Comprehensive Problem Two Gregory and Lulu Clifden's Tax Return Gregory R. and Lulu B. Clifden live with their family at the Rock Glen House B Rock Glen House Bed & breakfast, which Gregory operates. The Red & Breakfast ( B) is located at 33333 Fume Blanc Way, Temecula, CA 92591. Gregory (born May 4, 1976) and Lulu (born June enjoy good health and eyesight. 1. The Clifdens have three sons. Gerald was born April 16, 2002. Gary was born December 2, 2007 and Glenn was born lanuary 13, 2009. All three boys live at home and the Clifdens provide more than 50% of their support. 2. The Rock Glen House B&B is operated as a sole proprietorship and had the following income and expenses for the year: Room rental income $137,896 Vending machine income 2,100 Advertising expense 4,810 Depreciation for book and tax purposes 18,100 Mortgage interest on the B&B 22.987 Wages of cleaning people 17,540 Taxes and licenses 6,420 Supplies consumed 18,870 Business insurance 6,300 Laundry expenses 4,289 Accounting fees 1,850 Office expenses 2.400 Utilities 6,350 All of the above amounts relate to the business portion of the Bed & Breakfast: the personal portion is accounted for separately. The Rock Glen House B&B uses the cash method of accounting and has no inventory. The employer tax ID number is 95-1234567. 3. The Clifdens made estimated federal income tax payments of $2,000 and estimated state income tax payments of $6,000 (all made during 2019). 4. Lulu worked about 1,000 hours as a substitute schoolteacher with the local school dis- trict, She also spent $276 out-of-pocket for various supplies for her classroom. For the current year, Lulu's Form W-2 from the school district showed the following 256-43-8919 - ABTU se file 1.694.00 43-7654321 13.700.00 13.700.00 Temecula Valley Unified School Dist. 31350 Rancho Vista Rd. Temecula, CA 92592 13.700.00 198,65 Lulu B. Cidden 33333 Fume Blanc Way Temecula, CA 92591 13,700.00 400.00 CAL rom W-2 W Com ! 2019 2 Wage and Tax - To Bed With Employee's FEDERAL Tax Return bang them evene Service 45 Gregory is retired from the U.S. Navy. His annual statement from the Navy, Form 1099-R, is on Page D-12 6. Gre Gregory and Lulu paid (and can substantiate the following amounts during the year Mastercard interest $1,480 Dental expenses (orthodontics for Gary) 5,457 California state income tax (for 2018) 2,130 Charitable contributions 4,875 Deductible interest on home (personal portion) 9,631 Real estate taxes (personal portion) 3,830 Life insurance premiums 845 Automobile registration fees (deductible portion) Tax return preparation fee 475 Contributions to Donald Trump's re-election campaign 1,000 7. During the year, Gregory and Lulu received the following qualifying dividends and interest: Interest: Bob's Big Bank $ 381 Bank of Ireland 271 City of Temecula Tax Exempt Bonds 1,490 Vintage Bank See 1099-INT (Page D-12) Qualified dividends: Southwest Airlines $ 250 Heinz Foods 550 Also, Lulu owns Series EE U.S. savings bonds. During the year, the bond redemp. tion value increased by $1,300. Lulu has not elected the accrual method for these bonds. There were no Irish taxes paid on the interest from the Bank of Ireland. All the above stocks, bonds, and bank accounts are community property. 8. Lulu has a stock portfolio. During the year, she sold the following stock, shown on her Forms 1099-B as follows (basis was provided to the IRS in all cases): Orange Co. Gold Co. Green Co. $8,114 Sales price $1,449 Form 3,803 2,578 Basis 1099-B 02/11/19 10/31/14 Date acquired (Page D-12) 10/23/19 Date sold See 06/19/19 9. Lulu paid her ex-husband $4,800 alimony in the current year, as required under the 2002 divorce decree. Her ex-husband's name is Hector Leach and his Social Security number is 566-23-5431. 10. Gregory does all the significant work in the Bed & Breakfast and therefore he pays self- employment tax on 100 percent of the earnings from the B&B. 11. During the year, Gregory's uncle Martin died. Martin had a $50,000 that named Gregory as the beneficiary. Gregory rece suncle Martin died. Martin had a $50,000 life insurance policy "gory as the beneficiary. Geory received the check for the benefits pay- able under the policy on November 30 of the current year. Ma parcel of land with an appraised value of $120,000. n November 30 of the current year. Martin also left Gregory a 12. Gary is a general partner in a partnership that owns a boutique California and leases the property to al in a partnership that owns a boutique hotel in northern and and leases the property to a hotel management company. Gary does not materially participate in the partnershina any participate in the partnership activity but the partnership activity does nise the level of a trade or business. The Schedule K-1 from the partnership is now on Page D-9. Lulu was not eligible for health care benefits due to the part-time nature of her job, us health insurance for the Clifden household was purchased by Gregory. The Chldens purchased health insurance through the Covered California program and received the Form 1095-A shown on Page D-11. They had no other health insurance during 2019. Assume that the self-emploved health insurance deduction is $1,42 Clifdens did not claim an advance premium credit. Required: Gregory and Lulu have come to you to prepare their 2019 federal income tax return. Do not complete a California state income tax return. Gregory and Lulu have given you several IRS forms (see Pages D-11 and D-12). Make realistic assumptions about any missing data (addresses, etc.) that you need. Do not file a federal Form 4952. The following is a list of the forms and schedules that you will need to complete the tax return: Form 1040 Schedule E Schedule 1 Schedule SE Schedule 2 Form 8812 Schedule 3 Form 8949 Schedule A Form 8962 Schedule B Form 8995 Schedule C Child Tax Credit Worksheet Schedule D Qualified Dividends and Capital Gain Tax Worksheet Note: The forms included in Appendix D are provided for the student to work on only one of the two additional comprehensive problems. If desired, additional tax forms may be obtained from the IRS website at www.irs.gov. Comprehensive Problem Two Gregory and Lulu Clifden's Tax Return Gregory R. and Lulu B. Clifden live with their family at the Rock Glen House B Rock Glen House Bed & breakfast, which Gregory operates. The Red & Breakfast ( B) is located at 33333 Fume Blanc Way, Temecula, CA 92591. Gregory (born May 4, 1976) and Lulu (born June enjoy good health and eyesight. 1. The Clifdens have three sons. Gerald was born April 16, 2002. Gary was born December 2, 2007 and Glenn was born lanuary 13, 2009. All three boys live at home and the Clifdens provide more than 50% of their support. 2. The Rock Glen House B&B is operated as a sole proprietorship and had the following income and expenses for the year: Room rental income $137,896 Vending machine income 2,100 Advertising expense 4,810 Depreciation for book and tax purposes 18,100 Mortgage interest on the B&B 22.987 Wages of cleaning people 17,540 Taxes and licenses 6,420 Supplies consumed 18,870 Business insurance 6,300 Laundry expenses 4,289 Accounting fees 1,850 Office expenses 2.400 Utilities 6,350 All of the above amounts relate to the business portion of the Bed & Breakfast: the personal portion is accounted for separately. The Rock Glen House B&B uses the cash method of accounting and has no inventory. The employer tax ID number is 95-1234567. 3. The Clifdens made estimated federal income tax payments of $2,000 and estimated state income tax payments of $6,000 (all made during 2019). 4. Lulu worked about 1,000 hours as a substitute schoolteacher with the local school dis- trict, She also spent $276 out-of-pocket for various supplies for her classroom. For the current year, Lulu's Form W-2 from the school district showed the following 256-43-8919 - ABTU se file 1.694.00 43-7654321 13.700.00 13.700.00 Temecula Valley Unified School Dist. 31350 Rancho Vista Rd. Temecula, CA 92592 13.700.00 198,65 Lulu B. Cidden 33333 Fume Blanc Way Temecula, CA 92591 13,700.00 400.00 CAL rom W-2 W Com ! 2019 2 Wage and Tax - To Bed With Employee's FEDERAL Tax Return bang them evene Service 45 Gregory is retired from the U.S. Navy. His annual statement from the Navy, Form 1099-R, is on Page D-12 6. Gre Gregory and Lulu paid (and can substantiate the following amounts during the year Mastercard interest $1,480 Dental expenses (orthodontics for Gary) 5,457 California state income tax (for 2018) 2,130 Charitable contributions 4,875 Deductible interest on home (personal portion) 9,631 Real estate taxes (personal portion) 3,830 Life insurance premiums 845 Automobile registration fees (deductible portion) Tax return preparation fee 475 Contributions to Donald Trump's re-election campaign 1,000 7. During the year, Gregory and Lulu received the following qualifying dividends and interest: Interest: Bob's Big Bank $ 381 Bank of Ireland 271 City of Temecula Tax Exempt Bonds 1,490 Vintage Bank See 1099-INT (Page D-12) Qualified dividends: Southwest Airlines $ 250 Heinz Foods 550 Also, Lulu owns Series EE U.S. savings bonds. During the year, the bond redemp. tion value increased by $1,300. Lulu has not elected the accrual method for these bonds. There were no Irish taxes paid on the interest from the Bank of Ireland. All the above stocks, bonds, and bank accounts are community property. 8. Lulu has a stock portfolio. During the year, she sold the following stock, shown on her Forms 1099-B as follows (basis was provided to the IRS in all cases): Orange Co. Gold Co. Green Co. $8,114 Sales price $1,449 Form 3,803 2,578 Basis 1099-B 02/11/19 10/31/14 Date acquired (Page D-12) 10/23/19 Date sold See 06/19/19 9. Lulu paid her ex-husband $4,800 alimony in the current year, as required under the 2002 divorce decree. Her ex-husband's name is Hector Leach and his Social Security number is 566-23-5431. 10. Gregory does all the significant work in the Bed & Breakfast and therefore he pays self- employment tax on 100 percent of the earnings from the B&B. 11. During the year, Gregory's uncle Martin died. Martin had a $50,000 that named Gregory as the beneficiary. Gregory rece suncle Martin died. Martin had a $50,000 life insurance policy "gory as the beneficiary. Geory received the check for the benefits pay- able under the policy on November 30 of the current year. Ma parcel of land with an appraised value of $120,000. n November 30 of the current year. Martin also left Gregory a 12. Gary is a general partner in a partnership that owns a boutique California and leases the property to al in a partnership that owns a boutique hotel in northern and and leases the property to a hotel management company. Gary does not materially participate in the partnershina any participate in the partnership activity but the partnership activity does nise the level of a trade or business. The Schedule K-1 from the partnership is now on Page D-9. Lulu was not eligible for health care benefits due to the part-time nature of her job, us health insurance for the Clifden household was purchased by Gregory. The Chldens purchased health insurance through the Covered California program and received the Form 1095-A shown on Page D-11. They had no other health insurance during 2019. Assume that the self-emploved health insurance deduction is $1,42 Clifdens did not claim an advance premium credit. Required: Gregory and Lulu have come to you to prepare their 2019 federal income tax return. Do not complete a California state income tax return. Gregory and Lulu have given you several IRS forms (see Pages D-11 and D-12). Make realistic assumptions about any missing data (addresses, etc.) that you need. Do not file a federal Form 4952. The following is a list of the forms and schedules that you will need to complete the tax return: Form 1040 Schedule E Schedule 1 Schedule SE Schedule 2 Form 8812 Schedule 3 Form 8949 Schedule A Form 8962 Schedule B Form 8995 Schedule C Child Tax Credit Worksheet Schedule D Qualified Dividends and Capital Gain Tax Worksheet Note: The forms included in Appendix D are provided for the student to work on only one of the two additional comprehensive problems. If desired, additional tax forms may be obtained from the IRS website at www.irs.gov