $3,650
Repairs and Maintenance: $570
Comprehensive insurance coverage premiums: $1,160
Alan and Julie would like to maximize all potential deductions as soon as possible, except where indicated above.
Julie contributed $2,000 to a traditional individual retirement account on March 18, 2015. This is the first time she has contributed to an IRA.
Alan and Julie paid $8,000 for Jennifer’s tuition and $750 for books while she attended Local University where she is a sophomore and a full-time student.
They also paid the following during the year:
State income taxes withheld from Alan’s pay, per his W-2, above: $5,450 (which was greater than the state sales tax deduction would be).
Medical expenses, not including insurance premiums: $18,000
Home mortgage interest at Chase Bank, reported on Form 1098: $13,270.
Property taxes on home: $9,930
Charitable contributions in cash: $4,460
Fees for preparing last year’s tax return of $350 were paid in April of 2014
Safe deposit box rental : $75 (for storage of investment documents)
Fees for the management of taxable investments: $2,700
If they have a refund, the Fishers want to have it direct deposited to their savings account at First State Bank, account number 12345678 and routing number 987654321.
__________________________________________________________________
Federal Taxable Wages
$ 158,000
Federal Income Tax Withheld
$ 18,100
State Income Tax Withheld
$ 5,450
Explanation / Answer
Computation of taxable Income (Form 1040) Revenue Income from sale of Articles 143000 Expense Office Rent Expense 21900 Office Utilities 8300 Office Supplies 5450 Liability Insurance of business 9880 Business hospitality 4500 Travelling expenses 6000 Depriciation allowance under Tax 6684 62714 Taxable Income 80286 Working Notes :- Item Name Cost Date of Purchase Useful life (assumed) Furniture & Fixtures 40000 10-Jan-14 15 years 2666.667 Computer 20000 28-Mar-14 10 years 2000 Automobile 30254 5-Jan-14 15 years 2016.933 6683.6 Value of Automobile u/s 179 Automobile 39000 Gasoline 3650 repair 570 Comprehensive Insurance 43220 Value of Asset (70%) 30254
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