During 2016, Joseph spent $250 on safety glasses, $150 on steel toed work boots, $100 on a reflective vest to use while directing traffic, and $300 on jeans that he wears to work. He also spent $2250 on tools that he uses for work. LLL Construction gave him $1000 to use to purchase a demolition saw (not part of the $2250 spent on tools, and not included in his paycheck).

Joseph is tired of working in construction and went back to school, part time, in January. He spent $3600 on tuition to the local community college and has a 1098-T supporting that expense. He has never been enrolled in higher education prior to this time. He paid for the tuition using a student loan.

Gladys was laid off from her job on January 2, 2016 and received unemployment compensation of $12,000 during 2016.

Joseph and his family are covered under a health insurance plan provided by LLL Construction, and LLL pays $300 per month and Joseph pays $250 per month for this plan (the $250 is deducted pre-tax from Josephs paycheck). During the year, Gladys had an emergency appendectomy; the total bill was $22,500, the insurance covered $18,000 and Joseph and Gladys paid the remainder.

On September 1, 2016 Gladys took a job as a medical transcriptionist and works from home. She does her work on the dining room table. The house is 2000 square feet, and the dining room is 400 square feet. Her income and expenses follow:

Income (paid on a 1099-Misc) $19,050

Home office expenses (direct) $2600

Home office expenses (indirect, but not allocated) $12,000

Office expenses 1,380

Computer supplies 800

Telephone 300

Faxes (sent from Staples) 250

Internet service 480

In addition to the above items, Gladys incurred travel expenses to attend a seminar on medical transcription. She spent $1200 on airfare, $750 on lodging, $325 on a rental car, and $560 on meals. Gladys has documentation for these expenses.

Gladys drove her 2014 Land Rover 2,845 miles for business related purposes, and the vehicle was driven a total of 8,646 miles during the year. Gladys uses the standard mileage rates and has substantiation for the mileage.

In July, Joseph loaned a fried $5,000 to purchase a car. His friend lost his job in 2016 and has not made any payments on the loan. He plans to start making payments again, however, with additional interest as soon as he has new employment.

Joseph and Gladys paid the following in 2016 (all by check or can otherwise be substantiated):

Contributions to Flemington Perpetual Catholic Church $2600

Tuition to the Flemington Perpetual Catholic School (for Jackson) 5,000

Clothes to the Salvation Army (10 bags in good condition) 275

Contributions to George Kerrys Congressional campaign 250

Psychotherapy for Gladys 1,000

Eyeglasses for Jackson 375

Prescription medication and drugs 1,850

Credit card interest 1,345

Interest on Gladys student loans 3,125

Investment interest on stock margin account 345

Auto loan interest 900

Auto insurance 1,600

Dave Deduction, CPA, for preparation of last years tax return 200

Safe deposit rental for storage of stocks and tax data 100

Contribution to educational savings account for Jackson 1,000

Home mortgage interest 6,910

Home property (real estate) taxes 4,400

In June, a hurricane destroyed a large shed on their property. The insurance company paid $6500 to replace the shed, but Joseph built a new shed himself for $1800.

Josephs grandfather died and left a portfolio of municipal bonds. In 2016 Joseph received $20,000 in tax-free interest (ignore AMT tax calculations).

On July 14, Joseph and Gladys purchased a second house to use as a rental property. They paid $130,000 for the property (the land value, included in the $130,000, is $30,000). They collected rent of $8000 during the year, and paid real estate taxes of $2600, mortgage interest of $1600, repairs of $750, and $600 advertising the property for rent.

Joseph owned 1,000 shares of Really Huge Airline stock with a basis of $30 per share. The stock was purchased six years ago on June 10. Joseph sells 500 shares of Really Huge Airline stock to his uncle Geovanni and 500 shares to his sister Pristine for $5 per share on December 31, 2016. The market price of Really Huge Airline stock on December 31, 2016 was $35 per share.

Joseph purchased 5 acres of raw land in Speculator, NY, 10 years ago. His basis in the land was $90,000. On August 1, 2016 he sold the land for $150,000.

On May 15, 2016 Joseph and Gladys sold their personal residence for $585,150 and purchased a new house for $485,000. They had owned the old house for 5 years and Gladys had inherited it when her mother passed away. Her mother had paid $17,000 for it when she purchased it many years ago, and it had a market value of $525,000 when she passed away) The house had been their personal residence ever since Gladys mother passed away. They moved into the new house on May 18, 2016.

Joseph sold the following securities during the year and received a 1099-B that showed the following information:

Security Description Purchased Sold Selling Price Adjusted Basis

Orange Inc. 100 shares 02/11/97 04/16/16 $3,080 $4,550

Blue, Inc. 100 shares 07/17/01 07/31/16 $2,000 $3,600

Red (Preferred) 100 shares 12/08/15 09/25/2016 $8,975 $10,510

Plum (Bonds) due 4/2015 12/30/05 01/02/2016 $5,155 $5,320

Peach Mutual Fund 5,010 shares 05/30/06 10/22/2016 $60,120 $56,480

The selling price is net of sales commissions. In addition to the above amounts, the Hot Mutual Fund distributed a long-term capital gain of $450 on December 30, 2016.

To do:

Using the information above, complete the 1040 form for Joseph and Gladys including all additional forms and schedules. You may use tax software or can access the required forms on the IRS.gov website. Please use 2016 forms.