Appendix F. Practice Set AssignmentsComprehensive Tax Return Problems

Problem 1

Mark R. and Suzanne N. Hauser (ages 45 and 46) are married and live at 14130 Laramie Lane, Gillette, WY 82717. Mark is a consulting engineer and Suzanne is a paralegal. They file a joint return and use the cash basis for tax purposes.

Trained as a mining engineer, Mark has developed considerable expertise in the treatment and disposition of waste material. He is also well versed in the Federal and state requirements for land reclamation projects. Mark operates a consulting business through which he advises clients on these matters. Marks business activity code is 541990. Most of his clients are small and medium mine owner/operators located in Wyoming and contiguous states (e.g., Montana, Idaho, Utah). In performing his services, Mark usually visits a clients job site. He submits his recommendations in a written report to the client, which is accompanied by a billing statement for his services and reimbursement for all out-of-pocket expenses for travel to the job site.

Mark received the following amounts from his consulting business in 2021:

Details

Mark also provided services for three companies from his office, so there are no travel expenses. These fees are not included in the receipts listed in item 1 above.

Pierce Mining: Work done in December 2021; payment received January 2022		$5,100
Forrie Mining: Work done in December 2020; payment received January 2021		7,000
Garrett Mining: Work done in March 2021; no payment received to date		3,700

In late 2021, Mark learned that Garrett Mining is going through bankruptcy. As a result, Mark does not expect to collect any of this fee.

Other expenses paid by Mark in 2021 relating to his practice are listed below.

Contribution to H.R. 10 (Keogh) retirement plan		$9,000
Premiums on health insurance (covering self, spouse, and dependents)		3,800
Supplieslandscape models purchased from topographer for projects		3,200
Advertising in trade journals		2,400
Office expense		1,200
Business phone and Internet service		860
State occupation license		300
Subscriptions to trade journals		240
Membership dues to trade associations		180

Mark operates his consulting business out of an office in his home that measures 24 feet by 25 feet. The total living space in the home is 3,000 square feet. Mark inherited the home on Laramie Lane from his father who died on June 6, 2014. At that time, the home had a fair market value of $400,000 ($40,000 of which was allocated to the land). The Hausers moved into the home in autumn of 2014, and Mark immediately set up his home office. The homes current fair market value is $500,000 ($50,000 allocated to the land). County land records reflect that Marks father bought the land in 1975 for $6,000 and built the house in 1979 at a cost of $60,000. Mark depreciates the business use of his home using MACRS. Additional 2021 costs related to the home are as follows:

Utilities		$4,800
Repairs and maintenance		2,900
Property/casualty insurance		2,300

The 2021 property taxes and mortgage interest on the home are listed in item 15. In addition to the repairs and maintenance noted above, Mark had the office repainted at a total cost of $1,200.

Over the years, Mark has properly deducted the cost of all the furniture and equipment used in his office either as 179 expense or bonus depreciation in the year those assets were placed in service. On March 5, 2021, Mark purchased a heavy-duty, fire-resistant file cabinet with enhanced security features for $4,800. He made the acquisition to safeguard and maintain the privacy of client data. Consistent with past years, Mark prefers to avoid capitalizing and depreciating the cabinet if the law allows.