Question
Chris and Stefani Watanabe live with their two boys at 1400 Victoria Lane, Riverside, CA 92501. Chris is an accountant who has his own accounting
Chris and Stefani Watanabe live with their two boys at 1400 Victoria Lane, Riverside, CA 92501. Chris is an accountant who has his own accounting practice. Stefani is an elementary school teacher. Their sons, Justin and Jordan, are ages 13 and 10, respectively. The following is additional information regarding the Watanabes. Social security numbers for the Watanabe family:
| Chris | 412-34-5670 |
| Stefani | 412-34-5671 |
| Justin | 412-34-5672 |
| Jordan | 412-34-5673 |
They paid $4,500 to Friendly Hills Child Care center for after-school care for both Justin and Jordan, allocated equally. The address is 2 River Dr, Riverside, CA and their ID number is 22-1234567. Stefanis W-2 from the Riverside school district showed the following:
| Wages | = | $ | 56,925.04 | |
| Federal W/H | = | $ | 9,085.90 | |
| Social Security wages | = | $ | 56,925.04 | |
| Social Security W/H | = | $ | 3,529.35 | |
| Medicare Wages | = | $ | 56,925.04 | |
| Medicare W/H | = | $ | 825.41 | |
| California W/H | = | $ | 2,105.75 |
Chris's accounting business (Business code, 541211, Cash basis) is located in downtown Riverside. His business had the following income and expense information for the year:
| Gross revenues | $ | 165,000 | ||
| Expenses: | ||||
| Advertising | $ | 2,100 | ||
| Insurance | 1,200 | |||
| Legal fees | 10,500 | |||
| Office supplies | 800 | |||
| Rent | 24,000 | |||
| Travel | 6,945 | |||
| Meals and entertainment | 2,400 | |||
| Utilities | 2,800 | |||
| Wages | 34,000 | |||
| Dues | 650 | |||
Additionally, Chris and Stefani paid the following expenses during the year:
| Medical and dental expenses | $ | 4,500 |
| Property tax (home on Victoria Lane) | 3,750 | |
| State income taxes with the 2015 return | 3,900 | |
| Donations to the church (cash) | 3,500 | |
| Mortgage interest (home on Victoria Lane) | 14,900 | |
| Stefani paid $950 in classroom expenses for her class | ||
Chris and Stefani also earned $975 of interest income from California Bank during the year.
Lastly, Chris and Stefani own a three-bedroom cabin in Big Bear Lake (they bought it in January of 2004 for $300,000). The address is 3105 Stonehedge Road, Big Bear Lake, CA 92315. They did not use the property for personal use at any time during the year. The revenue and expenses for the Big Bear Lake rental property are as follows:
| Rental income | $ | 18,000 | ||
| Expenses: | ||||
| Insurance | $ | 1,200 | ||
| Property taxes | 2,500 | |||
| Auto (standard mileage) | 267 | |||
| Management fees | 1,600 | |||
| Repairs and maintenance | 1,100 | |||
| Mortgage interest | 9,000 | |||
| Depreciation | Calculate | |||
| Utilities | 450 | |||
The Watanabes also made $20,000 and $9,000 in federal and California estimated income tax payments, respectively, on 12/31/16.
Prepare the Watanabes federal tax return for 2016. Use Form 1040, Schedule A, Schedule C, Schedule E, Schedule SE, and any additional schedules or forms they may need. The Watanabes had qualifying health care coverage at all times during the tax year. They want to contribute to the presidential election campaign, and they do not want anyone to be a third-party designee. For any missing information, make reasonable assumptions.
| 6A-6
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