ACCOUNTING FEDERAL INCOME TAXATION Instructions: Prepare the tax return on current federal tax forms, Use forms or copies down-loaded from a web site (www.irs.gov or other) or other copies Place forms in order of the attachment sequence number on top of each tax form; place work papers after the coresponding tax form; staple or clip in the upper left corner; place cell formula work papers at the end of the return, NO folders, envelopes, formal covers, etc Problem Forms needed: 1040, Sch A & B, Sch C, Sch D, Sch E, 2106, 2441, 4562, [Any others? You decide! Phil and Jannie Davis (attached) PHILLIP AND JANNIE DAVIS PHILLIP H.. (age 41) and JANNIEM. (agc 39) DAVIS are married and have two children, Fred J. (age 12) and Grelchen W (age 22). All parties reside at 2100 Laredo Dr., Greeley, CO 80321. Relevant Social Security numbers are listed below: Phil 512-78-1234; Jannie 489-89-.4567; Fred 789-47-7890; Gretchen 790-56-4321. Phil and Jannie provide over one-half the support for each of the two children, and the children live with the parents Jannie's father, Mario A. Martino (Social Security number 373-67-4321), is age 68. He lives n nursing home located in nearby Columbia, CO. Mario's only sources of income are his Social Security benefits of $13,500, and a pension of S18,600, all of which is spent on nursing home and living costs. Jannie and Phil pay $32,900 of his nursing home and other living costs Phil is the manager of a pool supply store. His Form W-2 for 2018: Wages: $106,503 Federal Tax Withheld: $11,626 State Income Tax Withheld $5,600 Social Security Wages: $111,056 Social Security Tax Withheld: $5775 Medicare Wages: $111,056 Medicare Tax Withheld: S2721 Phil was a participant in an employer sponsored retirement plan. No ather "hoxes" or codes apply to Phil's W-2. Jannie owns and operates a cash basis painting service under the business name of "Live With Color." Employer identification number is 25-0767432. The business address is 1700 Martin Luther King Blvd, Grecley C 80315. The results of "Live With Color" for 2018 are as follows (Jannie does not maintain any inventories.) Sales Revenue $187.680 Salaries (to employees) ayroll Taxes 58,840 12,368 Software 2,430 1.512 Office Supplies Business phone Advertising Occupation Tax Property Insurance Shop rent Utilities 648 2.592 136 864 12.960 1,787 On August 1, 2018, Jannie acquired office furniture and fixtures to set up a model display at a total cost of$25,920 (she did not expense any amount under any provision). On June 15, 2018, Jamic purchascd an $21,600 stale-of-the-arl computer workstation to use 100% in her business. She would like to deduct as much of its cost as possible in the curTent tax year On March 1,2017, Jannie purchased a new automobile. During 2018, the auto was used as shown below Miles Driven Actual Costs Gasoline $3,056 Business 12,560 Oil Changes Comuting 15 miles round-trip) 3,800 776 105 Tires 567 Charitable 7,912 932 Personal Insurance Registration Other Repair/maint. 54 473 Jannie maintains a log which reflects this mileae. She has used buth the actual cost and standard mileage methods in the past and qualifies to use either one this ycar. To buy the automobile, Jannie took out a home equity loan of $34,960 on their personal residence. At the time of the loan, the residence's fair market value was S193,200 and the principal on the first mortgage was $124,000. The interest expense incurred by Jannie in 2018 is reported on a form 1098 Gretchen is a full-time student at the local state university and works part-time (2018 wages equal $4,752). Gretchen began her senior year in the Fall semester of 2018. Phil and Jannie paid the following amounts with respect to Gretchen's college education: Spring Semester 2018 (paid Jannie. 10, 2018) Tuition $4,350 Fail Semester 2018 (paid August 15, 2018) Tuition $4,600 Books $505 S4,000 Room & board $4,500 Books $594 Room & Board The Davis' received interest of $1,121 dividends (all qualified) of $3,240, and capital gain inconc as reported from a mutual fund of $2.562 Phil and Jannie would both like to contribute the maximum amount to their Traditional IRAS. Phil is covered by a qualified pension plan al SharkCity Pool; Jannie has no other pension plans. Fees Jannie receivcd for serving on a Federal grand jury - S310. Expenses incurred by Jannie (parking mcals) in connection with jury duty -- $120 In order lo be gainfully employed, Phil and Jannie pay Kristin Tubs $3,024 to care for Fred during after school hours. Kristin (Social Security number 327-37-3737) is a nearby neighbor who is retired and has no children of her own. Kristin's address is 100 Laredo Dr., Greeley, CO 80321. In 2018, the Davis' received a refund of 2017 state income taxes in the amount of $486. The Davis' have itemized the last 2 several years and such deductions have exeeeded their standard deduction by at least $1,890 in cvcry year. On June 20, 2018, the Davis sold their Klor Ine. stock for $8,980. Phil and Jannie had received this stock as a gift from Jannic's dad on November 25, 2010 when its fair market value was $7,776 (no gift tax was paid). Jannie's Dad had purchased the stock on January 14, 1993 for $8.640. On 9/10/16, Jannie purchased 2000 shares of Weasel Corp. stock for $2.600. The company had declared bankruptcy in 2018, and didn't make it; they officially went out of business on 8/15/18 Jannie also sold 1000 shares of Techno Inc. stock on 12/01/17 for $520. Jannie had purchased the stock on 10/18/06 for $5,680. Techno qualifies as a 1244 corporation. Phil purchased 80 2016 (w nontaxable 10% stock dividend o of Z November 7, 208 for $14,000; he received an additional 80 shares as a February 13, 2018 for $1,900; he also sold 200 ofthe n the market price was $27 per share), and sold those 80 shares on Phil also inherited 10 acres of land in Eastern Pennsylvania fron his parents. They had acquired the land on 5/16/97 for $6,300, The land's fair market value on 5/14/2002 (date of inheritance) was $28,460 original 800 shares on Nov. 12, 2018 for $6,000. 5,200. Phil sold the 10 acres on 1/15/18 for Because Phil's employer only provides health insurance coverage for himself and the children, Jannie paid $6,240 in 2018 for her own health insurance coverage. Jannie paid $7,760 of alimony to her previous husband, Tom Dobbs, from whom she divorced several years ago. There are no children from this marriage. Tom's Social Security number 242-26-8078 During the year, Phil attended a four-day conference sponsored by the National Swimming Pool Association in Washington, D.C. o learn more about new pool designs and developments. Because he had never visited the nation's capital, Phil took two days of his vacation time to tour that city's sites. In addition to air fare of S316, his expenscs for the six-day trip were as follows Seminar Fee $520 (Phil's employer reimbursed him $1,000 for his expenses 880 Hotel 509 Meals Taxi fares, tips Guided tourS 96 72 Oher job related expenses include: Gifts clients (each under $25) S172 Business lunchcs involving clients Gift to secretary Birthday gift to the service center manager (ie., Phil's boss} Renewal dues for licensing Parking at work Ducs to professional associations 312 29 All of these expenses are properly substantiated and supported by receipts. 140 542 630 68 Other expenses incurred by the Davis' in 2018 are summarized below $7,724 Doctors, clinics, hospitals Medical insurance (Phil's pre-tax contribution to his employer's plan) Charitable contributions (documentation received) Pronerty taxes on personal 2,512 3.188 4,456 residence With respect to the 2018 medical expenses, the Davis' received a total of $948 of insurance reimbursements in 2018 In addition to the cash contribution above, on June 10, 2018, the Davis' donated used furniture and cluthing to Goodwill, 40 E 5th St., Greeley, CO 80315. They estimale the original cost of this property was $4,456. The value they would have reccive if they sold it at a yard sale was $972. They also donated common stock in International Paper Corporation to St. Anne's Catholic Chureh, 230 Elm Strcct Greeley, CO. The stock was purchased on February 3, 2000, for $20,000 and was worh $36,000 on November 10, 2018 (the day of the donation). The donation was to cover the Davis's 2017 general pledge ($9,000), the 2018 general pledge ($9,000) and the 2018 rectory renovation capital fund drive ($18,000) Phil inherited a river cottage from his parents when they died (Mayl4, 2002) which he rents out during the year. Phil actively manages the rental. The collage had cost his parents $10,000 ($1,000 land) in 1981; the FMV on May 14, 2002 was $95,000 ($10,000 land). The house has always been Tnal property, and Phil and Jannie normally used it for two weeks for their vacation. In 2018 however. they used it for 30 davs since they both took extended vacations. It was actually rented out for 207 days during 2018. It is located at 212 Mohawk Way, Albany, NY 13600. For 2018, Phil had thc following income and expenses with respect to the rental property: ate Rentals collcctcd S30.710 Advertising Cleaning and maintenance 4,378 819 914 Insurance 504 Repairs xes 2,709 Miscellaneous 76 During 2018, he purchased new appliances for the home on May 6 costing $1,900; and installed a new roof on July 20 costing $12,500. On August 30, 2018 the Davis' discovered that somconc had broken into their home while they were away on vacation. Jewelry and cash were stolen. The cost (and FMV in paren.) of the stolen property was: jewelry - $7,300 ($11,100), and $1.500 in cash, Homeowner's insurance reimbursed them $3,500 for the jewelry and nothing for the cash (they did not have FMV replacement insurance and their policy capped losses at $3,500 for cach catcgory). Timely estimated federal income tax payments of $2,160 were paid each quarter. In addition, an overpayment of $864 from 2008 was applied to 2018. Timely estimated STATE income tax payments of $500 were paid each quarter. In addition, a payment of $150 was made each quarter for LOCAL income taxes as applied to 2018. The sane amounts were paid each quarter for the 2017 tax year. Complete the Davis's 2018 tax return. Both want $3 to go to the Presidential Election Campaign Fund. 4 ACCOUNTING FEDERAL INCOME TAXATION Instructions: Prepare the tax return on current federal tax forms, Use forms or copies down-loaded from a web site (www.irs.gov or other) or other copies Place forms in order of the attachment sequence number on top of each tax form; place work papers after the coresponding tax form; staple or clip in the upper left corner; place cell formula work papers at the end of the return, NO folders, envelopes, formal covers, etc Problem Forms needed: 1040, Sch A & B, Sch C, Sch D, Sch E, 2106, 2441, 4562, [Any others? You decide! Phil and Jannie Davis (attached) PHILLIP AND JANNIE DAVIS PHILLIP H.. (age 41) and JANNIEM. (agc 39) DAVIS are married and have two children, Fred J. (age 12) and Grelchen W (age 22). All parties reside at 2100 Laredo Dr., Greeley, CO 80321. Relevant Social Security numbers are listed below: Phil 512-78-1234; Jannie 489-89-.4567; Fred 789-47-7890; Gretchen 790-56-4321. Phil and Jannie provide over one-half the support for each of the two children, and the children live with the parents Jannie's father, Mario A. Martino (Social Security number 373-67-4321), is age 68. He lives n nursing home located in nearby Columbia, CO. Mario's only sources of income are his Social Security benefits of $13,500, and a pension of S18,600, all of which is spent on nursing home and living costs. Jannie and Phil pay $32,900 of his nursing home and other living costs Phil is the manager of a pool supply store. His Form W-2 for 2018: Wages: $106,503 Federal Tax Withheld: $11,626 State Income Tax Withheld $5,600 Social Security Wages: $111,056 Social Security Tax Withheld: $5775 Medicare Wages: $111,056 Medicare Tax Withheld: S2721 Phil was a participant in an employer sponsored retirement plan. No ather "hoxes" or codes apply to Phil's W-2. Jannie owns and operates a cash basis painting service under the business name of "Live With Color." Employer identification number is 25-0767432. The business address is 1700 Martin Luther King Blvd, Grecley C 80315. The results of "Live With Color" for 2018 are as follows (Jannie does not maintain any inventories.) Sales Revenue $187.680 Salaries (to employees) ayroll Taxes 58,840 12,368 Software 2,430 1.512 Office Supplies Business phone Advertising Occupation Tax Property Insurance Shop rent Utilities 648 2.592 136 864 12.960 1,787 On August 1, 2018, Jannie acquired office furniture and fixtures to set up a model display at a total cost of$25,920 (she did not expense any amount under any provision). On June 15, 2018, Jamic purchascd an $21,600 stale-of-the-arl computer workstation to use 100% in her business. She would like to deduct as much of its cost as possible in the curTent tax year On March 1,2017, Jannie purchased a new automobile. During 2018, the auto was used as shown below Miles Driven Actual Costs Gasoline $3,056 Business 12,560 Oil Changes Comuting 15 miles round-trip) 3,800 776 105 Tires 567 Charitable 7,912 932 Personal Insurance Registration Other Repair/maint. 54 473 Jannie maintains a log which reflects this mileae. She has used buth the actual cost and standard mileage methods in the past and qualifies to use either one this ycar. To buy the automobile, Jannie took out a home equity loan of $34,960 on their personal residence. At the time of the loan, the residence's fair market value was S193,200 and the principal on the first mortgage was $124,000. The interest expense incurred by Jannie in 2018 is reported on a form 1098 Gretchen is a full-time student at the local state university and works part-time (2018 wages equal $4,752). Gretchen began her senior year in the Fall semester of 2018. Phil and Jannie paid the following amounts with respect to Gretchen's college education: Spring Semester 2018 (paid Jannie. 10, 2018) Tuition $4,350 Fail Semester 2018 (paid August 15, 2018) Tuition $4,600 Books $505 S4,000 Room & board $4,500 Books $594 Room & Board The Davis' received interest of $1,121 dividends (all qualified) of $3,240, and capital gain inconc as reported from a mutual fund of $2.562 Phil and Jannie would both like to contribute the maximum amount to their Traditional IRAS. Phil is covered by a qualified pension plan al SharkCity Pool; Jannie has no other pension plans. Fees Jannie receivcd for serving on a Federal grand jury - S310. Expenses incurred by Jannie (parking mcals) in connection with jury duty -- $120 In order lo be gainfully employed, Phil and Jannie pay Kristin Tubs $3,024 to care for Fred during after school hours. Kristin (Social Security number 327-37-3737) is a nearby neighbor who is retired and has no children of her own. Kristin's address is 100 Laredo Dr., Greeley, CO 80321. In 2018, the Davis' received a refund of 2017 state income taxes in the amount of $486. The Davis' have itemized the last 2 several years and such deductions have exeeeded their standard deduction by at least $1,890 in cvcry year. On June 20, 2018, the Davis sold their Klor Ine. stock for $8,980. Phil and Jannie had received this stock as a gift from Jannic's dad on November 25, 2010 when its fair market value was $7,776 (no gift tax was paid). Jannie's Dad had purchased the stock on January 14, 1993 for $8.640. On 9/10/16, Jannie purchased 2000 shares of Weasel Corp. stock for $2.600. The company had declared bankruptcy in 2018, and didn't make it; they officially went out of business on 8/15/18 Jannie also sold 1000 shares of Techno Inc. stock on 12/01/17 for $520. Jannie had purchased the stock on 10/18/06 for $5,680. Techno qualifies as a 1244 corporation. Phil purchased 80 2016 (w nontaxable 10% stock dividend o of Z November 7, 208 for $14,000; he received an additional 80 shares as a February 13, 2018 for $1,900; he also sold 200 ofthe n the market price was $27 per share), and sold those 80 shares on Phil also inherited 10 acres of land in Eastern Pennsylvania fron his parents. They had acquired the land on 5/16/97 for $6,300, The land's fair market value on 5/14/2002 (date of inheritance) was $28,460 original 800 shares on Nov. 12, 2018 for $6,000. 5,200. Phil sold the 10 acres on 1/15/18 for Because Phil's employer only provides health insurance coverage for himself and the children, Jannie paid $6,240 in 2018 for her own health insurance coverage. Jannie paid $7,760 of alimony to her previous husband, Tom Dobbs, from whom she divorced several years ago. There are no children from this marriage. Tom's Social Security number 242-26-8078 During the year, Phil attended a four-day conference sponsored by the National Swimming Pool Association in Washington, D.C. o learn more about new pool designs and developments. Because he had never visited the nation's capital, Phil took two days of his vacation time to tour that city's sites. In addition to air fare of S316, his expenscs for the six-day trip were as follows Seminar Fee $520 (Phil's employer reimbursed him $1,000 for his expenses 880 Hotel 509 Meals Taxi fares, tips Guided tourS 96 72 Oher job related expenses include: Gifts clients (each under $25) S172 Business lunchcs involving clients Gift to secretary Birthday gift to the service center manager (ie., Phil's boss} Renewal dues for licensing Parking at work Ducs to professional associations 312 29 All of these expenses are properly substantiated and supported by receipts. 140 542 630 68 Other expenses incurred by the Davis' in 2018 are summarized below $7,724 Doctors, clinics, hospitals Medical insurance (Phil's pre-tax contribution to his employer's plan) Charitable contributions (documentation received) Pronerty taxes on personal 2,512 3.188 4,456 residence With respect to the 2018 medical expenses, the Davis' received a total of $948 of insurance reimbursements in 2018 In addition to the cash contribution above, on June 10, 2018, the Davis' donated used furniture and cluthing to Goodwill, 40 E 5th St., Greeley, CO 80315. They estimale the original cost of this property was $4,456. The value they would have reccive if they sold it at a yard sale was $972. They also donated common stock in International Paper Corporation to St. Anne's Catholic Chureh, 230 Elm Strcct Greeley, CO. The stock was purchased on February 3, 2000, for $20,000 and was worh $36,000 on November 10, 2018 (the day of the donation). The donation was to cover the Davis's 2017 general pledge ($9,000), the 2018 general pledge ($9,000) and the 2018 rectory renovation capital fund drive ($18,000) Phil inherited a river cottage from his parents when they died (Mayl4, 2002) which he rents out during the year. Phil actively manages the rental. The collage had cost his parents $10,000 ($1,000 land) in 1981; the FMV on May 14, 2002 was $95,000 ($10,000 land). The house has always been Tnal property, and Phil and Jannie normally used it for two weeks for their vacation. In 2018 however. they used it for 30 davs since they both took extended vacations. It was actually rented out for 207 days during 2018. It is located at 212 Mohawk Way, Albany, NY 13600. For 2018, Phil had thc following income and expenses with respect to the rental property: ate Rentals collcctcd S30.710 Advertising Cleaning and maintenance 4,378 819 914 Insurance 504 Repairs xes 2,709 Miscellaneous 76 During 2018, he purchased new appliances for the home on May 6 costing $1,900; and installed a new roof on July 20 costing $12,500. On August 30, 2018 the Davis' discovered that somconc had broken into their home while they were away on vacation. Jewelry and cash were stolen. The cost (and FMV in paren.) of the stolen property was: jewelry - $7,300 ($11,100), and $1.500 in cash, Homeowner's insurance reimbursed them $3,500 for the jewelry and nothing for the cash (they did not have FMV replacement insurance and their policy capped losses at $3,500 for cach catcgory). Timely estimated federal income tax payments of $2,160 were paid each quarter. In addition, an overpayment of $864 from 2008 was applied to 2018. Timely estimated STATE income tax payments of $500 were paid each quarter. In addition, a payment of $150 was made each quarter for LOCAL income taxes as applied to 2018. The sane amounts were paid each quarter for the 2017 tax year. Complete the Davis's 2018 tax return. Both want $3 to go to the Presidential Election Campaign Fund. 4