Accounting Assignment - Tax Return Assignment

Using 2018 IRS Forms and the information below, prepare the federal income tax return for William and Joyce Jones. You are welcome to use any tax return preparation software. But you must include with the completed forms statements for explaining your reasoning for the treatment of each entry on the return. The taxpayers live at 4400 Massachusetts Avenue in Washington, D.C. 20016. William is 53 and Joyce is 51. William is a manager for ABC Corporation, a firm that manufactures and distributes widgets. Joyce is a self-employed author of children's books. The Jones have two children, Will, 21 and Tom, 16. The children have no income. The Jones are on the cash method of accounting and their return is due October 15. They wish to minimize their tax by deferring income and accelerating deductions when possible. Joyce's social security number is 471-42-5207. William's social security number is 150-52-0546. Will Jr.'s social security number is 372-46-2611. Tom's social security number is 375-49-6511. The taxpayers do not have any foreign bank accounts or foreign trusts and do not wish to contribute to the presidential election campaign fund. The taxpayers have health insurance coverage from William's employer. 1. Williams' W-2 consists of the following: Box 1 - Wages $145,000 2 - Withholding 4,500 12d - Pension contribution (401k) 7,0002. The taxpayers received the following interest payments: XYZ Bank $ 50 New York State Bonds 600 New York City Bonds 1,300 Puerto Rico Bonds 500 Ford Motor Co. Bonds 1,000 3. Joyce and her brother are co-owners of and active participants in a furniture- restoration business. Joyce owns 30 percent and her brother owns 70 percent of the business. The business was formed as an S corporation. The basis of Joyce's stock is $31,000. Joyce's share of the corporation's income for the year is $5,000. 4. The Jones's received a federal income tax refund of $1,200 on May 12, 2018. On May 15 they received a refund from the District of Columbia for $900 which they had deducted on the preceding year's return. 5. Joyce is the lucky caller to a local radio station and wins a tablet. She has not received a 1099-MISC, but in announcing the prize, the radio station host said that the manufacturer's suggested retail price for the tablet is $500. However, Joyce has a catalog from Best Buy that advertises the table for $400. 6. The Jones's receive a Form W-2G for their winnings at a local casino showing gross winnings of $5,000 and $1,200 of withholding tax. Joyce lost $6,000 at the casino during the year. 7. On June 26, William receives a check for $17,000 (face value of $16,500 plus $500 interest) from the United Insurance Corporation, as a result of being the designated beneficiary of an insurance policy on the life of his uncle. His uncle had paid a premium on the policy of $4,000. 8. Joyce is active in the local school PTA. During the year, she receives an award (a plaque and a $100 gift certificate that were donated to the PTA by local merchants) for outstanding service to the organization.9. 10. 11. Joyce makes 4 business trips, each 3 days long, to meet with various publishers. For shorter trips that are closer to home she either drives or takes the train and returns on the same day. In December 201 8, Joyce receives an advance on her next book. Under the contract, Joyce is scheduled to begin work on the book the following February, and must have it completed by November. The taxpayers have 2 telephone lines in their home, one of which is used for her business. The information on Joyce's business is listed below. Royalty: West Publishing $14,000 Publishers Advance $ 5,000 Office Supplies $ 200 Train Tickets $ J00 Airfare $ 2,000 Lodging $ 2,500 Meals $ 1,000 Telephone $ 800 [of which $30tmonth is for extra phone line) In January, Joyce purchases a new car for $15,000 to use in her business. Joyce pays $5,000 in cash and nances the balance through the dealer, paying $200 of interest on the loan for the year. During the year she drives 4,000 miles for business and 0,000 for other purposes. Total expenses for the 10,000 miles driven are: repairs and mairttenance, $100, insurance, $200 and gasoline, $1,000. At the beginning of the year Joyce set aside a separate room of the house which she uses exclusively for business. The room is 100 square feet of the total 5,000 square feet of the house. The taxpayers purchased the home several years ago for $710,000 with approximately 20 percent of the purchase price attributable to the land. The total household expenses for the year are as follows: Heat $2,000 Insurance $1 ,000 Electricity $1,600 Repairs to kitchen $3,000 Cleaning $ 1,000 12. William began work on his MST at American University. He enrolled in two courses and paid $3,000 in tuition and $300 for books. 13. William and Joyce each contribute the maximum to their respective IRA accounts for the year. The IRA account is Joyce's only retirement vehicle. In addition, William and Joyce contributed $2,000 to a Coverdell Education Savings Account for Tom. 14. In June the taxpayers' 2012 station wagon is totaled during a hurricane. The car was purchased for $28,200. The taxpayers received a check for $21,200 from Insurance Company that represents the fair market value of the car minus a $750 deductible and they replaced the car with a new car costing $31,401]. 15. The taxpayers incurred the following medical expenses before receiving $100 reimbursement from their health insurance policy: Medical Premiums $4,001] Doctors $1,000 Chiropractor $ 13110 Dentist $1,000 Vet Fees (family dog} $ 301} Prescription Drugs $ 300 Uverthe-counter drugs (aspirin, cough syrup) $ 200 16. The taxpayers pay the following property taxes: House $12,000 lCar {ad valomm} $ 501} 1?. The taxpayers paid the following amounts of interest. Bank of America (4401] Mass Ave.) $9,000 (Mortgage of $200,000) Sun Trust (Home Equity Loan of $ 100,000) $4,000 Nordstrom's $ 100 Bank of America Mastercard $ 200 The proceeds 'oni the home equity loan were used to build an additional room on the house. 18. The taxpayers made a cash contribution to American University of $10,000. They also donated property to the Salvation Army at High Street in Washington, DC. on July 15: Property Fi'l'l'irr [self-appraised} Original Cost Date Acquired Antique Table $400 $225 11'41'02 Dishwasher $100 $00 5f6f0ti 19. The taxpayers incur the following expenses: Type Amount Prior year tax preparation fee (paid in current year) $340 Safety deposit box $55 Investment advice $1,120 Business publication {William} $6'i'5 20. In January, William inherited his father's summer home that has a fair market value of $500,000 at the date of his father's death. His parents had purchased the house many years ago for $100,000, 20% of which was attributable to the land and made $75,000 worth of capital improvements to it. Wiliiam decides to rent the property and actively participates in nding a tenant and managing the property. The property is rst advertised for rent on March 1, but is not rented until June 1. William provides the following income and expense information for the property: Rent $2 1 ,000 Repairs $5 ,000 Property taxes $10,000 Insurance $2,000 21. The taxpayers sold the following securities during the year. The selling price listed is net of brokerage commissions and represents the amount the taxpayers receive from the sale. Date Sold Date (all sales in Sale Purchase Stock Acquired current year) Price Price 150 shares Pzer Corporation 502010 0:\" 15 $6,000 $?,500 50 shares Alcoa 6f 1WD? l0f23 $500 $2,000 25 shares Luminertt LIIZSICY 92"! $3,000 $1,000 60 shares Textron 9! l lfCY 1032? $10,000 $9,000 22. On July 1, Joyce purchased a computer, used exclusively for business for $2,000. 23. On June 1, Joyce sold her old computer system for $400. She had acquired the computer in 2010, for $2,000. When the taxpayers prepared their 20 l 0 tax return they elected to expense the computer using Section 109, The computer was used exclusively in her business