having trouble figuring out what goes on the 1040 and what goes on the schedules

TAX 4001 Spring 2016 Tax Return Assignment Due date: Tuesday 4/19/2016 at the School of Accounting Facts: Scott F. and Meegan M. Koon are married and live at 2723 Brandywine Drive, Ann Arbor, MI 48104. They file a joint return and are calendar year, cash basis taxpayers. 1. Scott is a selfemployed accountant (professional activity code is 541213). He maintains an office at 1001 Oakbrook Way, Suite 400, Ann Arbor, MI 48103. He shares the suite with several other professionals and has no employees. A receptionist handles all calls and is provided by the landlord as part of the services offered to tenants. Scott's workrelated expenses for 2015 are as follows: Office rent $9,800 Utilities 3,000 Accounting services 1,200 Office expenses (supplies, use of copier, etc.) 1,100 Legal services (see item 9. below) 300 State and local license fees 900 Renter's insurance (covers personal liability, casualty, theft) 1,500 Replacement of reception room furnishings (6/5/2015) 2,200 Professional dues and subscriptions to trade publications 600 Business lunches 1,400 Contribution to H.R. 10 (Keogh) plan 5,000 Medical insurance premiums 7,000 The business meals Scott paid for were to entertain various visiting executives from the clients he does business with. As is the case with all of Scott's business transactions, the lunches are properly documented and supported by receipts. Because the reception room furnishings were looking shabby, Scott and his suitemates had them replaced. The $2,200 Scott spent was his share (i.e., a sofa and coffee table) of the cost. Scott follows a policy of avoiding depreciation by utilizing the Section 179 election to expense assets. All of Scott's office equipment (e.g., desk, chairs, file cabinets, computer, etc.) has previously been expensed. Of 16,000 total miles in 2015, Scott drives his car (a Ford Explorer purchased on 6/1/2013) 8,400 miles for business (not including commuting) and has business parking and toll charges of $310. The Koons use the automatic mileage method of claiming automobile expenses. 2. Meegan is an occupational therapist employed on a parttime basis by Thompson Consultants, Inc. Her employer does not provide her with an office, and she has no separate office in her home. She does, however, maintain her business records at home and lists it as her business address. After receiving her assignments by phone, she drives her car a 2012 Mazda 323 (purchased on 7/1/2014 for $10,000) directly to the residence of the patient. Thompson Consultants, Inc. requires all of its therapists to wear uniforms while on duty. As Meegan is not a fulltime employee, she is not covered by her employer's health or retirement plans. Meegan's workrelated expenses for 2015 appear below: Mileage (total miles in 2015 = 12,000) 8,000 miles Professional dues and subscriptions $1,280 Continuing education programs (required to maintain license) 440 Annual license fee 180 Therapy supplies 260 Uniforms purchased (including $240 for shoes) 410 Laundering of uniforms 210 3. At a foreclosure sale on May 8, 2015, the Koons purchased a house to be held as a rental investment. The property cost $400,000 (of which $50,000 is allocated to the land) and is located at 165 Little Lake Drive, Ann Arbor, MI 48103. After making minor repairs and placing the property in service on June 1, 2015, the Koons were fortunate in that they were able to rent it immediately for $1,650 a month (payable on the first of each month). They meet the requirements of active participation. Information regarding the rental property expenses for 2015 are summarized below: Refundable damage deposit Property taxes Interest on mortgage Repairs Insurance 4,000 3,800 3,500 4,400 2,500 Street paving assessment 3,500 Although the property was rented for only seven months, in late December 2015 the tenants prepaid the January 2016 rent because they were going to be out of town on New Year's Day. The special assessment was levied by the city of Ann Arbor to resurface the street in front of the house. The Koons plan to use MACRS straightline depreciation, assuming the midmonth convention. 4. On her birthday on June 27, 2005, Meegan received as a gift from her father unimproved land located in Dumas County (TN). The land cost her father $80,000 in 1975 and had a value of $135,000 on the date of the gift. No gift tax was due as a result of the transfer. On July 15, 2015, Meegan sold the land to an adjoining property owner for $175,000. She incurred $10,500 in selling costs. 5. When Meegan's father died in 2010, he had a life insurance policy issued by John Hancock Insurance Company with a maturity value of $1,000,000. As the designated beneficiary of the policy, Meegan picked a settlement option of $215,000 annually, payable over five years. In 2015, she received a check from John Hancock for $215,000. 6. Based on a tip from a friend who is an investment adviser, on November 6, 2012, Scott purchased 15,000 shares of common stock in Turner Corporation for $14,000, a manufacturer of bicycle shocks, was experiencing financial difficulties and was contemplating bankruptcy. Nevertheless, the adviser was sure that its liquidation value would far exceed the cost of the stock. Turner went into receivership in early 2015. On August 15, 2015 the receiver indicated that investors could expect to receive $.20 on the dollar. Scott also bought 200 shares of Intel stock on January 1, 2015 for $50 per share with a brokerage fee of $100. Then, Scott sold all 200 shares for $75 per share on December 12, 2015. The brokerage fee on the sale was $150. 7. In 2015, a hitandrun driver totaled Meegan's Mazda while it was parked in front of a grocery store. Meegan did not carry comprehensive insurance for repairing her car so no insurance reimbursement was applicable. The FMV of the car before and after the incident was $9,000 and $0, respectively. Meegan claimed the casualty loss on her 2015 tax return. 8. In 2015 Scott was involved in an auto accident and received physical injuries due being hit by a drunk driver. He received $60,000 in damage payments which included $10,000 in punitive damages) 9. Scott has a 25% ownership in Gessum Company EIN 13333333, an 1120S corporation. In 2015 Gessum Company recorded gross receipts of $300,000, Cost of Goods sold of $90,000 and other expenses of $140,000. Scott made cash withdrawals during the year totaling $40,000. 10. Besides those previously noted, the Koon's had the following receipts for 2015: Payment for services rendered as an accountant (as supported on Forms 1099 issued by several payor client companies) $80,000 Therapist wages (Form W2 issued by Thompson Consultant's Inc. $42,000 A vacation package Income tax refunds for tax year 2014 Federal tax State tax Interest income City of Ann Arbor bonds Interest on SunTrust Bank CD Estate sale proceeds Loan repayment from coworker $ 8,500 $1,400 450 $1,800 3,600 $1,850 $5,400 $13,600 $20,000 The vacation package was a Christmas surprise from a former client as a way of expressing thanks for previous clients that Scott had referred. The estate sale (Note: an estate sale is like an upscale garage sale) involved mostly items that Meegan inherited from her father (e.g., boat and trailer, camper, hunting and fishing equipment). Meegan has no proof as to the cost of these assets, nor does she know their value at the time of his death (assume that all assets declined in value when comparing inherited value to proceeds from sale of each item). Three years ago, Scott had loaned a coworker, Michael, $15,000 to help start a business. No note was signed, no interest was provided for, and no due date was specified. Much to Scott's surprise, Michael repaid the loan at $20,000 in late 2015. 11. In addition to any items previously noted, the Koons had the following expenses for 2015: Medical and dental expenses not covered by Insurance $8,000 Ad valorem property tax on personal residence Interest Home mortgage Interest on home equity loan Charitable contributions Tax return preparation fee (60% relates to Scott's business) 3,800 $3,800 1,400 5,200 4,000 600 Of the $8,000 in medical expenses, $5,000 was used to pay for Nancy Koon's cosmetic surgery to smooth over her facial wrinkes. Nancy is Scott's mother who lives with them and would otherwise qualify as their dependent except for the gross income test. During 2015, Meegan borrowed $20,000 under a home equity loan arrangement. The money was used to help pay family credit card debt and to purchase jet skis for the family to enjoy on weekends. 12.Besides Nancy, the Koon's' household includes their three children: Bo, Judy, and John . All are fulltime students and live fulltime at their home. The Koon's provide more than half of their living expenses as well. Bo is very proficient with the bagpipes and during the year earned $4,400 playing at special occasions (i.e., mainly funerals). Bo is saving his earnings for college. 13.Meegan's Form W2 from Thompson Consultants, Inc. shows $2,000 withheld for Federal income tax and $941 for state income tax. Scott made equal quarterly payments of $2,600 (Federal) and $500 (state). Relevant Social Security numbers are noted below. Name Social Security Number Scott L. Koon 123456789 07/01/1967 123456782 06/27/1968 Bo Koon 123456786 04/09/1998 Judy Koon 123456783 12/06/1999 John Koon 123456781 07/29/2000 Nancy Koon 123456788 01/03/1939 Meegan S. Koon Birth Date REQUIREMENTS Prepare an income tax return by hand in blue pen (no tax software) with appropriate schedules that can be found at the IRS website (irs.gov) for the Koons for 2015. In doing this, use the following guidelines: You may complete assignment individually or in groups up to 5 people. Place all participating student names on cover sheet. Make necessary assumptions for information not given in the problem but needed to complete the return. Be aware of the possible application of certain tax credits. The taxpayers have the necessary substantiation (e.g., records, receipts) to support the transactions involved. If a refund results, the taxpayers want it sent to them. The Koons do not wish to contribute to the Presidential Election Campaign fund. In the past several years, the Koons have itemized their deductions from AGI (have not claimed the standard deduction option). Due date: The Tax Return Assignment Due on Tuesday 4/19/2016 by 4:30PM to be turned in to the School of Accounting and given to secretary. (Assignment may also be mailed to SOA but must be received by 4/19/16. If mailing please retain tracking number as proof of delivery). Please make sure that you sign the log in sheet there. Don't forget to use a cover page and put your name on the assignment. Note: Staple all pages including how you reached an amount if not obvious with backup supporting calculations referenced to the Tax Schedule and information # (i.e.112) on the assignment. Note: Maintain a copy of the tax return project for yourself prior to submission