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TAX RETURN PROJECT

ACCT 323 Section 5115

Scenario:

Assume that the taxpayers, Jim B. Baldwin (social security number 333-33-3330) and Sara M.

Baldwin (social security number 444-44-4440) file a joint return. Both are 50 years old, have

good eyesight, and live with their three children, Ned, Joseph and Megan, at 789 N. Code Drive,

Chicago, Illinois 60699, (312) 679-9999. Mr. Baldwin wants to contribute $3 of his income tax

to the Presidential Election Campaign Fund. Mrs. Baldwin elects not to contribute.

The Baldwins son, Ned, is a junior in college and he is 20 years old. He worked during the

summer and earned $4,000. Their other son, Joseph, is a 17-year old high school student. He

earned $3,600 during the summer and worked part-time during the remainder of the year. Neither

son had any additional income. Their daughter, Megan, is eight years old and an elementary

school student. She had no earned or unearned income during the year. In August, the Baldwins

paid $4,000 in tuition for their son, Ned, for the academic period that started in September. Neds

social security number is 300-11-0001, Josephs social security number is 300-22-0002, and

Megans social security number is 300-33-0003.

The Baldwins claim Mrs. Baldwins mother, Julia D. Major, as a dependent under a multiplesupport

agreement. The total support of Mrs. Major is $6,000, received from the following three

sources:

(1) $3,000 from Sara Baldwin,

(2) $1,000 from another daughter, Tina Major, and

(3) $2,000 in social security benefits.

Mrs. Julia D. Major lived with the Baldwins during all of 2015. Her social security number is

400-44-0004. Tina Major provides the Baldwins with a written, signed statement, that she will

not claim her mother as a dependent in 2015. Tina Major lives at 1425 S. 62nd Street, Chicago,

IL 60699, and her social security number is 500-55- 0005.

The Baldwins use Pat Berg, a professional tax preparer, to prepare their income tax return. Trish

Fords PTIN is P98756432, and she works for E&Z Tax Preparation (EIN #36-0987456), which

is located in a nearby suburb of Middle America (telephone number 1-312-555-4010). However,

the Baldwins do not authorize her to discuss their return with the IRS.

INCOME AND EXPENSES GENERALLY

During 2015, Mrs. Baldwin was employed as a salesperson by a publishing company. Her Form

W-2 for 2015 reports the following:

Box 1. Wages, tips and other compensation $75,000

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Box 2. Federal income tax withheld $ 4,950

Box 4. Social security tax withheld $ 4,650

Box 6. Medicare tax withheld $ 1,088

Box 17. State income tax $ 2,250

Mrs. Baldwin is not covered by her employers retirement plan. In addition, Mr. Baldwin is a

self-employed individual who does not maintain a Keogh or a SEP plan. Mrs. Baldwin made a

$1,500 contribution to a traditional IRA and a $2,000 contribution to a Roth IRA in 2015. Mr.

Baldwin decided against making a contribution to a traditional IRA.

The Baldwins received a $30 state income tax refund. They itemized in the prior year and elected

to take the state income tax as a deduction. The Baldwins also received a $20 federal income tax

refund.

Form 1040, Schedule A

The Baldwins made federal estimated tax payments of $2,000 for 2015. The Baldwins incurred

the following medical expenses during 2015:

prescription drugs $1,000

doctor bills $3,550

hospital bills $1,750

transportation $ 100

eyeglasses $ 500

In addition, Mr. Baldwin, who is self-employed, paid $3,750 in premiums for health insurance

coverage for himself and his family. The Baldwins paid their 2008 real estate taxes of $1,810 due

on July 1, 2015. In addition, they sold their residence on September 13, 2015. They allowed the

buyer a credit equal to 70% of the estimated real estate taxes of $2,000 for 2015. The real estate

taxes on the new property they purchased on May 1, 2015, are not payable until 2016. There was

no taxable gain on the sale of their prior residence.

Mr. and Mrs. Baldwin paid $3,878 in deductible home mortgage interest to a bank. They also

paid $3,000 in points when they purchased their new home. They paid the following personal

interest in 2015:

$600 to finance Mrs. Baldwins car, and

$400 in credit card interest.

The Baldwins gave $1,500 in cash to various recognized charities; no individual gift was $250 or

more; all charities sent an acknowledgment of the contribution.

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Form 2106

Mrs. Baldwin incurred employee business expenses in connection with her occupation as

salesperson for the publishing company. On January 3, 2015, she purchased a new car that was

used primarily for business reasons. The car cost $19,500, and she paid $500 in sales tax. During

2015, the car was driven a total of 20,000 miles by Mrs. Baldwin. Of those miles, 16,600 were

business related. Mrs. Baldwin drove 1,250 miles while commuting (five-mile daily roundtrip

commute), and 2,150 miles for personal purposes. Mrs. Baldwin depreciates the car using a fiveyear

MACRS recovery period, the 200% declining-balance method, and the half-year

convention. However, it should be noted that depreciation on the car is limited because of the

listed property rules. Mrs. Baldwins gasoline, oil and insurance expenses on the car amounted

to $4,750. She paid $600 in interest on the installment loan incurred to purchase the car. She also

paid $50 for business parking fees and $75 for a car rental while away from home. Mrs. Baldwin

elects to claim the actual automobile-related expenses.

Assume the answers for Form 2106, Lines 18, 19, 20 and 21 are Yes.

Mrs. Baldwin elected not to claim any Code Sec. 179 deduction or additional bonus depreciation

on the car in 2015.

Mrs. Baldwin incurred the following other business expenses:

meals and entertainment $1,500

airfare, $ 233

gifts to customers $ 150

business seminar $ 60

Mrs. Baldwin received $5,000 as a car expense reimbursement from her employer under a plan

that required her to account for the expenses. The $5,000 was not reported on her Form W-2.

Mrs. Baldwin was not reimbursed for her other business expenses. The Baldwins paid $500 for

the preparation of their 2008 tax return (including $200 for the preparation of Schedule C, Profit

or Loss from Business for Jim Baldwins furniture business), $50 for the rental of a safe deposit

box where they stored their securities, and $350 for investment publications.

Form 1040, Schedule B

During 2015, the Baldwins received $500 in interest from the Heartland National Bank and $150

as nominees from the Third National Savings and Loan. They received $200 in interest from taxexempt

bonds issued by the state of Illinois.

The Baldwins received the following qualified dividends: $400 from E&Z Tax Preparation,

Inc., $300 from Secure Money Market Fund, and $250 from Rapid Growth Mutual Fund. They

also received a $100 capital gain distribution from Rapid Growth. In addition, the Baldwins

received $700 in nonqualified foreign corporation dividends from Consolidated Tapioca, and

paid foreign taxes of $10 to various countries in connection with this investment. The responses

to the questions on Part III of Schedule B are No.

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Form 1040, Schedule D

During 2015, the Baldwins sold the following capital assets:

(1) On February 2, 100 shares of Ahab Inc. were sold for $1,000. They had been purchased on

November 18, 2008 for $2,500.

(2) On November 5, 200 shares of Pequod Inc. were sold for $5,000. They had been purchased

on January 5, 2008 for $2,000.

(3) On December 4, 100 shares of Squall Inc. were sold for $10,000. They had been purchased

on January 4, 1998 for $4,000.

(4) On December 10, 200 shares of Kismet Inc. were sold for $5,000. They had been purchased

on September 5, 2002 for $2,000.

(5) On December 15, a number of gold coins were sold for $2,000. The coins had been

purchased on October 15, 2002 for $3,000.

Form 1040, Schedule E

Mr. and Mrs. Baldwin own and rent a brick two-flat apartment building located at 5 West 12th

Ave., Chicago, Illinois 60626. The apartment building is not used for personal purposes by either

the Baldwins or members of their family. Mr. Baldwin actively participates in the operation of

the building. The Baldwins received rents of $12,000 in 2015. Their expenses are as follows:

cleaning and maintenance $2,500

mortgage interest $4,000

repairs $ 750

advertising $ 500

insurance $1,000

real estate taxes $1,250

The current depreciation figure, taken from the Baldwins work papers (not reproduced) is

$3,000.

Form 2441

During 2015, the Baldwins daughter, Megan, attended two child care centers. They were:

Happy Day Care, 4210 W. Maple, Chicago, Illinois 60699, whose identification number is 36-

0987564; and Greenfields Day Care, 901 N. Ash, Chicago, Illinois 60699, whose identification

number is 36-1234567. The Baldwins paid $3,720 to Happy Day Care and $1,860 to Greenfields

Day Care. The Baldwins did not receive employer-provided dependent care benefits.

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BUSINESS INCOME

Form 1040, Schedule C

Mr. Baldwin operated Interiors Unlimited, selling home furnishings at retail, as a sole proprietor

during the entire year. The business address is 45 Boswell Blvd., Villa Park, Illinois 60181. His

employer identification number is 36-3457896. The business code is 442200. In order to clearly

show business income, Mr. Baldwin maintains an inventory at cost and he uses the accrual

method of accounting for his sales and purchases. Total gross receipts of the business were

$127,247 and returns and allowances amounted to $1,500. The business books showed the

following information:

Inventory at beginning of year (valued at cost) . . . . . . $35,000

Merchandise purchased . . . . . . . . . . . . . . . . . . . . . . . . 70,000

Inventory at end of year . . . . . . . . . . . . . . . . . . . . . . . . 22,000

Truck expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550

Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300

Rent (property) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,800

Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280

Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000

Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,541

Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,450

Utilities and telephone . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200

Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,240

Legal and accounting

(includes $200 of tax preparation fees) . . . . . . . . . . . . 400

Office expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,858

Travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400

Meals and entertainment . . . . . . . . . . . . . . . . . . . . . . . . 1,040

Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330

FARM INCOME AND EXPENSES

Form 1040, Schedule F

Mr. Baldwin owned and operated a farm in Illinois. The Principal Agricultural Activity Code for

this farm is 112111, and the principal product raised is beef cattle. Mr. Baldwin utilizes the cash

basis to report farm income and expenses. His books and records show the following

information:

Farm income Amount

Livestock sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,500

Cooperative distributions

($30 nontaxable) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

Farm expenses Amount

Livestock purchases 15,000

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Depreciation 1,000

Feed purchased 750

Freight and trucking 250

Insurance 400

Labor hired 3,000

Other interest 100

Pasture rentals 300

Taxes 450

Veterinary fees 500

Assume that Mr. Baldwins basis in the livestock sold during 2015 was $19,500.

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Tax Research Assignment 3:

Prepare the Baldwins 2015 Form 1040 Joint Individual Tax Return, including Schedules

A, B, C, D, E, and F and Forms 2106, 2120, and 2441.

Due Date Tax Return: Sunday, 11:59 PM EST, February 28, 2016.

Submission:

Your Assignment must be submitted in Term in the Assignments section of LEO.

The Tax Research Assignment 3 shall be submitted in PDF format in your individual

assignment folder. No attachments will be accepted other than PDF file format.