COMPREHENSIVE INCOME TAX PROBLEM

Read Thoroughly.

Ozzie and Harriet Nelson live at 520 University, Omaha, NE 50166. They have been married for 23 years. Harriet is the Controller for Master Mind Financial Inc. Ozzie operates his own real estate company. Ozzie keeps busy as an auctioneer on weekends. An auction company contracts with him for specific weekend estate sales. Harriet serves as a director on the corporate board and the audit committee for First Citizens bank in Bellvue, NE. The Nelsons have three children; all qualified as Ozzie and Harriets federal income tax dependents:

Jonah (age 19), a sophomore at College.

Anna (age 15)

Jessica (age 7)

REQUIREMENT:

Using the information provided, prepare a detailed analysis of Ozzie and Harriets 2016 gross income from all sources, deductions allowed for certain income sources (for example, business income or netted capital gains and losses), AGI computation, itemized deduction computations, personal and dependent exemptions, any phase-out considerations, taxable income, income tax liability computations at regular and preferential rates, computation of other taxes and application of prepayments and any credits to determine additional tax owed or tax refund due. Prepare the analysis with brief explanation of the various components of the computations on an EXCEL spreadsheet. The completed spreadsheet and the completed 2016 tax forms (see list in next paragraph) are the deliverable of this task. Use recent charts and forms when calculating tax. Show all the work.

Show all the computations and processes. After completing the detailed analysis prepare the 2016 tax return using Form 1040 and supporting schedules: A, B, two schedule Cs for Ozzie and one Sch. C for Harriet, D, 8959, E, SE for Ozzie and SE for Harriet, 6251 and 4562 for Business Depreciation. (15 forms in total)

You can find the forms in www.irs.com

If required information is missing, use reasonable assumptions to fill in the gaps.

Ozzie and Harriet reported the following the following information relating to his employment during the 2016:

Harriets Employer	Gross Wages	Federal Income Tax Withholding	State Income Tax Withholding
Master Mind Financial Inc.	$155,000	$12,300	$4,100

The above amounts do not reflect any income items described below. Harriets employer withheld all payroll taxes it was required to withhold. The entire Nelson family was covered by minimum essential health insurance during each month in 2016. The health insurance was provided by Harriets employer, Master Mind Financial Inc.

Ozzie received the following revenue during the year (he uses the cash method of accounting).

Real Estate Commissions reported to his on multiple Forms 1099-MISC,

Box 7 $280,000

During the year, Ozzie paid the following business expenses:

Real Estate Business-related:

Hotel $1,450

Meals $390

Parking $320

Educational Conferences $6,000

Professional Licenses $1,500

Subscriptions to professional materials $800

Business supplies (paper, toner, stamps, etc.) $300

Office secretary, including employer Social

Security and Medicare $29,000

Office rent 15,000

Phone 2,400

Copier maintenance and lease 3,000

Advertising 5,000

Ozzie drove 4,600 business miles for his real estate-related activities (he has documentation to verify)

On February 1, 2016 Ozzie purchased a new laptop computer for his business at a cost of $2,000. Ozzie also purchased a new laser printer/photocopier combination at a cost of $840 on the same date. On February 10, Ozzie purchased computer software to use in his business for $600. Ozzie would like to recover the cost of these assets as soon as possible.

Ozzie drove a 2015 Toyota Highlander (cost $30,000) purchased on January 1, 2015 for all of his business mileage. He drove the vehicle a total of 25,600 miles during the year for all purposes. Ozzie has written documentation to support the mileage amounts. He also has access to another vehicle for personal purposes.

For the auctioneer business, Ozzie is an independent contractor. The 1099 Forms Box 7 amounts for his 2016 auctioneer non-employee compensation totals $16,000. His related expenses paid in 2016 are, mileage for 3,500 miles, annual training $400, hotel for the training meeting $200, and meals during travel to auctions $300. Ozzie is required to file a Schedule C for his auction activity.

Harriets board of director compensation from First Citizens Bank reported to her on a Form 1099-MISC, Box 7 $12,000

Board of Director-related:

Meals $125

Hotel $225

Harriet drove 1,000 business miles for her board of director activities (she has documentation to verify)

In addition to their personal residence, Ozzie and Harriet purchased a Whitefish, Montana condominium for $360,000 in September, 2014. They rented it out for 20 full weeks in 2016 and used it personally for 14 days. They materially participate in the management of the condominium property and handle all of the rental arrangements.

The revenue and expenses from the condominium rental unit for the 20 weeks of 2016 are as follows:

Rental revenue $30,000

HOA fee expense $ 1,500

Mortgage interest $10,000

Property taxes paid $ 3,000

Utilities expense $ 1,350

Insurance $ 1,000

Housekeeping Fees $ 2,000

Maintenance and Repairs $ 1,000

Depreciation needs to be calculated

Harriet inherited $300,000 from her grandmother in 2012. The inheritance was used to purchase stocks and bonds.

In 2016, the Nelsons had the following investment income:

Interest income from First Bank of Iowa $300

Interest income from Ankeny, IA School District Bonds $300

Interest income from U.S. Treasury Bond $350

Interest income from General Mills corporate bond $500

Qualified dividend income from Rio Tinto $1,500

Qualified dividend income from Microsoft $750

Qualified dividend income from Cooper Tire $200

Qualified dividend income from Cardinal Health $425

Qualified dividend income from Union Pacific $140

Qualified dividend income from Procter & Gamble $290

Qualified dividend income from PepsiCo $225

Qualified dividend income from Kellogg $200

Qualified dividend income from Abbott Labs $275

Qualified dividend income from 3M $350

Dividend income (not qualified) from China Fund $1,000

The Nelsons did not own, control or manage any foreign bank accounts nor were they a grantor or beneficiary of a foreign trust during the tax year.

The Nelsons had the following activity in their brokerage account during the year (all transactions were reported on a Form 1099-B. Basis information on each stock sale was reported to the IRS):

Sold 2,000 shares of Microsoft 7/1/16 $23,500

Sold 75 shares of Apple, Inc. 4/15/16 $25,750

Sold 350 shares of Cooper Tire 10/14/16 $10,000

Sold 1,000 shares of Cardinal Health 9/3/16 $34,000

Sold 50 shares of Union Pacific 1/7/16 $3,750

Purchased 100 shares of Procter & Gamble 7/10/16 $7,700

Purchased 350 shares of Cooper Tire 11/1/16 $14,000

Purchased 350 shares of PepsiCo 5/14/16 $32,000

Purchased 300 shares of Kellogg 10/14/16 $21,000

Relevant tax basis/holding period information related to sales of securities in the current year:

Purchased 2,000 shares of Microsoft on 5/1/15 for $21,000

Purchased 200 shares of Apple, Inc. on 3/8/2013 for $90,000

Purchased 300 shares of Cooper Tire on 1/12/2012 for $9,000

Purchased 50 shares of Cooper Tire on 6/28/15 for $2,000

Received 1,000 shares of Cardinal Health from Ozzies father as a gift on 10/10/98. Her fathers basis in the stock at the time of the gift was $7,000. Fair market value of the stock at the date of the gift was $41,000

Purchased 100 shares of Union Pacific on 9/5/15 for $6,000

The Nelsons have an $8,000 long-term capital loss carryover from their prior tax year.

The Nelsons received a Nebraska state income tax refund of $700 in May of 2016. They had overpaid their Nebraska state individual income tax in 2015. On their 2015 Federal income tax return, the Nelsons deducted and received tax benefit for all of the state tax income taxes that were withheld or paid as estimates in 2015.

The Nelsons paid the following expenses during the year (in addition to the personal residence-related items listed above):

Harriets employee portion of health insurance premiums

for family coverage $4,800

Dentist (unreimbursed by insurance) $ 800

Doctors (unreimbursed by insurance) $1,750

Prescriptions (unreimbursed by insurance) $ 625

Vehicle licenses based upon value $ 1,950

Mortgage Interest on personal residence $18,000

Real Estate Tax on personal residence $ 6,000

Contribution to United Way $ 2,000

Contribution to American Cancer Society $ 5,000

Contribution to neighborhood drive to oppose development project $500

Contribution to the Faith Lutheran Church $12,000

Fee paid to Mouser, Johnson, and Hintz CPAs for tax preparation $600

Legal fees for preparation of Ozzie and Harriets wills $700

After school child care to Sunflower Daycare for Jessica $2,000

The Nelsons also donated clothing, electronics, furniture and other household goods to the Goodwill of Iowa on April 15, 2016. Estimated thrift value of the goods donated was $375.

Miscellaneous Information

On September 1, the Nelsons paid $200 in foreign taxes attributable to the dividend received from the China Fund.

Investment Expenses related to the investment portfolio were $1,700.

Jonahs tuition and books for the fall 2016 semester were $20,000. Jonah received a $6,000 scholarship and the remaining $14,000 was paid by his parents. Jonah was not required to perform any services as a condition of accepting the scholarship. Jonah earned $5,000 working as a lifeguard in summer 2016.

The Nelsons made timely federal and Iowa estimated tax payments for 2016 as follows:

Federal Nebraska

April 15, 2016 $5,000 1,000

June 15, 2016 $5,000 1,000

September 15, 2016 $5,000 1,000

January 15, 2017 $5,000 1,000