A409 Tax Return #3 - Spring 2020

Instructions:

Prepare a 2019 Form 1040, Schedule 1, Schedule 2, Schedule 3, Schedule A, two Schedule Cs (one for Maria and one for Carlos), Schedule D, Form 8949, two Schedule SEs,Form 8995, Form 8829, and two Form 4562s, using the information below. (Note that you are not required to complete any other schedules or forms for this assignment - even though they might be required for the return if submitted to the IRS.) Look for the forms online (irs.gov). The instructions that go with the forms will be very helpful.For additional information on personal returns, I suggest Publication 17.You can also search the IRS website or look things up in Answerconnect (Intelliconnect's successor)(answerconnect.cch.com).

You MUST submit one file that contains all required forms in the correct order.For the purpose of clarity, this means one PDF document (not a zip folder and not a PDF portfolio). I pre-grade as a convenience to you - having only one file to scroll through makes this time-effective for me! If you send me a return to pre-grade, I will only look at one file so if it's not combined, I will only review the first file attached. If you turn in a portfolio, zip file, or multiple files I will reduce your grade by 5 points for every additional file.If you need help figuring out how to do this ask me, your classmates, or look for YouTube videos!

Due Date:

Submit by email by the due date in the syllabus.

Additional Information:

Just as you would with a client, if you have questions about the information provided, you may ask me. To do so, please put your questions in an email to the taxpayer at my email address.I will give you as much information as a client would be able to do.If you need help with the tax return itself please reach out by email.I will pre-grade this assignment for you up to one time per day as long as you submit it by email more than 24 hours before the deadline.

Grading:

I will select specific lines out of the various forms and schedules you are required to fill out and they will each earn between one and five points.Usually, I can feed my program incorrect numbers and adjust the rest of the return accordingly so you aren't penalized more than once for a mistake.This means, though, that if I tell you a particular line is incorrect when I pre-grade, you also have to check any line that is mathematically affected by that line.For example, if I tell you that taxable income is wrong, I will input your incorrect taxable income into my workbook and keep checking, so I may not tell you that the tax liability is also wrong.

Client Information:

Carlos (age 40) and Maria (age 38) Gomez live in Lubbock, Texas.The Gomezes have two children: Luis (age 14) and Amanda (age 12).Both children qualify as federal income tax dependents of Carlos and Maria.The Gomezes provided the following information:

Carlos's social security number is 589-25-2020

Maria's social security number is 589-24-2020

Luis's social security number is 589-24-8432

Amanda's social security number is 599-74-8733

The Gomez's current mailing address is 543 West La Patera, Lubbock, Texas 79401

Carlos is a civil engineer.For the first two months of the year, he was employed by West Texas Engineering (WTE).However, he resigned his position with WTE to start his own engineering firm called Gomez Professional Engineers (GPE).GPE is conducted as a sole proprietorship with Carlos being the sole owner.GPE (Business Code 541330) started business on March 1, 2019 and is located at 1515 West Industrial Road Lubbock, Texas 79401 (EIN 20-1616167). Maria is self-employed as a part-time bookkeeper.

Carlos received a W-2 form from West Texas Engineering that showed wages, tips, and other compensation of $25,650; federal income tax withheld of $4,500; social security tax withheld of $1,590.30, and Medicare tax withheld of $371.93. West Texas Engineering did not have a retirement plan.

Carlos reported the following information for GPE's business activities (GPE uses the cash method of accounting):

Revenues:

Credit card receipts$350,000

Cash receipts 625,000

Total revenue$975,000

Expenses:

Advertising$5,450

Insurance-professional 15,756

Office building rent 62,012

Equipment leases6,011

Business Travel (other than meals) 10,200

Meals while traveling3,975

Wages paid to employees590,722

Taxes and licenses 44,815

Employee health insurance 40,004

Employee benefit programs 10,701

Utilities 37,416

Office supplies 18,914

Legal and professional fees 15,557

Repairs and maintenance 9,113

Total Expenses$ 870,646

GPE purchased and placed in service the following fixed assets in 2019:

Item

Date Purchased

Amount

Laptop computers

March 1

$20,500

Printers

June 1

$6,500

Office furniture

October 10

$29,000

GPE does not want to claim any bonus depreciation or Section 179 expensing on any of these assets. These assets are all 100% business use and were placed in service the date of purchase.

Carlos worked part-time on GPE business activities until he finished his employment with WTE early in the year.Carlos worked full-time on GPE business activities for the rest of the year.

GPE filed Forms 1099 for payments made to contractors when required to do so.

Carlos and Maria paid $28,000 for health insurance for his family (for the time he was working at GPE).This amount is not included in the GPE expenses listed above, nor is it included in other expenses below.Neither Carlos nor Maria had access to employer-provided health insurance during the year while they were paying the premiums for this policy.

Carlos and Maria each contributed $5,500 to an IRA this year.

Maria received a Form 1099-MISC from her bookkeeping activities for her largest client, Dixon Healthcare, Inc.The payer's TIN is 12-3456781 and it showed $28,000 of nonemployee compensation in box 7. There were no other amounts on that 1099.

Maria received an additional $3,000 from clients who were not required to issue Maria a Form 1099-MISC.

During the year, Maria paid the following business-related expenses:

Paper$365

Toner$550

Meals while traveling for business$480

Maria purchased and placed in service the following fixed assets for her business during the tax year:

Item

Date Purchased

Amount

New laptop computers

March 1

$2,850

New laser printers

March 1

$1,840

New computer software

April 2

$400

These items are used only for business.Maria has another computer she uses for personal use. Maria would like to recover the cost of these business assets as soon as possible.

Maria owns a 2014 Acura.She started to use the Acura for her business on January 1, 2016.She drove 3,050 business miles during the tax year (she has documentation to verify).She drove the vehicle for a total of 11,000 miles during the year (7,950 personal miles). She also has access to another vehicle that she can use for personal purposes. She used the standard mileage method in her first year of using this car. She estimates that the total gas and repairs attributable to business use is around $800.

Maria started her bookkeeping service (Business Code 541219) in 2014 and she uses the cash method of accounting.She is the only person performing services in the business.She did not make any payments that would have required her to file a Form 1099.

On January 3, 2019, the Gomezes sold their prior principal residence.They purchased that residence in 2012 and had lived there full-time until they sold it this year.They originally purchased the home for $310,000.The Gomez family has never claimed any tax depreciation (nor were they allowed to) on the home.The sales price of the home was $405,000.The home is located at 45 East Entrada Trail, Lubbock Texas 79401. They did not pay any mortgage interest on this home in 2019. The sales tax rate in their old and new neighborhoods is 6.5%.

The Gomez family purchased (and moved into) their current residence at 543 West La Patera, Lubbock, Texas 79401 on February 1, 2019.The La Patera residence is 2,000 square feet.The purchase price of the residence was $500,000 (building value was $350,000 and the lot value was $150,000).The mortgage on the purchase was $300,000.Expenses relating to the La Patera residence were as follows:

Mortgage interest (reported on 1098)$12,000

Points paid on purchase (reported on 1098)$3,000

Property taxes $9,750

Utilities$4,000

Insurance$3,000

In addition to the primary mortgage on the home, the Gomezes borrowed $150,000 on a home equity line of credit ("HELOC") against the La Patera home.They received a Form 1098 relating to the line of credit from Texas Bank and Trust (TIN 16-2541222) showing mortgage interest received of $7,500. They used the funds from the line of credit borrowed funds to pay off personal debts on credit cards and take a European vacation.

Maria utilized a room in the La Patera home for her bookkeeping business.The room was used exclusively on a regular basis as Maria's principal place of business from February 1, 2019. She also occasionally meets with clients in this room. Maria estimates that she does about 80% of her work in her home office. Maria wants to maximize her home office deduction related to this use and so does not want you to take the simplified deduction.The room she uses is 200 square feet.

In the summer of 2019, the Gomez family rented out the La Patera residence to another family.The La Patera residence is situated along the ninth green of the famous Lubbock Country Club (LCC).The LCC hosted the U.S. Senior Open golf tournament this year.The Gomez family rented their residence to a golfer participating in the event for $1,100 per day for 10 days (the home office remained locked and off limits to the renters, however).During this time the Gomez family went on vacation touring the west coast of the United States.The Gomez family incurred $1,500 of cleaning and other expenses associated with the 10-day rental period.

Maria Gomez recevied interest income of $175 from First Bank of Texas. Carlos received $600 of tax-exempt interest from the Lubbock Texas School District from a bond issued in 2013.Carlos also received $150 interest on U.S. Savings Bonds and $714 interest from Rio Tinto Minerals. Maria earned $800 of qualified dividends from General Mills and $250 of qualified dividends from Sysco Corporation.Carlos earned $350 of qualified dividends from Tyco Integrated Security.

Carlos sold 3,000 shares of General Electric Stock on 1/3/2019 for $50,000 total which he acquired on 10/10/2007 for $45,000. This information was reported to both Carlos and the IRS on a Form 1099-B.

The Gomezes did not own, control, or manage any foreign bank accounts, nor were they grantors or beneficiaries of a foreign trust during the tax year.

The Gomezes paid the following expenses during the year (in addition to the personal residence-related items listed above):

Dentist (unreimbursed by insurance)$5,000

Doctors (unreimbursed by insurance)$1,750

Prescriptions (unreimbursed by insurance)$425

Vehicle property tax based upon value for Maria's Acura$ 1,850

Vehicle property tax based upon value for Carlos's Ford$2,030

Contribution to qualified charities$2,500

The Gomezes did not pay any state income taxes during the year.

Other Information

The Gomezes made timely federal estimated tax payments for 2019 as follows:

April 15$4,000

June 15$4,000

September 15$4,000

January 15*$4,000

*Note that these are the correct dates for making estimated tax payments for the current year even though one is in the following year.