Brett Simons, age 45, is single and resides at 66 Mason Lane,Waterbury, CT 06069. His social security number is123-45-6788. Brett has two children, Alec (age 17) and Grace(age 8), and their social security #’s are 049-52-5472 and045-23-5432 respectively. Brett’s mother, Donna Simons (age70, social security #048-68-5874) lives at 50 Benton Street, WestHaven, CT. Donna receives Social Security income of $10,000per year and $8,000 in part-time wages. Brett pays ABC AfterschoolCare (EIN: 01-123456) $200 per week to watch Grace after school (40weeks). Brett does not want to designate $3 to thePresidential Election Campaign fund.

On New Year’s Eve 2012, Brett’s wife Susan, was tragicallykilled in an automobile accident caused by a drunk driver. Brett survived the accident sustaining a broken leg and arm. He filed a lawsuit with respect to his injuries which was settledin 2016 awarding compensatory damages of $60,000 and punitivedamages of $10,000.

Brett was the named beneficiary of Susan’s $100,000 lifeinsurance policy. Brett was given the option by LibertyMutual to either receive the entire proceeds as one payment in 2012or to receive $25,000 per year for five years. Brett chose toreceive the proceeds in installments, the fourth of which wasreceived in February, 2016.

Due to the loss of his wife, Brett decided that he should workfrom home. In December of 2015, he retired from his job as aWaterbury police officer and started his own security company onJanuary 1, 2016. He continued to work part-time for thePolice Department in 2016. His W-2 from the Waterbury PoliceDepartment (EIN 06-1234567) reported the following: wages$28,000, federal income taxes withheld $6,500, and Connecticutincome taxes withheld $4,000. WPD withheld the proper amountsof social security and medicare taxes from Brett’s pay during theyear. Brett was not a participant in WPD’s retirementplan.

Brett’s business “Security For Hire” (taxpayer I.D. #06-7654321)opened for business on January 1st. He uses the cash methodof accounting and materially participates in the operation of thisbusiness. Brett uses his finished basement as hisoffice. It has a separate entrance for clients and occupiesapproximately 600 of the 3,000 total square footage of hishome. The home cost $300,000 at acquisition (1/1/2010 anddoes not include cost of land). Brett rents all necessaryoffice furniture and equipment however repairs to the walls andpainting were required to make the office client ready. Thetotal cost for the wall repairs and painting was $3,000.

Revenue and expenses for Safe & Secure for the year were asfollows:

Security services Revenue	$60,000
Alarm monitoring services Revenue	$15,000
Equipment rent expense	$10,000
Business insurance expense	$700
Advertising expense	$800
Legal expenses	$300
Wages paid to his employee	$13,000
Payroll taxes paid on employee wages	$1,400
Office Supplies Expense	$9,000
Liability Insurance Expense	$300

Brett received the following interest and dividend income in2015 (he did not have any interest in a foreign account ortrust):

	Interest		Dividends
Webster Bank	$600	UTC Corporation**	$2,000
Waterbury Credit Union	$200	Ace Corporation**	$900
Multistate Municipal Bonds	$300	Walmart**	$500

**Non-Qualified dividends

On November 1, 2010, Brett and Susan invested in Ace Corporationby purchasing 100 shares at $40/share. Concerned about thefuture of the company, he sold the shares at $5/share on February1, 2016. Brett received a Form 1099-B from his investmentcompany that reported the sale and basis of the stock sold.

Prior to meeting Susan, Brett was married to Elaine, (socialsecurity #321-54-6789). Pursuant to their divorce agreement,Brett is required to make monthly alimony payments of $500 toElaine. Brett faithfully makes each month’s payment.

Alec graduated high school in June and decided to studychemistry at a state university. He received an academicscholarship of $10,000 towards his first year tuition expenses of$18,000. In addition, he took a student loan for $3,000 topay for room and board. Brett paid the balance of Alec’stuition costs from Brett’s savings account.

Brett paid (and can substantiate) the following during theyear:

Health insurance premiums for Brett and kids (paid during2016)	$9,800
Interest on personal credit card	$500
Dental expenses (Grace’s braces)	$2,000
Mortgage interest (Mason Lane) (Total mortgage <1,000,000)	$6,000
Real estate taxes (Mason Lane)	$3,000
Mortgage interest (Donna’s home)	$1,000
Property taxes (assessed on car’s value)	$300
Utilities for residence	$5,000
Homeowner’s insurance	$900
Contributions to church	$400
Used furniture donated to Goodwill (FMV) (Cost = 1,000)	$800
Cost of one dinner ticket to attend a fundraiser for the“Republican National Committee”; value of a comparable dinner =$5	$47

Brett did not keep mileage records for medical or charitablecontribution deduction purposes.

In 2016, Brett paid a balance of $1,200 with his 2015Connecticut income tax return. He also made state estimatedtax payments totaling $1,200 ($300 on each of the following dates4/15/16, 06/15/16, 09/15/16 and 01/15/17).

In 2016, Brett made federal estimated tax payments totaling$4,400 ($1,100 on each of the following dates 4/15/16, 06/15/16,09/15/16 and 01/15/17).

In the event he is due a refund of tax, Brett would like toapply all of his overpayment to his 2017 tax liability.

1.    Prepare the 2016 Form 1040 and all other required Federal forms and schedules for Brett Simons. The returns should be prepared taking the maximum tax benefit allowable into consideration. Round all amounts to whole dollars.

 

2.    Do not prepare tax returns for any other individuals mentioned in the problem.

 

3.    The ages provided in the problem are determined as of 12/31/16.

 

4.    Student must not use tax software. Prepare return using 2016 tax forms provided or found at www.irs.gov. 

 

5.    Important Requirement! Any and all amounts excluded from income or deductions either limited or not taken must be identified. All calculations used in the determination of the components of taxable income or tax liability must be provided.  This requirement should be provided in a separate file (Word or Excel) and must be submitted with the completed tax return.

 

6.    Work independently. Do not collaborate with anyone. Collaboration or assistance, in any form, is considered cheating and will result in a grade of zero for any student(s) involved.

 

7.    Brett Simon's tax return must be saved as a PDF file and submitted to the relevant assignment link at Unit 7 (in addition to the documents required by #5 and #8 of this document). This assignment is subject to the 10% late submission discount.

 

8.    Page 1 of this document (with your name inserted) must be returned as part of your submission; points will be deducted if it is not attached.