Blake and Miranda Shelton, aged 37 and 32, respectively, are married and file jointly. They have two children, Sarah, age 8 and Mary, age 5. Social security numbers are listed below (use the last four digits of your social security number): Social Security Date of Birth Email Address Blake Shelton 111-11-xxxx 3/15/1980 bshelton@a.com Miranda Shelton 222-22-xxxx 4/10/1985 mshelton@a.com Sarah Shelton 333-33-xxxx 2/12/2009 Mary Shelton 444-44-xxxx 1/29/2012 Based on the familys income they are not eligible for the Earned Income Tax Credit (EITC). Their home address is 352 Lafayette Street, Lexington, KY 40502. They have lived in the country the entire year. The couple have been clients for several years and both have KY drivers licenses. When they came to your companys office you verified their identity, took photo copies for the drivers license for the tax file and to enter data into the tax software. They have no military experience, they cannot be claimed as dependents on another taxpayers tax return, and are not eligible for special processing. They do not want to contribute to the election fund, they are not blind or disabled. Keep in mind that the Sheltons are high-income earners and may be phased out of many deductions and may be required to pay additional taxes. They itemized last year. Their AGI for 2016 was $250,000 and their federal tax liability for 2016 was $58,000. Miranda is employed as an event planner. She earns $85,000 (before pre-tax deduction of health insurance) a year. Her W-2 outlined the following: 1. Federal income tax withholding $12,000 2. State income tax withholding $5,100 3. Social Security $5,270 and Medicare withholding $1,232 4. Her employer, Plan Ahead Events, tax ID number (69-8888888). 5. Employee deduction on a pre-tax basis for health and dental $4,800 (annual) premiums. Miranda carries the health insurance for the family. They had full-year coverage and met the minimum requirement. Additional employee information: Mirandas company does not offer a retirement plan. Her company offers life insurance up to $50,000 per year per employee. No premium is required by the employee. The company pays a $1,500 premium a year on her behalf. Miranda was reimbursed $7,000 for MBA expenses. Miranda is provided with a $200 per month parking permit. She has some unreimbursed employee expenses. They are listed in the itemized deduction section. Blake is a successful self-employed music producer operating as a sole proprietorship. He materially and actively participated in the business. The business is operated on a cash basis. He did not have to issue any 1099s and paid one employee, Pricilla Priestly, $52,000. 1. The name of the business is Blakes Blues. The address is 1234 Beal Street. Lexington, KY, 40502. 2. The EIN for his business is 69-111xxxx (use last four digits of your social security number). 3. Look up the business code on the IRS website. IRS.gov. 4. His business gross receipts and expenses are outlined below: Gross receipts from client billings $275,000 Adverting $ 3,500 Office expenses 10,000 Office rent 12,000 Repairs & Maintenance 3,000 Travel 5,000 Meals & entertainment 8,000 Country club due 10,000 Admiral Club (American Airlines) 300 Employee wages 52,000 Employer portion of SI & Medicare (employee) 3,978 Company contribution for Employee (SEP IRA) 10,400 Business parking & tolls 2,700 5. Additional Schedule C information: a. Blake uses the standard mileage rate to calculate his transportation costs. Business mile 18,000; commuting miles; 5,000 and personal 14,000. b. You will need to compute SE tax (deduction for AGI) on his net selfemployment business income. Refer to chapter 8. Other Income Items: Bank account interest income Bank of America $1,500 Eastern Bank 700 Lexington Savings 800 3,000 Tax-exempt interest on private-activity bond interest income (AMT preference item) 5,000 Value of employer provided medical insurance 12,500 Qualified dividend income from Motown stock 12,000 Loan from Mirandas parents 5,000 Gift from Blakes parents 10,000 Refund of last years state taxes 1,700 Proceeds from Grannys life insurance policy 100,000 Capital Gains (Losses): 1. On September 30 2017, they sell for $13,000 stock in Old Opry Corporation purchased as an investment on March 1 2017, of the current year for $12,000. 2. On April 1 2017, they sell for $25,000, a valuable collectible Fender guitar. The guitar was purchased on December 31, 1990, for $12,000. 3. On August 1, he sells for $2,000 a personal-use piano. It was acquired on March 1, 1980 for $7,000. 4. Sold 1000 shares of GE stock for $4,000 on October 15 of this year. Shares were purchased for $5,000 on January 15, 2016. The shares were sold to harvest losses to offset other gains for the year. They repurchased another 1,000 shares for $4,200 on November 1 of this year because they think the company will perform well in the longrun. 5. Sold a commercial office building for $975,000 on December 31. The building was acquired on January 1, 2012 for $850,000. They added $25,000 in improvements. The depreciation taken to date equals $50,000. 6. They have a LTCL carryover of $4,000 from last year. 5 Other Items: Penalty on early withdrawal from Certificate of Deposit (CD) savings $ 1,500 Student loan interest (Miranda) 4,000 Traditional IRA Contribution Miranda 5,500 Self-employed IRA Contribution Blake 22,000 Dependent care Expenses paid for afterschool care for their daughters. Provider name is Girl Power, Inc. 777 School St, Lexington, KY 40502 EIN 69-7777777 Note: $4,000 for each child. 8,000 Itemized Deductions: Medical: Sarah has a severe kidney dysfunction and must receive dialysis treatment twice a week. She is on a kidney transplant list. Miranda picks her up after school on Wednesday and Friday and travels round trip 30 miles per day twice a week to take Sarah for the required dialysis. The treatments are on an out-patient basis. Other unreimbursed medical expenses include $600 for prescription drugs and $2,000 in doctor bills. During the year, Miranda had $10,000 of unreimbursed dental. She had veneers placed on her top 10 ten front teeth. Her job requires public speaking and her appearance is important. Also, because of the severity of Sarahs kidney dysfunction the family had to buy mobile dialysis equipment in case they cant make it to the medical center. The unreimbursed cost of the equipment cost $25,000. Miranda pays $400 a month for health insurance premiums, which are withheld from her paycheck on a pre-tax basis. Taxes: The couple paid the following federal and state income taxes: Miranda -Federal withholding of $12,000; Miranda- State withholding of $5,100 Blake Estimated tax payments (federal) $50,000 Blake Estimated state payments (state) $10,000 In addition, the county that the couple live in imposes a property tax of 1% on all autos. Their two cars have a value of $45,000 and $25,000. The couple paid $12,000 in real estate taxes on their principal residence. They also own a lakefront condo. The total real estate taxes paid for the condo is $5,000. Interest: The couple paid $25,000 of interest expense on the mortgage of their personal residence and $15,000 of interest expense on the lake-front condo. They also have a home equity loan taken on this year to renovate and add a designer kitchen. The bank sent a form that indicated that $8,000 of interest expense was paid. Investment interest expense paid is $6,000 (review limitations for investment interest expense). Interest expense on personal credit cards is $4,000 for the year. Charity: Miranda and Blake are very active in the community. They attend various charitable functions. They donated $30,000 to a private non-operating charity that distributes money to researchers of juvenile kidney disorders. Every year they buy two tickets to the annual Black Tie event for $1,100 each. The value of the dinner provided is $100 each. Miranda spends a lot of time volunteering for the Girl Scouts. She estimates that she spent 500 hours last year and she usually makes $50/hr. She is the regional distributor for the Girl Scout cookie drive. During the year she drives 2,000 miles delivering cookies. The couple also donate $150/month to their gardeners grandchild that lives in South America. They prefer to bypass the charity in order to ensure that the entire amount is given to the child. Job and Other Miscellaneous Expenses: Miranda had the following unreimbursed employee and the couple had other expenses for the year as follows: Professional journals $ 400 Professional membership dues $ 500 Travel $ 3,000 Meals and Entertainment $ 4,000 Tax preparation fees $ 1,000 Legal fees for drafting a will $ 1,500 Safety deposit box $ 100 Investment expenses (other than interest) $ 800 7 Alternate Minimum Tax (AMT): Recall, that Congress passed a set of rules to ensure that all TPs would pay at least a minimum income tax. This set of rules are known as the Alternative Minimum Tax (AMT): AMT Adjustments: Tax exempt private activity bonds Itemized deductions: Taxes: state Income, real estate, and personal property taxes Refund of previous year state income taxes.