Jorge Lopez age 44 and his wife Margarita Lopez age 42 (SSN 111-­22-­ 2222) live at 145 Gulfview Drive, Palmetto, FL 34221. The Lopez have a daughter Amanda (SSN 111-­33-­3333), age 20 and a son Max, age 10. In addition they provide support for Jorge’s mother Celia who is a resident of Mexico. Amanda is a single full-­time college student at FSU; she is in her third year of undergrad. Amanda worked during the summer as a lifeguard for Lifeguards R Us at the Palmetto Beach. She was able to work on her tan as well as earn $3,140, for which she received a W-­?2. Amanda also had the following sources of income: $300 of interest income and $200 of qualified dividend income. Jorge and Margarita help Amanda during the school year by paying her room $6,000, board $3,000 and tuition $8,000. Jorge and Margarita provide more than 50% of Amanda’s support for the year. Max, is enrolled in an after-­school program for 10 months of the year at a cost of $300 a month at Palmetto Youth Program.  During school summer and winter breaks he attends a day camp offered by the same youth program for a total cost of $1,200. Max attends St Mary’s Parochial School where the tuition is $ 400 per month for 10 months, for “active parishioners” (those who donate a minimum of $2,000 per year to St Mary’s Church.) For non-­?parishioners the tuition is $650 per month. Jorge Lopez worked as a salesman for Smirky Inc. He received a salary and bonuses totaling gross wages of $92,000 (withholdings include $9,500 of federal income tax, Social security of $5,704 and Medicare of $1,334) plus an expense reimbursement of $6,000 to cover his employee business expenses. Jorge must make an adequate accounting to his employer and return any excess reimbursement; none of the reimbursement was related to meals and entertainment. Jorge drove his car a total of 22,840 miles during the year, and placed the car in service on June 1, 2013. His log indicates that 12,410 miles were for sales calls to customers and the rest were personal. Jorge uses the standard mileage rate method. Jorge is a Tampa Bay football fan. He purchased two season tickets for a total of $4,500. He takes a customer to every game, and they discuss business before, during and after the games. Jorge also takes clients to business lunches. His log indicates that he spent $1,650 on these business meals. Jorge also took a five-­?day trip to the Smirky headquarters in Spokane, WA. He was so well prepared that he finished his business in two days, so he spent the other three days sightseeing. He had the following expenses during the trip: Airfare $800, Lodgings $450, Meals $250, Rental car $200. Additionally, Smirky provides Jorge with medical insurance worth $7,200; the entire family is covered under this policy.

 

Margarita is self-­employed. She sews custom wedding dresses from the garage at their home under the label Daisy Couture. The garage is 15% of the house’s total square footage of 2,600. The business code is 315240. She had the following income and expenses:

 

Gross Revenue $56,000 

Cost of materials (material, thread, etc.) 6,000 

Contract labor 5,400 

Website & Domain 200. 

Business telephone 500.

 

The Lopez home cost a total of $375,000, of which the cost of the land was $75,000. The current FMV of the house is $450,000 and the FMV in January 2013 was $385,000. The house is depreciable over a 39-­?year recovery period. They purchased the home in June of 2012 and Margarita began her business in January of 2013. In addition, Daisy Couture purchased 2 sewing machines in 2013 for $3,200 each as well as computer equipment for $4,000. During the current year, an additional specialized sewing machine for working with lace was purchased for $6,000 on April 1. The Lopez incurred the following other income and expenses:

 

 

 

 

 

Utility bills for the house $2,900 

Real Estate taxes 3,200 

Mortgage interest 3,800 

Eyeglasses and exam for Margarita 500 

Cash donated to St Mary’s Church 3,500 

Sales tax on purchases (nonbusiness) 6,200 

Dividends from 3G stock 850 

Interest from City of Tampa bonds 800 

Interest from savings account 410

 

During the year the following events also occurred: 

In 2012, Jorge had loaned a friend $2,000 to help pay medical expenses. During 2017, he discovers his “friend” has skipped town. He has been unable to locate him and no longer has any expectation of being repaid. 

On June 10, 2017, Jorge sells Apple stock for $29,000. He purchased the stock on December 19, 2010 for $6,200. 

Instead of accepting the $95 the utility store offered for their old dishwasher, they donated it to Goodwill on November 21, 2017. They purchased it originally on March 12, 2005 for $600. The new dishwasher cost $900. 

During the year, Margarita’s great aunt Consuelo died. Jorge and Margarita received $100,000 from the life insurance policy. Neither Jorge nor Margarita paid any of the premiums.

In addition to the life insurance, Consuelo bequeathed to Margarita her collection of antique fans. Consuelo had started the collection as a child and her basis in the fans, was $ 550, the FMV of the fans at the date of Consuelo’s death was $5,000. Margarita sold them to a collector on December 30 for $5,400. 

Hurricane Irma and Maria affected the Lopez family. A large tree fell on the roof of the house during Hurricane Irma causing damage of $ 9,000. Their homeowner’s insurance deductible for windstorm damage is $15,000. After that experience the family evacuated during Hurricane Maria in Jorge’s car but Margarita’s was left on the premises and a sign broke her windshield and caused water damage to her car. Their car insurance covered part of the damage but the Lopez’s paid an additional $1,200 out of pocket to complete the repairs. 

Jorge enjoys playing the drums and plays in a band on weekends. His band, Las Cucarachas has developed a local following and they decided to try recording some original music. The CD was completed in December of this year. This year his gross revenues were $1,600 for playing shows and $250 on CD sales. His share of the expenses are as follows:

    

    Studio Rental $1,500 

    CD production 700 

    New drums and drumsticks 600 

    Website 100 

    Printing Flyers 350

 

 

Jorge and Margarita had purchased a plot of land in North Carolina in 2014 for $25,000. This year on June 7th they sold the property for $100,000, to an unrelated third party. $5,000 in selling expenses were part of the closing paid by the Lopez. In accordance with the agreement, the buyers paid a deposit of $20,000 at closing and agreed to pay $20,000 plus 5% interest each year for the next four years.

 

    

 

Required: 

 

Prepare the 2017 federal income tax returns, including all required forms and schedules, as needed for all members of the Lopez family. 

 

Throughout the return you will see instances where a line on the 1040, indicates to attach either a schedule or a specific form if required. You should review the information and instructions to determine and if required include it as part of a completed return. You can ignore the requirement to attach a W-­?2 

 

When the form contains the phrase (attach schedule), without identifying a specific form or schedule, this indicates that the amount on the form needs to be further detailed but there is no specific form on which to do so. 

 

In these cases you should prepare a schedule that does so, such as in the following example: Professional Fees $1,200 

Auto expenses 300 

Miscellaneous 120 

Total, Form 1040, Schedule A, line 11 $1,620