ACCT 604 Final Exam

From the information below, prepare the 2017 federal tax return for William and Joyce Jones. Attach to your return a statement describing how you treated each of the items listed 1 through 24 below.You are welcome to use any tax return preparation software. Email your return and statement to d..a@american.edu by 11:59pm March 4.

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The taxpayers live at 4400 Massachusetts Ave, in Washington, D.C. 20016. William is 53, and Joyce is 51. William is the CFO for ABC Corporation, a firm that manufactures and distributes widgets. Joyce is a self-employed author of children's books. The Jones have three children, Will, 21, Dan, 19, and Tom, 16. The Jones provide the following basic information for preparing their return.

They are on the cash method of accounting.

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.

Dan's social security number is 377-42-3411.

Tom's social security number is 375-49-6511.

The taxpayers do not wish to contribute to the presidential election campaign fund and have no interest in foreign trusts.

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1.William's W-2 consists of the following:

BOX 1 - Wages $140,000

2 - Withholding 22,000

12c - Group term life insurance in excess of $50,000 100

12d - Contribution to 401(k) plan7,000

2.The taxpayers received the following interest payments:

XYZ Bank of Bermuda ($20,000 balance)$700

New York State Bonds ($20,000 face)600

Note: $120 of backup withholding was paid to IRS so the taxpayer received only $480

New York City Bonds ($20,000 face) 1,000

Puerto Rico Bonds ($20,000 face) 500

Ford Motor Bonds ($20,000 face) 600

3.Joyce and her brother are co-workers 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 and paid a dividend of $4,800 to Joyce. The basis of Joyce's stock is $31,000. Joyce's share of the corporation's income for the year was $5,000 and her share of the corporation's 179 election was $500.

4.The Jones's received a federal income tax refund of $1,000 on May 12 of the taxable year. 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 $600. However, Joyce has a catalog from Radio Shack that advertises the tablet for $400.

6.The Jones' receive a Form W-2G for their winnings at a local casino showing gross winnings of $5,000 and $1,000 of withholding tax. Joyce knows she lost at least $6,000 at the casino during the year.

7.Joyce is active in the 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.

8.As a freelance writer, Joyce incurs costs associated with preparing a manuscript for which she does not yet have a contract. During the year, 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, 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 only one telephone line in their home, and Joyce provides the following:

Royalties: West Publishing $4,000

Publishers Advance $5,000

Train Tickets $800

Airfare (4 trips) $2,500

Lodging (12 nights) $3,000

Meals (12 days) $700

Telephone ($100 monthly fee)$1,200

Parking Tickets $200

Interest on Auto $300

9.In January, Joyce purchases a 2012 Ford for $15,000 to use in her business. Joyce pays $2,000 in cash and finances the balance through the dealer. During the year, she drives a total of 5,000 miles, 2,000 of which are for business that she has properly documented. She pays $200 for insurance and $500 for gasoline.

10.On January 1, for the first time, Joyce begins using a separate room of the house for her business. The room is 250 square feet of the total 2,500 square footage of the house. The taxpayers purchased the home in 1999, for $100,000, with 20 percent of the purchase price allocated to the land. The total household expenses for the year are as follows:

Utilities$2,000

Insurance $1,500

Cleaning $1,000

11.William began work on his MST at American University. He enrolled in one course, paying $3,000 in tuition and $200 for books.

12.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.

13.In June, the taxpayers' 2013 Chevy is totaled during a hurricane. The car was purchased for $28,000 The taxpayers received a check for $20,000 from the insurance company that represents the fair market value of the car minus a $1000 deductible and they use the proceeds to purchase a new car for $30,000.

14.The taxpayers incurred the following medical expenses before receiving $7,000 reimbursement from their health insurance policy:

Premiums $7,000

Doctors $5,000

Chiropractor $1,000

Dentist $2,000

Vet Fees (family dog Sandy) $500

Prescription drugs $3,000

Over-the-counter drugs (aspirin, cough syrup) $500

In addition, William purchases a back brace for $000, recommended by his chiropractor, to help strengthen his back muscles.

15.The taxpayers pay the following property taxes:

House $9,000

William's car (ad valorem) $500

Joyce's car (ad valorem) $700

16.The taxpayers receive two form 1098s for the interest paid on bank loans. They also pay interest on their personal credit cards.

Bank of America 1098 (4400 Mass Ave) $10,000

Loan principal: $100,000

Sun Trust 1098 (Home Equity) $4,000

Loan principal: $200,000

Sear's $200

Bank of America Mastercard $150

The proceeds from the home equity loan were used to renovate their kitchen.

17.The taxpayers have receipts showing cash contributions to the United Way ($2,000), American University ($1,000), and their local church ($2,000). They also donate the following property to the Salvation Army, at High Street in Washington, D.C., on July 15:

Property

FMV (self-appraised)

Original Cost

Date Acquired

Antique Table

$400

$225

1/4/02

Sofa Bed

$200

$800

3/14/08

18.The taxpayers incur the following expenses:

Type

Amount

Prior year tax preparation fee (paid in current year)

$900

Safety deposit box

$50

Investment advice

$1,200

Business publication (Joyce)

$700

19.The taxpayers made the following estimated tax payments:

Date

Federal

D.C.

April 15

$300

$1,000

June 15

$300

$1,000

September 15

$300

$1,000

January 15

$300

$1,000

20.The taxpayers paid $7,000 in tuition, $800 for books, $6,000 for a room and $5,000 for board for Will Jr., a junior, to attend American University.

21.In February, William inherits his father's home. The father's estate filed a federal estate return and $100,000 of the estate tax paid is attributable to the home's $1,000,000 FMV at the date of his father's death. His father had purchased the house in 1975 for $135,000 and made $75,500 worth of capital improvements to it. Twenty percent of the total value of the property is attributable to land. William and Joyce ultimately would like to use the property as a vacation home, but for this year they decide to rent it out. William actively participates in the management of the property. The property is first advertised for rent on March 1, but is not rented until April 1. William provides the following income and expense information for the property:

Rent $20,000

Repairs $6,000

Management fee $4,000

Property taxes $10,000

Insurance $3,000

In addition, in March William buys a new stove for $2,000.

22.The taxpayers receive a Form 1099-B from a brokerage house for the sale of several securities. The selling prices listed are net of brokerage commissions and represent the amount the taxpayers receive from the sale.

Stock

Date Acquired

Date Sold

(all sales in current year)

Sale Price

Purchase Price

150 shares Pfizer Corporation

5/12/90

8/15

$4000

$ *

50 shares Alcoa

6/10/07

10/23

$1,000

$3,000

25 shares Luminent

4/28/Current Year

9/4

$1,000

$2,000

60 shares Textron

9/11/Current Year

10/27

$10,000

$9,000

300 shares Hasbro

1/7/02

12/20

$6,000

$7,000

*When Joyce graduated from college, her father gave her the Pfizer stock that he had acquired many years ago for $5,000. At the date of the gift, the fair market value of the stock was $3,000. No gift tax was paid.

23.On May 18, Joyce purchases a computer for $2,000 which is used exclusively in her business.

24.On June 12, Joyce sells her old computer for $400. She had acquired the computer in 2010 for $3,000 deducting the property under Section 179. The computer was used exclusively in her business.