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Victor a's Secret Y LOUIS VUITTON Gucci Oficial Site Impos APPENDIX Practice Set Assignments-Comprehensive Tax Return Problems PROBLEM 2 Samantha A. Cranston, age 37, is single and lives with her dependent mother at 426 Grouse Avenue, Allentown, PA 18105. Her Social Security number is 111-21-1113. 1 Samantha is a licensed hairstylist. She owns and operates a salon called Turning Heads, located at 480 Laurel Street, Allentown, PA 18105. Samantha's business activity code is 812112. In addition to 10 workstations (ie, stylist chairs) and a small reception area, the shop has display and storage areas for the products she sells (see item 2 below). During the year, Samantha leased nine of the stations to other hairstylists who are considered self-employed. The IRS sanctioned the self- employment classification for the stylists in an audit of one of Samantha's prior tax returns. Samantha collected $68,000 in rents from the stylists who leased the work stations. From her own station, Samantha eamed $44,000 (including tips of $8,000) for the styling services she provided to her own dients. Turning Heads is the local distributor for several beauty products (eg, con- ditioners, shampoos) that cannot be purchased anywhere else. Samantha buys these items from the manufacturers and sells them to regular patrons, walk-in customers, and other beauticians (including those who lease chairs from her) Turning Heads is also known for the selection and quality of its hairpieces (ie, wigs, toupees). The shop made the following sales during 2018, Hairpieces and wigs $69,000 Beauty products 48.000 2. Although Samantha operates her business using the cash method of account- ing, she maintains inventory accounts for the items she sells. Relevant informa- tion about the inventories (based on lower of cost or market) is summarized as follows: Hairpieces and wigs Beauty Products 12/31/17 $10.700 11.400 12/31/18 $12.600 9.900 Samantha's purchases for 2018 were $30,500 of hairpieces and wigs and $26,100 of beauty products $12.900 $4.200 1800 Turning Heads had the following operating expenses for 2018: Utilities tie, gas, electric, telephone) Ad valorem property taxes On realty (eg, shop building and land) On personalty leg. equipment, Inventory) Styling supplies (eg, rinses, dyes, gels, hairspray Fire and casualty insurance Liability insurance Accounting services Janitorial services world 6,000 5.700 4.100 4000 3,800 2,400 NOS Beauty products show 48,000 2. Although Samantha operates her business using the cash method of account ing, she maintains inventory accounts for the items she sells. Relevant informa- tion about the inventories (based on lower of cost or market) is summarized as follows: Hairpieces and wigs Beauty products 12/31/17 $10,700 11,400 12/31/18 $12,600 9,900 5.700 Samantha's purchases for 2018 were $30,500 of hairpieces and wigs and $26,100 of beauty products Turning Heads had the following operating expenses for 2018 Utilities, gas, electric, telephone) $12.900 Ad valorem property taxes: On realty leg shop building and land) $4,200 On personalt (eg, equipment, Inventory 1,800 6000 Styling supplies (eg, rinses, dyes, gels, hairspray Fire and casualty insurance 4.100 Liability insurance 4,000 Accounting services 3,800 Janitorial services 2400 Sewer service,garbage pickup 2.300 Water 2.200 Occupation licenses city and state) 1,500 Waiting room supplies (eg. magazines, coffee) 1.300 In early 2018, Samantha decided to rencate the waiting room. On May 10, she spent $10.400 for new chairs, a sofa, various lamps, coffee bar, etc. Samantha follows a policy of claiming as much depreciation as soon as possible. The old furnishings were thrown away or given to customers. For tax purposes, the old furnishings had a zero basis. E-7 APPENDIX Pactice Set Agent Compechensive Return Problem Turning Heads is located in a building Samantha had constructed at 480 Laurel Street in March 2004. The shop was built for a cost of $300.000 on a lot she MacBook 4 Tuming Heads is located in a building Samantha had constructed 20 Eur Street in March 2004. The shop was built for a cost of $300,000 on a lot she purchased earlier for $35,000. Except for a down payment from savings, the cost was financed by a 20-year mortgage. For tax purposes, MACRS depreciation is daimed on the building. During 2018, the following expenses were tributable to the property Repairing both exterior and interior 58.000 Repales (plumbing and electrical 1.500 In May after her accident settlement discussed in item 10 below), Samantha paid the outstanding principal on the business mortgage. To do so, se incurred a prepayment penalty of $4,400. Prior to paying off the montage, she paid regular interest on the mortgage in 2018 of $6,000 5. In February 2018, Turning Heads was cited by the city for improper disposal certain waste chemicals Samantha questioned the propriety of the proposed fire of $2,000 and retained an attomey to represent her at the hearing By pleading nolo contendere, the attomey was able to get the fine reduced to $500. Samantha paid both the fine of $500 and the attorney's fee of $600 in 2018 6. In August 2018, Samantha saw an ad in a trade publication that attracted her attention. The owner of a well-respected styling salon in Reading (PA) had died and his estate was offering the business for sale Samantha traveled to Reading spent several days looking over the business (including books and finance results), and met with the executior. Samantha treated the executor to dinner and 2 music concert. Immediately after the concert, Samantha made a differ for the business, but the executor rejected her offer. Her expenses in connection with this trip were as follows: Car rental 5140 Motel (August 6-7 Entertainment of executor concert Dinner with the executor 120 Personal meals while traveling 7 Joan Myers, one of Samantha's best stylists, left town in March 2017 to get any from a troublesome ex-husband in order to belp Joan cablish a businesses where, Samantha loaned her $7.000. Joan signed a note dated March 3, 2017 that was payable in 1 year with interest On December 30, 2015. Samantha learned that Joan had been declared bankrupe and wanting trial on fece the charges Samantha never received any payments from Jean nor does se expect to receive any payments in the future Ar Christmas, Samantha gave each of her 35 best customers a large bode of body lotion. Each bodde had a wholesale cost to Samantha of $12 butasail price of $24. Samantha also spent $3 to have each bottle gift wrapped (Note The loci was special order merchandise and was not part of the business.ee purchases for the years item 2 above. She also one each of the nine ye who leased chairs from her a fruit basket that cost $30 plass 35 de escos In March 2018 the Pennsylvania Departament Bened Samantha's income tax returns for 2015 and 2016 She was additional 160 110 9. In March 2018, the Pennsylvania Department of Revenue audited Samantha's state income tax retums for 2015 and 2016. She was assessed additional state income tax of $340 for these years. No interest was included in the assessment. Samantha paid the back taxes in early April 10. On a morning walk in November 2014, Samantha was injured when she was side swiped by a delivery truck. Samantha was hospitalized for several days, and the driver of the truck was ticketed and charged with DUL. The owner of the truck, a national parcel delivery service, was concerned that further adverse publicity might result if the matter went to court. Consequently, the owner offered Saman- tha a settlement if she would sign a release. Under the settlement, her medical APPENDIX E Practice Set Assignments-Comprehensive Tax Retum Problems expenses were paid and she would receive a cash award of $200,000. The award specified that the entire amount was for the physical pain she suffered as a result of the accident. Since she suffered no permanent injury, Samantha signed the release in April 2018 and received the $200,000 settlement late that summer 11. In January 2018, Samantha was contacted by the state of Pennsylvania regarding a tract of land she owned in York County. The state intended to convert the property into a district headquarters, barracks, and training center for its highway patrol Samantha had inherited the property from her father when he died on August 11, 2017. The property had a value of $140,000 on that date and had been purchased by her father on March 3, 1980, for $30,000. On July 25, 2018, after considerable discussions including the state's threat to initiate condemnation proceedings, she sold the tract to the state for $158,000. This transaction was not reported on a Form 1099-B Since Samantha is not comfortable with real estate investments, she does not plan to reinvest any of the proceeds in another piece of realty 12. When her father died, Samantha did not know that he had an insurance policy on his life maturity value of 350,000) in which she was named the beneficiary. When her mother told her about the policy in July 2018, Samantha filed a claim with the carrier, Falcon Life Insurance Company In November 2018, she received a check from Falcon for $51.500 which included $1.500 interest 13. Upon the advice of a client who is a respected broker, Samantha purchased 1,000 shares of common stock in Grosbeak Exploration for $40,000 on March 2018 In the months following her purchase, the share value of Grosbeak plummeted. Disgusted with the unexpected erosion in the value of her investment, Samantha sold the stock for $28.00 on December 23, 2018. This transaction was reported on Form 1099-B with Samantha's basis correctly reported to the RS While on her way to work in 2017, Samantha Wis rear ended by a hit and run driver. Thankfully, she was not injured in the accident. The damage to her Lexus was covered by her insurance company, General Casualty except for the $1.000 weer way to WOOWALI WEST driver. Thankfully, she was not injured in the accident. The damage to her Lexus was covered by her insurance company, General Casualty, except for the $1,000 deductible she was required to pay. In 2018, the insurance company located the driver who caused the accident and was reimbursed by his insurer. Consequently, Samantha received a $1,000 refund check from General Casualty in May 2018 to reimburse her $1,000 deductible. 15. After her father's death, Samantha's mother (Mildred Cranston, Social Security num- ber 123-54-3789) moved in with her. Mildred's persistent back trouble made it dif- ficult for her to climb the stairs to the second-floor bedrooms in Samantha's house. So, Samantha had an elevator installed in her personal residence at a cost of $12,000 in January 2018. A qualified appraiser determined that the elevator increased the value of the personal residence by $5,000. The appraisal cost $400. The operation of the elevator during 2018 increased Samantha's electric ball by $300 16. As a favor to a long-time client who is a drama professor at a local state university, Samantha spent a weekend as a stylist for the principal actresses in the annual Theater Department fund-raising event. The drama professor provided all of the resources that Samantha needed to provide her services. Samantha estimates that she would have charged $800 for the services she donated to this charitable event 17. In addition to the items already noted, Samantha had the following receipts dur ing 2018 5900 490 340 $1,730 Interest income Cat Scranton First National Bank Cilty of Lancaster general purpose bonds Money market account at Allentown State Bank Qualified dividends on stock investments General Electric AT&T common Federal income tax refund for tax year 2017 Pennsylvania state income tax refund for tax year 2017 $470 380 850 791 205 8-9 APPENDIXE Practice Set Augmente comprehensive Tax Return Problems 18. In addition to the items already noted, Samantha had the following expenditures for 2018 $10.000 Contribution to pension plan Medical Premiums on medical insurance Dental bills Property taxes on personal residence Interest on home mortgage $4,800 1.400 6,200 5.500 3.200 APPENDIXX Picke Set Assignments Comprehensive Tax Return Problems 18. In addition to the items already noted, Samantha had the following expenditures for 2018 Contribution to pension plan $10,000 Medical Premiums on medical insurance $4,000 Dental bils 1400 6,700 Property tason personal residence 5.500 Interest on home mortgage 2200 Cash donations to qualified charities 4,500 Professional expenses Subscriptions to trade journals $180 Dues to beautidan groups 320 The $10,000 contribution to the pension plan is to a $ 40100 type of plan she established in 2018 Previously, she had contributed to an H.R. 10 (Keogh) plan but found that the $ 4010) retirement arrangement provides more flexibility and is less complex. The medical insurance policy covers Samantha and her depen- dent mom and was issued in the name of the business (ie, Turning Heads). It does not cover dental work of capital modifications to a residence (see item 15 above) 19: During 2018, Samantha made total estimated tax payments with respect to her 2018 tax retums as follows Federal estimated income tax payments Pennsylvanis estimated income tax payments Allentown City estimated income tax payments 516,000 4800 800 Requirements Prepare a 2018 Federal income tax return with appropriate supporting forms and sched- ules for Samantha In doing this, follow these guidelines Make necessary assumptions for information not given but needed to complete the return Samantha is preparing her own retum Samantha has the necessary written substantiation (eg, records, receipts) to sup port the transactions reported in her tax return Samantha has itemized deductions ever since she became a homeowner many years ago. The sales tax option was not chosen in 2017, and Samantha had no major purchases that quality for the sales tax deduction in 2018 If Samuntha has an overpayment of tax she wants it refunded to her + Samantha does not wish to contribute to the Presidential Election Campaign Pund MacBook Air 5 Victor a's Secret Y LOUIS VUITTON Gucci Oficial Site Impos APPENDIX Practice Set Assignments-Comprehensive Tax Return Problems PROBLEM 2 Samantha A. Cranston, age 37, is single and lives with her dependent mother at 426 Grouse Avenue, Allentown, PA 18105. Her Social Security number is 111-21-1113. 1 Samantha is a licensed hairstylist. She owns and operates a salon called Turning Heads, located at 480 Laurel Street, Allentown, PA 18105. Samantha's business activity code is 812112. In addition to 10 workstations (ie, stylist chairs) and a small reception area, the shop has display and storage areas for the products she sells (see item 2 below). During the year, Samantha leased nine of the stations to other hairstylists who are considered self-employed. The IRS sanctioned the self- employment classification for the stylists in an audit of one of Samantha's prior tax returns. Samantha collected $68,000 in rents from the stylists who leased the work stations. From her own station, Samantha eamed $44,000 (including tips of $8,000) for the styling services she provided to her own dients. Turning Heads is the local distributor for several beauty products (eg, con- ditioners, shampoos) that cannot be purchased anywhere else. Samantha buys these items from the manufacturers and sells them to regular patrons, walk-in customers, and other beauticians (including those who lease chairs from her) Turning Heads is also known for the selection and quality of its hairpieces (ie, wigs, toupees). The shop made the following sales during 2018, Hairpieces and wigs $69,000 Beauty products 48.000 2. Although Samantha operates her business using the cash method of account- ing, she maintains inventory accounts for the items she sells. Relevant informa- tion about the inventories (based on lower of cost or market) is summarized as follows: Hairpieces and wigs Beauty Products 12/31/17 $10.700 11.400 12/31/18 $12.600 9.900 Samantha's purchases for 2018 were $30,500 of hairpieces and wigs and $26,100 of beauty products $12.900 $4.200 1800 Turning Heads had the following operating expenses for 2018: Utilities tie, gas, electric, telephone) Ad valorem property taxes On realty (eg, shop building and land) On personalty leg. equipment, Inventory) Styling supplies (eg, rinses, dyes, gels, hairspray Fire and casualty insurance Liability insurance Accounting services Janitorial services world 6,000 5.700 4.100 4000 3,800 2,400 NOS Beauty products show 48,000 2. Although Samantha operates her business using the cash method of account ing, she maintains inventory accounts for the items she sells. Relevant informa- tion about the inventories (based on lower of cost or market) is summarized as follows: Hairpieces and wigs Beauty products 12/31/17 $10,700 11,400 12/31/18 $12,600 9,900 5.700 Samantha's purchases for 2018 were $30,500 of hairpieces and wigs and $26,100 of beauty products Turning Heads had the following operating expenses for 2018 Utilities, gas, electric, telephone) $12.900 Ad valorem property taxes: On realty leg shop building and land) $4,200 On personalt (eg, equipment, Inventory 1,800 6000 Styling supplies (eg, rinses, dyes, gels, hairspray Fire and casualty insurance 4.100 Liability insurance 4,000 Accounting services 3,800 Janitorial services 2400 Sewer service,garbage pickup 2.300 Water 2.200 Occupation licenses city and state) 1,500 Waiting room supplies (eg. magazines, coffee) 1.300 In early 2018, Samantha decided to rencate the waiting room. On May 10, she spent $10.400 for new chairs, a sofa, various lamps, coffee bar, etc. Samantha follows a policy of claiming as much depreciation as soon as possible. The old furnishings were thrown away or given to customers. For tax purposes, the old furnishings had a zero basis. E-7 APPENDIX Pactice Set Agent Compechensive Return Problem Turning Heads is located in a building Samantha had constructed at 480 Laurel Street in March 2004. The shop was built for a cost of $300.000 on a lot she MacBook 4 Tuming Heads is located in a building Samantha had constructed 20 Eur Street in March 2004. The shop was built for a cost of $300,000 on a lot she purchased earlier for $35,000. Except for a down payment from savings, the cost was financed by a 20-year mortgage. For tax purposes, MACRS depreciation is daimed on the building. During 2018, the following expenses were tributable to the property Repairing both exterior and interior 58.000 Repales (plumbing and electrical 1.500 In May after her accident settlement discussed in item 10 below), Samantha paid the outstanding principal on the business mortgage. To do so, se incurred a prepayment penalty of $4,400. Prior to paying off the montage, she paid regular interest on the mortgage in 2018 of $6,000 5. In February 2018, Turning Heads was cited by the city for improper disposal certain waste chemicals Samantha questioned the propriety of the proposed fire of $2,000 and retained an attomey to represent her at the hearing By pleading nolo contendere, the attomey was able to get the fine reduced to $500. Samantha paid both the fine of $500 and the attorney's fee of $600 in 2018 6. In August 2018, Samantha saw an ad in a trade publication that attracted her attention. The owner of a well-respected styling salon in Reading (PA) had died and his estate was offering the business for sale Samantha traveled to Reading spent several days looking over the business (including books and finance results), and met with the executior. Samantha treated the executor to dinner and 2 music concert. Immediately after the concert, Samantha made a differ for the business, but the executor rejected her offer. Her expenses in connection with this trip were as follows: Car rental 5140 Motel (August 6-7 Entertainment of executor concert Dinner with the executor 120 Personal meals while traveling 7 Joan Myers, one of Samantha's best stylists, left town in March 2017 to get any from a troublesome ex-husband in order to belp Joan cablish a businesses where, Samantha loaned her $7.000. Joan signed a note dated March 3, 2017 that was payable in 1 year with interest On December 30, 2015. Samantha learned that Joan had been declared bankrupe and wanting trial on fece the charges Samantha never received any payments from Jean nor does se expect to receive any payments in the future Ar Christmas, Samantha gave each of her 35 best customers a large bode of body lotion. Each bodde had a wholesale cost to Samantha of $12 butasail price of $24. Samantha also spent $3 to have each bottle gift wrapped (Note The loci was special order merchandise and was not part of the business.ee purchases for the years item 2 above. She also one each of the nine ye who leased chairs from her a fruit basket that cost $30 plass 35 de escos In March 2018 the Pennsylvania Departament Bened Samantha's income tax returns for 2015 and 2016 She was additional 160 110 9. In March 2018, the Pennsylvania Department of Revenue audited Samantha's state income tax retums for 2015 and 2016. She was assessed additional state income tax of $340 for these years. No interest was included in the assessment. Samantha paid the back taxes in early April 10. On a morning walk in November 2014, Samantha was injured when she was side swiped by a delivery truck. Samantha was hospitalized for several days, and the driver of the truck was ticketed and charged with DUL. The owner of the truck, a national parcel delivery service, was concerned that further adverse publicity might result if the matter went to court. Consequently, the owner offered Saman- tha a settlement if she would sign a release. Under the settlement, her medical APPENDIX E Practice Set Assignments-Comprehensive Tax Retum Problems expenses were paid and she would receive a cash award of $200,000. The award specified that the entire amount was for the physical pain she suffered as a result of the accident. Since she suffered no permanent injury, Samantha signed the release in April 2018 and received the $200,000 settlement late that summer 11. In January 2018, Samantha was contacted by the state of Pennsylvania regarding a tract of land she owned in York County. The state intended to convert the property into a district headquarters, barracks, and training center for its highway patrol Samantha had inherited the property from her father when he died on August 11, 2017. The property had a value of $140,000 on that date and had been purchased by her father on March 3, 1980, for $30,000. On July 25, 2018, after considerable discussions including the state's threat to initiate condemnation proceedings, she sold the tract to the state for $158,000. This transaction was not reported on a Form 1099-B Since Samantha is not comfortable with real estate investments, she does not plan to reinvest any of the proceeds in another piece of realty 12. When her father died, Samantha did not know that he had an insurance policy on his life maturity value of 350,000) in which she was named the beneficiary. When her mother told her about the policy in July 2018, Samantha filed a claim with the carrier, Falcon Life Insurance Company In November 2018, she received a check from Falcon for $51.500 which included $1.500 interest 13. Upon the advice of a client who is a respected broker, Samantha purchased 1,000 shares of common stock in Grosbeak Exploration for $40,000 on March 2018 In the months following her purchase, the share value of Grosbeak plummeted. Disgusted with the unexpected erosion in the value of her investment, Samantha sold the stock for $28.00 on December 23, 2018. This transaction was reported on Form 1099-B with Samantha's basis correctly reported to the RS While on her way to work in 2017, Samantha Wis rear ended by a hit and run driver. Thankfully, she was not injured in the accident. The damage to her Lexus was covered by her insurance company, General Casualty except for the $1.000 weer way to WOOWALI WEST driver. Thankfully, she was not injured in the accident. The damage to her Lexus was covered by her insurance company, General Casualty, except for the $1,000 deductible she was required to pay. In 2018, the insurance company located the driver who caused the accident and was reimbursed by his insurer. Consequently, Samantha received a $1,000 refund check from General Casualty in May 2018 to reimburse her $1,000 deductible. 15. After her father's death, Samantha's mother (Mildred Cranston, Social Security num- ber 123-54-3789) moved in with her. Mildred's persistent back trouble made it dif- ficult for her to climb the stairs to the second-floor bedrooms in Samantha's house. So, Samantha had an elevator installed in her personal residence at a cost of $12,000 in January 2018. A qualified appraiser determined that the elevator increased the value of the personal residence by $5,000. The appraisal cost $400. The operation of the elevator during 2018 increased Samantha's electric ball by $300 16. As a favor to a long-time client who is a drama professor at a local state university, Samantha spent a weekend as a stylist for the principal actresses in the annual Theater Department fund-raising event. The drama professor provided all of the resources that Samantha needed to provide her services. Samantha estimates that she would have charged $800 for the services she donated to this charitable event 17. In addition to the items already noted, Samantha had the following receipts dur ing 2018 5900 490 340 $1,730 Interest income Cat Scranton First National Bank Cilty of Lancaster general purpose bonds Money market account at Allentown State Bank Qualified dividends on stock investments General Electric AT&T common Federal income tax refund for tax year 2017 Pennsylvania state income tax refund for tax year 2017 $470 380 850 791 205 8-9 APPENDIXE Practice Set Augmente comprehensive Tax Return Problems 18. In addition to the items already noted, Samantha had the following expenditures for 2018 $10.000 Contribution to pension plan Medical Premiums on medical insurance Dental bills Property taxes on personal residence Interest on home mortgage $4,800 1.400 6,200 5.500 3.200 APPENDIXX Picke Set Assignments Comprehensive Tax Return Problems 18. In addition to the items already noted, Samantha had the following expenditures for 2018 Contribution to pension plan $10,000 Medical Premiums on medical insurance $4,000 Dental bils 1400 6,700 Property tason personal residence 5.500 Interest on home mortgage 2200 Cash donations to qualified charities 4,500 Professional expenses Subscriptions to trade journals $180 Dues to beautidan groups 320 The $10,000 contribution to the pension plan is to a $ 40100 type of plan she established in 2018 Previously, she had contributed to an H.R. 10 (Keogh) plan but found that the $ 4010) retirement arrangement provides more flexibility and is less complex. The medical insurance policy covers Samantha and her depen- dent mom and was issued in the name of the business (ie, Turning Heads). It does not cover dental work of capital modifications to a residence (see item 15 above) 19: During 2018, Samantha made total estimated tax payments with respect to her 2018 tax retums as follows Federal estimated income tax payments Pennsylvanis estimated income tax payments Allentown City estimated income tax payments 516,000 4800 800 Requirements Prepare a 2018 Federal income tax return with appropriate supporting forms and sched- ules for Samantha In doing this, follow these guidelines Make necessary assumptions for information not given but needed to complete the return Samantha is preparing her own retum Samantha has the necessary written substantiation (eg, records, receipts) to sup port the transactions reported in her tax return Samantha has itemized deductions ever since she became a homeowner many years ago. The sales tax option was not chosen in 2017, and Samantha had no major purchases that quality for the sales tax deduction in 2018 If Samuntha has an overpayment of tax she wants it refunded to her + Samantha does not wish to contribute to the Presidential Election Campaign Pund MacBook Air 5