Complete the federal and California tax returns for the Kaisers. John and Ruth Kaiser, ages 46 and 47, are husband and wife and reside at 2168 Eagle Court, Rocklin, CA 95677. John is a computer consultant who specializes in installing software systems. John deals mainly with city and county governments and school districts. Currently, John has contracts with Placer and El Dorado Counties which pay him an annual retainer to be on call as needed and he works on a per job basis for other entities. As noted below (see item 3), he conducts his consulting business from an office in his home. Ruth is a teacher employed by the Rocklin School District. She has been completing classes offered by CSU-Sacramento leading to a Master of Arts in Education. In driving to work and school, Ruth uses the family Audi. The Kaisers constructed their residence on Eagle Court in 2006 at a cost of $520,000. They had acquired the lot from a grandparent several years before for an additional $20,000. Of the 3,200 square feet of livable space, one-fourth (25%) is used as John?s office. Besides the interest on the home mortgage and property taxes (see item 18 below), residential expenses for 2008 are as follows: Utilities$4,200 Security system annual service fee600 Homeowner?s insurance800 Carpeting of office area, 6/7/072,200 John?s office furniture (e.g., desk, chairs, drafting tables) was expensed previously under section 179 when acquired. On May 16, 2008, however, he bought a new Xerox copier for $850. In August of 2007, John purchased a BMW that he uses exclusively for business. No trade-in was involved and part of the purchase price of $45,000 was financed. For 2007, he did not choose to claim any section 179 expensing. Under the actual operating cost method, he uses 200% declining-balance with half-year convention. His expenses relating to the BMW for 2008 are as follows: ItemAmount Gasoline$2,400 Oil and lubrication120 Auto insurance1,400 Interest on car loan1,200 Repairs (not under warranty)520 During 2008, John drove the BMW 18,000 miles. Except for the work he does for Placer and El Dorado Counties, John?s consulting usually requires overnight stays. On a typical trip, he drives to the work location and stays at a motel until the assignment is complete. In addition to the auto expense previously noted (see item 4), his business travel expenses for 2008 are summarized below: ItemAmount Meals$7,400 Lodging8,200 Laundry310 Parking205 These expenses are billed as incurred and reimbursed by the county along with the statement for services that John submits. To maintain good relations with his clients for whom he does work, John gives fruit baskets at Christmas. Each basket cost $23 with wrapping ($2) and shipping ($4), making the total $29. On December 19, 2008, John charged the fruit baskets order of $609 (21 baskets at $29 each) to his Visa credit card. [The Visa bill was paid in January 2009.] Placer and El Dorado Counties pay John an annual retainer of $8,000 and $12,000, respectively. The retainers for a year are to be paid by December 31 of that year. For budgetary reasons, however, Placer delayed its 2007 payment until February 2008. All other retainers were paid on schedule. One private client, Jim Beaver, retained John to write a computer software program for investment tracking. When John presented Jim with an invoice for $6,000, Jim offered John a choice: cash or a Jeep Wrangler (1999, V-6) listed for sale at $7,999. The blue book value of a ?99 Jeep Wrangler ranges from $3,675 to $7,925. John needed a car for his daughters, he accepted the Jeep. Expenses incurred by Ruth during 2008 in pursuing the M.S. in Education are as follows: Tuition (spring and fall 2008)$7,100 Books, lab supplies, computer software940 Campus parking230 Mileage driven evenly throughout the years is 1,045 miles. For tax purposes, the Kaisers use the standard mileage method for the Audi which was purchased on June 15, 2006. For several years, Ruth has not been pleased with her job with the Rocklin School District. Although the fringe benefits are good (see items 18 and 19 below), her salary is too low. In 2008, therefore she retained the services of a professional recruitment agency. After considerable effort and multiple job interviews, she received several attractive job offers. When the school district learned of her job search, Ruth was promised greater responsibilities, and she decided against any change. The job search effort cost Ruth $2,275. In the summer of 2007 while on a family outing, the Kaisers had an auto accident. Although it was the other driver?s fault, the Kaisers had to file a claim with their own insurance company (State Farm) for the repairs on the Audi. They were charged the $1,000 deductible and were unable to deduct any of this amount on their income tax return due to the 10%?of?AGI floor. In 2008, State Farm was able to collect from the other driver?s carrier, and the Kaisers recovered the $1,000 deductible. In late 2008, the Kaisers were audited by the California Franchise Tax Board. The agent checked their state income tax returns for tax years 2005, 2006, and 2007. She assessed deficiencies of $420 for 2005 and $310 for 2006 but did not add interest. For year 2007, she accepted the return and made no change. John agreed to the assessments and immediately mailed a check for $730 to the state. For several years Ruth?s parents, Rudi and Paula Dietrich, have been living with the Kaisers. Since they meet the dependency requirements, the Kaisers have claimed the parents on their tax returns. On December 30, 2007, Paula suffered a stroke, was taken to Memorial Hospital, and died in the ICU on January 2, 2008. In February 2008, John received and paid a bill from Memorial for $9,400 ($5,100 of which related to 2007). The Kaisers also paid for Paula?s funeral expenses of $4,900. Paula owned her own cemetery lot. Because Rudi (Ruth?s father) is physically handicapped and must use a wheelchair, John had some changes made to portions of the Eagle Court residence. A contractor was hired to add ramps to entrances, lower certain counters, widen several hallways, and add guardrails to the bathroom facilities. The contractor charged $6,000 for the job. A friend of the Kaisers, a real estate appraiser, provided an unofficial estimate that the capital improvements may have increased the value of the residence by $10,000. Several years ago, Ruth took out life insurance policies on the lives of her parents. The policies, face amount of $50,000 each, are issued by Met Life and designate Ruth as the owner and beneficiary. After the death of her mother in 2008, Met Life paid Ruth $50,000. Ruth had previously paid premiums of $18,200 on the policy. In 2008, Ruth paid Met Life $1,400 in premiums on her father?s policy. The Kaisers have a $4,000 excess long-term capital loss carryover from 2007. Their property transactions for 2008 are summarized below: PropertyDate AcquiredDate SoldCost or Other BasisSale Price Lot in Yuba City2/3/006/2/08Inherited$13,100 1,000 shares of JNJ Corporation common8/10/995/20/08Gift14,000 600 shares of PG Corporation common12/2/0411/30/08$11,00012,000 Motorcycle4/25/039/2/08$8,5002,200 John inherited the Yuba City lot from his grandmother, Ellie, who died in 2000. Ellie had paid $2,000 for the property in 1941, and it was worth $9,000 when she died. In the prior year (1999), Ellie had given John 1,000 shares of JNJ stock. The shares had cost Ellie $30,000 in 1997 and were worth $24,000 on the date of the gift. The JNJ Corporation declared a 2-for-1 stock split in early 2002. For sentimental reasons, John wanted to keep half of the JNJ stock. The motorcycle was John?s. He decided to accept a neighbor?s unsolicited offer to buy. John?s broker, a cousin on his mother?s side of the family, did not charge him a commission on the sale of the JNJ and PG stocks. Besides the items already noted, the Kaisers had the following receipts during 2008: ItemAmount John?s consulting fees (including expense reimbursement but not including items 7 and 8 above)$72,000 Ruth?s salary42,000 Interest income City of Lincoln bonds$2,400 General Electric bonds800 Bank of America CD1,1004,300 Qualified Dividends JNJ Corporation common$ 400 PG Corporation common6001,000 Income tax refunds (for tax year 2007) Federal$1,500 California2901,790 In addition to the items already mentioned, the Kaisers had the following expenditures for 2008: ItemAmount Dental (orthodontist)$1,400 Property taxes on personal residence4,000 Interest on home mortgage4,800 Work-related expenses (see item 19)8,750 Tax return preparation fee (one-half of the preparer?s time was devoted to John?s business activities)900 Payment of church pledge (includes $600 left over from 2007 pledge)3,000 College donations (see item 20)2,150 For medical purposes, the Kaisers are covered by Ruth?s policy available through the Rocklin School District. No contribution from the employee is required, no co-payor deductible features are involved, and spouse and children are included. Other dependents (e.g., parents) and dental bills are excluded from coverage. Professional dues, journals, and license fees (teaching and business) are as follows: ItemRuthJohn Dues$150$300 Journals75100 Licenses125?0? John contributed $8,000 to an H.R. 10 (Keogh) plan that he established several years ago. The administrator of the plan is DKP Trust Company and the deduction for the amount he contributed this year is not limited. Ruth is covered by a non-contributory retirement plan that the Rocklin School District maintains for its employees. Ruth and John attended California State University-Sacramento and belonged to the alumni association. Each paid $75 (for a total of $150) in annual dues. Also, they sent each athletic department $1,000 (for a total of $2,000) to give them preferred seating at home football games. The charge for seating preference does not include the cost of the tickets for games. The Kaisers have three daughters who live with them. Karla (age 20) and Krystal (age 18) are high school graduates and have part-time jobs earning $9,000 and $8,000, respectively. As they are saving most of their earnings for college, both receive almost all of their support from their parents. Keri (age 17) is a full-time student and does not work. Ruth?s Form W-2 from her employer shows withholding of $4,368 for Federal income tax and $1,536 for state income tax. The Kaisers made quarterly estimated payments of $12,800 ($3,200 each quarter) to the U.S. Treasury and $1,600 ($400 each quarter) to the state of California. Social security numbers for the parties involved are as follows: NameSoc. Sec. Number Ruth Kaiser426-81-7492 John Kaiser426-53-5261 Rudi Dietrich425-89-6494 Paula Dietrich425-74-5213 Karla Kaiser427-52-3162 Krystal Kaiser427-43-2485 Keri Kaiser427-37-4533 The Kaisers estimate that their total on-line purchases amounted to $1,500 during 2008. Of that amount, they did not pay California (or any other state) sales tax on $1,000 of their purchase. Prepare Federal and California joint returns (with appropriate schedules) for the Kaisers for 2008. In doing this, make the following assumptions: The principal business code for John is 541510. The Kaisers itemized their deductions from AGI for tax year 2007. In making the choice between deducting state and local sales taxes and state income taxes, they selected state income taxes. The Kaisers drove 630 miles for medical (e.g., doctor and dentist visits, hospital trips) purposes and 280 miles for charitable (e.g., canvassing for annual church pledges) purposes in 2008. The family Audi was used in both cases. If a refund is due, they want it sent to them. They do not want to contribute to the Presidential Election Campaign Fund.

Comprehensive Tax Return ProjectTax Year 2015 John and Ruth Kaiser, husband and wife, reside at 2168 Eagle Court, Rocklin, CA 95677. 1. John is a computer consultant who specializes in installing software systems. John deals mainly with city and county governments and school districts. Currently, John has contracts with Placer and El Dorado Counties which pay him an annual retainer to be on call as needed and he works on a per job basis for other entities. As noted below (see item 3), he conducts his consulting business from an office in his home. 2. Ruth is a teacher employed by the Rocklin School District. She has been completing classes offered by CSU--Sacramento leading to a Master of Arts in Education. In driving to work and school, Ruth uses the family Audi. 3. The Kaisers constructed their residence on Eagle Court in 2013 at a cost of $520,000. They had acquired the lot from a grandparent several years before for an additional $20,000. Of the 3,200 square feet of livable space, one-fourth (25%) is used as John's office. Besides the interest on the home mortgage and property taxes (see item 18 below), residential expenses for 2015 are as follows: Utilities Security system annual service fee Homeowner's insurance New computer (100% business) $4,200 600 800 2,200 John's office furniture (e.g., desk, chairs, drafting tables) was expensed previously under 179 when acquired. On May 16, 2015, however, he bought a new Xerox copier for $850. 4. In August of 2014, John purchased a BMW that he uses exclusively for business. No trade-in was involved and part of the purchase price of $45,000 was financed. For 2014, he did not choose to claim any 179 expensing or additional first year depreciation. Under the actual operating cost method, he uses 200% declining-balance with half-year convention. His expenses relating to the BMW for 2015 are as follows: Item Gasoline Oil and lubrication Amount $2,400 120 Auto insurance 1,400 Interest on car loan 1,200 Repairs (not under warranty) 520 Personal property tax on BMW 610 During 2015, John drove the BMW 18,000 miles. 1 5. Except for the work he does for Placer and El Dorado Counties, John's consulting usually requires overnight stays. On a typical trip, he drives to the work location and stays at a motel until the assignment is complete. In addition to the auto expense previously noted (see item 4), his business travel expenses for 2015 are summarized below: Item Meals Lodging Laundry Parking Amount $7,400 8,200 310 205 6. To maintain good relations with his clients for whom he does work, John gives fruit baskets at Christmas. Each basket cost $23 plus wrapping ($2) and shipping ($4), making the total $29. On December 19, 2015, John charged the fruit baskets order of $609 (21 baskets at $29 each) to his Visa credit card. [The Visa bill was paid in January 2016.] 7. Placer and El Dorado Counties pay John an annual retainer of $8,000 and $12,000, respectively. The retainers for a year are to be paid by December 31 of that year. For budgetary reasons, however, El Dorado delayed its 2014 payment until February 2015. All other retainers were paid on schedule. 8. One private client, Jim Beaver, retained John to install a computer software program for investment tracking. When John presented Jim with an invoice for $6,000, Jim offered John a choice: cash or a Jeep Wrangler (2006, V-6) listed for sale at $7,999. The blue book value of a '06 Jeep Wrangler ranges from $3,675 to $7,925. John needed a car for his daughters, so he accepted the Jeep. 9. Expenses incurred by Ruth during 2015 in pursuing the M.S. in Education are as follows: Tuition (spring and fall 2015) Books, lab supplies, computer software Campus parking $7,100 940 230 Mileage driven was 1,040 miles. For tax purposes, the Kaisers use the standard mileage method for the Audi which was purchased on June 15, 2013. 10. For several years, Ruth has not been pleased with her job with the Rocklin School District. Although the fringe benefits are good (see items 18 and 19 below), her salary is too low. In 2015, therefore, she retained the services of a professional recruitment agency. After considerable effort and multiple job interviews, she received several attractive job offers. When the school district learned of her job search, Ruth was promised greater responsibilities and potential salary enhancements so she decided against any change. The job search effort cost Ruth $2,275. 11. In the summer of 2014 while on a family outing, the Kaisers had an auto accident. Although it was the other driver's fault, the Kaisers had to file a claim with their own insurance company (State Farm) for the repairs on the Audi. They were charged the $1,000 deductible and were unable to deduct any of this amount on their income tax return due to the 10%-of-AGI floor. In 2 2015, State Farm was able to collect from the other driver's carrier, and the Kaisers recovered the $1,000 deductible. 12. In late 2015, the Kaisers were audited by the California Franchise Tax Board. The agent checked their state income tax returns for tax years 2012, 2013, and 2014. She assessed deficiencies of $420 for 2013 and $310 for 2014. For year 2012, she accepted the return and made no change. The Kaisers agreed to the assessments and immediately mailed a check for $781 to the state in payment of the assessments and interest. 13. For several years Ruth's parents, Rudi and Paula Dietrich, have been living with the Kaisers. Since they meet the dependency requirements, the Kaisers have claimed the parents on their tax returns. On December 30, 2014, Paula suffered a stroke, was taken to Memorial Hospital, and died in the ICU on January 2, 2015. In February 2015, John received and paid a bill from Memorial for $9,400 ($5,100 of which related to 2014). The Kaisers also paid for Paula's funeral expenses of $4,900. Paula owned her own cemetery lot. 14. Because Rudi (Ruth's father) is physically handicapped and must use a wheelchair, John had some changes made to portions of the Eagle Court residence in 2015. A contractor was hired to add ramps to entrances, lower certain counters, widen several hallways, and add guardrails to the bathroom facilities. The contractor charged $6,000 for the job. A reasonable estimate made by a professional appraiser (not related or friends of the Kaisers) is that the capital improvements increased the value of the residence by $3,000. 15. Several years ago, Ruth took out life insurance policies on the lives of her parents. The policies, face amount of $50,000 each, are issued by Met Life and designate Ruth as the owner and beneficiary. After the death of her mother in 2015, Met Life paid Ruth $50,000. Ruth had previously paid premiums of $18,200 on the policy. In 2015, Ruth paid Met Life $1,400 in premiums on her father's policy. 16. The Kaisers have a $4,000 excess long-term capital loss carryover from 2014. Their property transactions for 2015 are summarized below: Date Property Sold Lot in Yuba City 1,000 shares of JNJ Corporation common 600 shares of PG Corporation common Motorcycle Date Cost or Sale Other Price Basis Inherited $13,100 Acquired Sold 2/3/08 6/2/15 8/10/07 5/20/15 Gift 14,000 12/2/12 11/30/15 4/25/11 9/2/15 $11,000 $8,500 12,000 2,200 John inherited the Yuba City lot from his grandmother, Ellie, who died in 2008. Ellie had paid $2,000 for the property in 1950, and it was worth $9,000 when she died. In the prior year (2007), Ellie had given John 1,000 shares of JNJ stock. The shares had cost Ellie $30,000 in 2005 and were worth $24,000 on the date of the gift. The JNJ Corporation declared a 2-for-1 stock split in early 2009. For sentimental reasons, John wanted to keep half of the JNJ stock. The motorcycle was John's and he decided to accept a neighbor's unsolicited offer to buy. John's broker, a cousin on his mother's side of the family, did not charge him a commission on the sale of the JNJ and PG 3 stocks. 17. Besides the items already noted, the Kaisers had the following receipts during 2015: Item John's consulting fees but not including items 7 and 8 above Ruth's salary Interest income City of Lincoln, CA bonds General Electric bonds Bank of America Certificate of Deposit Qualified Dividends JNJ Corporation common PG Corporation common Income tax refunds (for tax year 2014) Federal California Amount $72,000 42,000 $2,400 800 1,100 4,300 $ 400 600 1,000 $1,500 290 1,790 18. In addition to the items already mentioned, the Kaisers had the following expenditures for 2015: Item Dental (orthodontist) Property taxes on personal residence Personal property tax on Audi (since the amount is not significant and all can be deducted as an itemized deduction ignore allocation to Form 2106 and use all as an tax itemized deduction). Interest on home mortgage Work-related expenses (see item 19) Tax return preparation fee (one-half of the Amount $1,400 4,000 580 4,800 8,750 900 preparer's time was devoted to John's business activities) Payment of church pledge (includes $600 left over 3,000 from 2014 pledge) College donations (see item 20) 2,000 For medical purposes, all the Kaisers have qualifying medical coverage through Ruth's policy available through the Rocklin School District. No contribution from the employee is required, no co-payer deductible features are involved, and spouse and children are included. Other dependents (e.g., parents) and dental bills are excluded from coverage. 4 19. Professional dues, journals, and license fees (teaching and business) are as follows: Item Dues Journals Licenses Ruth $150 75 125 John $300 100 -0- John contributed $8,000 to an H.R. 10 (Keogh) plan that he established several years ago. The administrator of the plan is DKP Trust Company. Ruth is covered by a non-contributory retirement plan that the Rocklin School District maintains for its employees. 20. Ruth and John attended California State University--Sacramento and belong to the alumni association. They each sent the athletic department $1,000 (for a total of $2,000) to give them preferred seating at home football games. The charge for seating preference does not include the cost of the tickets for games. 21. The Kaisers have three daughters who live with them. Karla (age 20) and Krystal (age 18) are high school graduates and have part-time jobs earning $9,000 and $8,000, respectively. As they are saving most of their earnings for college, both receive almost all of their support from their parents. Keri (age 17) is a full-time student and does not work. 22. Ruth's Form W-2 from her employer shows withholding of $6,384 for Federal income tax and $1,536 for state income tax. The Kaisers made the required quarterly estimated payments of $10,694 ($2673.50 each quarter) to the U.S. Treasury and $1,600 ($400 each quarter) to the state of California. 23. Social Security numbers for the parties involved are as follows: Name Ruth Kaiser John Kaiser Rudi Dietrich Paula Dietrich Karla Kaiser Krystal Kaiser Keri Kaiser Soc. Sec. Number 426-81-7492 426-53-5261 425-89-6494 425-74-5213 427-52-3162 427-43-2485 427-37-4533 Birth date 02/02/1969 01/01/1968 05/05/1947 06/06/1948 03/03/1995 04/04/1997 07/07/1998 24. The Kaisers estimate that their total on-line purchases amounted to $2,500 during 2015 (no item cost $1,000 or more). Of that amount, they did not pay California (or any other state) sales tax on $2,000 of their purchases. 5 Prepare Federal and California joint returns (with appropriate schedules) for the Kaisers for 2015. In doing this, make the following assumptions: The principal business code for John is 541510. The Kaisers itemized their deductions from AGI for tax year 2014. In making the choice between deducting state and local sales taxes and state income taxes, they selected state income taxes. The amount of 2014 itemized deductions were high enough that they received the entire benefit of the state income tax itemized deduction compared to the standard deduction which makes their refund taxable. The Kaisers drove 700 miles for medical (e.g., doctor and dentist visits, hospital trips) purposes and 280 miles for charitable (e.g., canvassing for annual church pledges) purposes in 2015. The family Audi was used in both cases. If a refund is due, they want it sent to them. They do not want to contribute to the Presidential Election Campaign Fund. 6