David R. and Sheri N. Johnson (ages 45 and 46) are married and live at

641 Cody Way, Casper, WY 82609. David is a consulting engineer, while

Sheri is a paralegal. They file a joint return and use the cash basis for tax

purposes.

1. Trained as a mining engineer, David has developed considerable

expertise in the treatment and disposition of waste material. He is also

well-versed in the Federal and state requirements for land reclamation

projects. David maintains a consulting practice through which he

advises clients on these matters. David's business activity code is

541990. Most of his clients are small and medium-size mine

owner/operators located in Wyoming and contiguous states (e.g.,

Montana, Idaho, Utah). Usually, David is retained by a client on a

contract fee basis and is reimbursed for all out-of-pocket expenses. In

performing his services, David usually visits the job site and later

submits his recommendations in a written report along with a

statement for his services and expenses. David received the following

amounts from his consulting business in 2015:

Fees for services rendered $ 92,800

Expense Reimbursements:

Airfare $ 8,200

Meals 6,100

Lodging 5,200

Transportation (taxis, airport limos, car rentals) 920

Subtotal for expense reimbursement 20,420

Total Received $113,220

2. The following fees for rendered services are not included in the receipts

listed in item 1 above:

Echo Mining: Payment received January 2016; work done

December 2015

$5,100

Sesa Mining: Payment received January 2015; work done

December 2014

4,400

Cormorant Mining: No payment received; work done March

2015

3,700

David did not incur travel expenses in any of these engagements (i.e.,

the work was done in his office). As Cormorant Mining is in bankruptcy,

David does not expect to collect any of this fee.

3. Other expenses paid by David in 2015 relating to his practice are listed

below.

Contribution to H.R. 10 (Keogh) retirement plan $9,000

Premiums on medical insurance (covering self, spouse, and

dependents)

3,800

Landscape models purchased from topographer for reclamation

projects

3,200

Advertising in trade journals 2,400

Office supplies (including drafting materials) 1,200

Business phone and Internet service 860

State occupation license 300

Subscriptions to trade journals 240

Membership dues to trade associations 180

4. David operates his consulting business out of an office in his home.

Twenty percent of the 3,000-square-foot living area is devoted to the

office. David inherited the home on Cody Way from his father, who died

on June 6, 2006, when it had a fair market value of $400,000 ($40,000 of

which was allocated to the land). The Johnsons moved into the home in

2006, and David began using his home office in the same year. The

home's current fair market value is $500,000 ($50,000 allocated to the

land). County land records reflect that David's father bought the land in

1969 for $6,000 and built the house in 1973 at a cost of $60,000. David

depreciates the business use of his home using MACRS, treating the

home as 39-year nonresidential reality.

Additional information regarding the property for 2015 follows:

Utilities $4,800

Repairs and maintenance 2,900

Property/casualty insurance 2,300

The property taxes and mortgage interest paid in 2015 on the home are

listed in item 15 below. In addition to the repairs and maintenance

noted above, David had the office repainted at a cost of $1,200. The

furniture in the office, including business equipment (e.g., computer, fax

machine, copier), was properly expensed in the year bought and has a

zero basis. However, on March 5, 2015, David purchased a heavy-duty,

fire-resistant file cabinet with security-vault features for $4,800. He

made the acquisition to safeguard and maintain the privacy of client

data. If possible, David prefers to avoid capitalizing and depreciating the

cabinet.

5. On February 4, 2014, David paid $41,000 (including sales tax) for a used

Infiniti crossover SUV (gross weight under 6,000 pounds), which he

uses 90% of the time for business. No trade-in was involved, and he did

not claim any 179 expensing of the cost. Last year, David elected to use

the actual operating cost method to compute deductible expenses for

his business use of the Infiniti. Under this method, he depreciates the

SUV using MACRS (half-year convention). (Hint: See Table 3 in the

Instructions to Form 4562.) His operating expenses for the Infiniti for

2015 are as follows:

Gasoline $3,300

Auto insurance 1,600

Repairs 240

Auto club dues 180

Oil changes and lubrication 120

License and registration 60

During business use, David received three moving traffic violations

(total fines of $680) and incurred tolls and parking charges of $440. The

Infiniti was driven a total of 14,500 miles during 2015 (mileage was

incurred evenly during the year).

6. Sheri is a licensed paralegal and is employed on a part-time basis by

several local attorneys. She commuted to work using the family

Suburban for a total of 813 miles and paid parking fees of $310. Her

earnings and job-related expenses are summarized below.

Salary (from four employers) $38,000

Laptop computer 1,200

Subscriptions and dues to professional

organizations

180

Continuing education correspondence course 120

Occupational license fee 80

Sheri purchased the laptop computer on March 12 and uses it 80% of

the time for business. The correspondence course is required

continuing education so she can retain her license.

Sheri is considering going to law school, so she attended a series of

LSAT preparation sessions at a cost of $350. Because Sheri is a part-time

employee, she is not covered by any of her employers' medical or

retirement plans. Sheri is covered under David's insurance, and during

2015, she contributed $5,000 to a traditional IRA that she established

several years ago. The Johnsons use the automatic mileage method to

calculate any tax deductions that they are entitled to for use of the

Suburban.

7. With funds received from the settlement of his father's estate, David

purchased rental property at 4620 Cottonwood Lane, Casper, WY

82609. Of the $250,000 purchase price, $30,000 was allocated to the

land. After an $80,000 renovation to the house (e.g., new flooring, roof,

heating unit), the property was rented beginning February 1, 2009. In

2013, the Johnsons decided that their investment would be more

marketable if the house was rented as furnished. Consequently, in May

of that year, they spent $38,000 on new furniture (including drapes,

carpeting, and appliances). Under the current lease agreement, the

property rents for $2,200 a month (payable at the beginning of each

month) with utilities not included. Information regarding the property

for 2015 appears below.

Rent received $28,600

Property/casualty insurance premiums paid 3,100

Property taxes paid 2,400

Yard maintenance paid 1,200

Repairs 800

The rent received includes $2,200 for January 2016. The tenants

prepaid the rent in mid-December because they went on vacation

during the Christmas/New Year holidays. In addition to the property

taxes listed above, David paid a special tax assessment of $2,400 to the

city of Casper for repaving the street in front of the property. The

Johnsons use MACRS to depreciate the rental home and the furnishings

within it (assume half-year convention for the personalty).

8. The Johnsons acquired 1,000 shares of common stock in Cormorant

Mining on March 7, 2014, to hold for investment purposes. David

performed services for the company in late 2013, submitting a bill for

$3,900. Because Cormorant was experiencing cash-flow problems at the

time, David accepted the stock as payment for his services.

Unfortunately, Cormorant is currently in bankruptcy (see item 2 above),

and expectations are that the shareholders will not recover anything on

their stock investments. The stock is not publicly traded.

9. On March 10, 1997, David's father gave the Johnsons a plot of land

located in Teton County as an anniversary present. It had a value of

$150,000 at the time of the gift (no gift tax was due on the transfer). The

land had been purchased by David's father on June 1, 1987, for $50,000.

In December 2014, a real estate developer contacted the Johnsons and

offered $800,000 for the property. After considerable negotiation, the

following transaction took place on March 4, 2015: the Johnsons

transferred the Teton plot in return for $8,000 in cash and four city lots

in Laramie (WY) worth $792,000. The Johnsons considered the city lots

to be a good investment because they are located near the state

university. All closing costs and legal fees were absorbed by the real

estate developer.

10.David inherited an antique gun collection from his father when he

diedmainly large caliber rifles used for buffalo hunting. Although

David has no idea what his father's cost basis was in these guns, the

collection had a date-of-death value of $22,000. Concerned about the

maintenance and security of the collection, David sold it to a dealer for

$29,000 on July 10, 2015.

11.On July 12, 2001, using $50,000 of funds she had received from an

aunt's life insurance policy, Sheri purchased grazing land in Converse

County (WY). On August 2, 2014, she sold the land to a local rancher for

$75,000. Under the terms of the sale, Sheri received a down payment of

$15,000 and 10 annual notes of $6,000 each. Sheri is also to receive

simple interest of 8% on the outstanding principle balance each year.

On August 4, 2015, Sheri collected $10,800 ($6,000 on the note and

interest of $4,800) on the maturity of the first note.

12.Although the Johnsons had several Schedule D transactions during

2014, they ended up with a net short-term capital loss of $7,000. Of this

loss, $3,000 was deducted in 2014, and $4,000 carried over to 2015.

13.For several years, Sheri's widowed mother, Vivian Olson, has lived with

the Johnsons and has been claimed by them as a dependent. On

December 30, 2014, Vivian suffered a heart attack. After six days in the

ICU of a local hospital, Vivian died. In early February 2015, the Johnsons

paid the following expenses related to Vivian:

Burial expenses $4,400

Medical expenses incurred in 2014 4,200

Medical expenses incurred in 2015 3,100

Remainder of church pledge for 2015 600

Fortunately, the balance of Vivian's medical expenses ($11,900) was

covered by insurance. Besides personal and household effects, Vivian's

major asset was life insurance. As the designated beneficiary of the

policy, Sheri received $20,000 of death benefits on March 13, 2015.

14.Besides the items already mentioned, the Johnsons had the following

receipts during 2015:

Interest income:

City of Cheyenne general purpose bonds $1,900

CD at Wells Fargo Bank 1,100

Money market account at Bank of America 400

Yard (garage) sale 950

Qualified dividends on Meadowlark

Corporation common stock

700

Jury duty fees 420

The yard sale involved used furniture, appliances, books, toys, and other

household goods having an estimated original cost value of $1,800. In

connection with her jury duty assignment in June, Sheri drove the

Suburban 40 miles and incurred expenses of $30 for parking and $45

for meals.

15.In addition to the items already noted, the Johnsons had the following

expenditures for 2015:

Interest on home equity loan used to finance

the purchase of personal items (e.g., camper)

$4,400

Charitable contributions (not including Vivian's

pledge)

3,200

Ad valorem property taxes on personal

residence

3,100

Medical and dental bills (including prescription

drugs of $400) other than those relating to

Vivian (see item 13)

4,800

The Johnsons drove the Suburban 420 miles to various medical and

dental appointments. Wyoming has no state or local income tax but

does impose a general sales tax. The county in which they live imposes

an additional local sales tax of 1%. Although they do not keep track of

their sales taxes, they purchased a camper for $40,000 in May 2015. The

sales tax on this purchase was $1,600.

16.Besides Vivian (see item 13), the Johnsons' household includes two

daughters, Meredith (age 19) and Kirby (age 18), and one son, Toby

(age 17). Kirby and Toby are full-time students in high school. Meredith

graduated a year ago and earned $9,000 working part time during 2015.

She deposited these earnings in a savings account, hoping someday to

attend college.

17.For tax year 2014, the Johnsons had an overpayment of $150, which

they applied toward their 2015 income tax. Sheri's income tax

withholdings for the year are $5,100, and the Johnsons made Federal

quarterly tax payments totaling $16,000 ($4,000 each installment).

18.Relevant Social Security numbers are noted below.

Name Social Security Number

David Johnson 111-11-1112

Sheri Johnson 123-45-6785

Vivian Olson 123-45-6786

Meredith Johnson 123-45-6787

Kirby Johnson 123-45-6788

Toby Johnson 123-45-6789

Requirements

Prepare an income tax return (with appropriate

supporting forms and schedules) for the Johnsons

for 2015. In doing this, follow these guidelines:

Make necessary assumptions for information not

given but needed to complete the return.

The taxpayers are preparing their own return (i.e.,

no preparer is involved).

The taxpayers have the necessary written

substantiation (e.g., records, receipts) to support

the transactions involved.

If any refund is due, apply it toward next year's

taxes.

The Johnsons do not wish to contribute to the

Presidential Election Campaign Fund.

Forms needed for this question:

Form 1040

Schedule A

Schedule B

Schedule C

Schedule D

Schedule E

Schedule SE

Form 6252

Form 8582

Form 8824

Form 2106

Form 8829

Form 4562