I need help please I am so lost
INCOME TAX RETURN PROJECT (35 POINTS) ACCT 341 Fall 2019 Due November 25, 2019 no later than 6:00 pm in PH #233 You are a beginning tax associate at Taxxus and Taxxus LLC, 1000 Badapril Ct, Sellville, Missouri 63001 (Employer Identification Number 37-0000009). You and the firm's senior tax partner, Mortimer Taxxus IV (PTIN #P98765441) have just met with new clients, Jethro and Janice Heavho. You have collected a large amount of information regarding the Heavhos, which is detailed in the following pages. Mr. and Mrs. Heavho have given you virtually all information necessary to prepare their income tax return, but do point out that tax depreciation calculations (and $179 calculations as applicable) for Mr. and Mrs. Heavho's rental property, and Mr. Heavho's property used in his sole proprietorship, will need to be prepared by you. Neither Mr. nor Mrs. Heavho desires to contribute to the presidential election campaign. If a refund is due after completion of the tax return, the Heavhos desire to have the refund applied to their 2019 estimated tax After meeting with the Heavhos, Mortimer Taxxus IV assigns you the task of preparing their joint 2018 Form 1040, U.S. Individual Income Tax Return. He additionally has prepared a list of the forms you will likely need to complete their income tax return. These forms include the following: Form 1040 (U.S. Individual Income Tax Return) Schedule 1 (Additional Income and Adjustments to Income) Schedule 3 (Nonrefundable Credits) Schedule 4 (Other Taxes) Schedule 5 (Other Payments and Refundable Credits) Schedule A (Itemized Deductions) Schedule B (Interest and Ordinary Dividends) Schedule C (Profit or Loss from Business) Schedule D (Capital Gains and Losses) Form 8949 (Sales and Other Dispositions of Capital Assets) Schedule E (Supplemental Income and Loss) Schedule SE (Self-Employment Tax) Form 2441 (Child and Dependent Care Expenses) Form 4684 (Casualties and Thefts) Form 4797 (Sales of Business Property) Form 8863 (Education Credits) Form 4562 (Depreciation and Amortization) "PRELIMINARY" OR "REVIEW COPY" MARKINGS ON THE RETURN THAT YOU TURN IN FOR CREDIT). HAVING SUCH MARKINGS ON YOUR RETURN WILL RESULT IN A LOSS OF THREE POINTS. YOU MAY WORK INDIVIDUALLY, OR IN GROUPS OF NO MORE THAN THREE (3) INDIVIDUALS. A GROUP OF TWO OR THREE INDIVIDUALS MAY COMPLETE AND TURN-IN A TAX RETURN AS THEIR JOINT PROJECT AND THE GRADE ON THE PROJECT WILL BE IDENTICAL FOR ALL SUCH INDIVIDUALS. ALL SUCH GROUPS MUST SPECIFICALLY ATTACH A SHEET TO THE TAX RETURN INDICATING THE NAMES AND STUDENT ID NUMBERS FOR THOSE WHO WORKED ON THE RETURN. Client Background Information Jethro C. Heavho (social security number 495-77-7777) (birthdate 2.7.1964) and Janice P. Heavho (social security number 495-77-7778) (birthdate 2.26.65) are married taxpayers with good eyesight. They live at 345 Lowgrade Way, Sellville, Missouri 63002. They have two children that live with them. Klaus (social security number 495-76-7717) (birthdate 1.5.1999) is their son. He lives with them, and attends college (he is a full time student). Klaus earned $3,800 during the summer of 2018 working as a dumpster cleaner. He has no other earned or unearned income, and the Heavhos provided much more than 50% of his support for the year. Klarice (social security number 495-97-7771) (birthdate 4.12.2009) is their daughter. She is an elementary school student who lives with them. She has no earned or unearned income during the year. In January 2018, the Heavhos paid $6,800 in total tuition for Klaus to attend Smokesbury University (address of Three Smokey Way, Fireland, MO 63637; Federal ID# is 43-0013133) for the academic periods January - May, 2018 and September - December, 2018. Klaus did not receive any scholarships from Smokesbury University. This is the 15 year Klaus attended college. Klaus was required to spend $600 for books for his studies. Jethro and Janice received a Form 1098-T which indicated in Box 1) that the university received $6,800 in qualified tuition and related expenses. Personal Financial Information Employment Income Information During 2018, Mrs. Heavho was employed as a salesperson for Stuff Materials Corp. (26 Goodstuff Lane, Sellville, MO 63002: EIN: 43-9929992). Her Form W-2 for 2018 reports the following: Box #1: Box #2: Box #3: Box #4: Box #5: Box #6: Wages, tips and other compensation = $91,000 Federal income tax withheld = $5.800 Social security wages = $91,000 Social security tax withheld = $5,642 Medicare wages and tips = $91,000 Medicare tax withheld = $1,319.50 Box #16: Box #17: State wages, tips, etc. State income tax = $91,000 = $3,200 Mrs. Heavho is not covered by her employer's retirement plan. She made a $2,500 contribution to a traditional individual retirement account (IRA) and a $2,500 contribution to a Roth IRA in 2018. Mr. Heavho is a self-employed individual. He actively participates in and runs the Heavho's rental property described in "Rental Property" below) and operates Stylish Distress Products as a sole proprietorship (described in "Mr. Heavho's Sole Proprietorship Business" below). He does not maintain any type of SIMPLE or SEP plan. He contributed to $2,500 to a traditional IRA and $2,500 to a Roth IRA in 2018. The Heavhos also received a $695 federal income tax refund in 2018 when they filed their 2017 return. Personal Expense Information The Heavhos made 2018 federal estimated tax payments of $1,000 on each of April 17. June 15, and September 17, 2018, for a total of $3,000 in federal estimated tax payments in 2018. They also made state income tax payment of $550 in 2018 when they filed their 2017 Missouri state income tax return. The Heavho's incurred the following unreimbursed medical expenses in 2018: = Prescription drugs Doctor bills Hospital bills Eyeglasses $2,400 $6,650 $4,900 $ 800 The Heavhos paid their 2017 real estate property taxes on their personal residence of $2,600 on June 1, 2018. They estimate that their 2018 real estate taxes will be approximately $2,800. The Heavhos also paid $600 in real estate property taxes on some vacation property they own in Montana. In 2018, the Heavho's paid $5,820 in home mortgage interest to Sellville National Bank. On May 1, 2018, they refinanced this loan with a new bank, Bigville National Bank. They paid $2,800 (2 points) when they refinanced their home (a conventional 30-year mortgage, $140,000 secured by their home) with Bigville National Bank, and paid $3,280 in home mortgage interest to Bigville National Bank. The balance on their home mortgage was $140,000 throughout the year. The mortgage interest was provided to them on the Forms 1098 they received from the banks. The points were reported on their closing statement with Bigville National Bank. The Heavhos paid personal interest in 2018 of $1,400 to finance Mrs. Heavho's personal car (used by Mr. and Mrs. Heavho, and occasionally Klaus), and $1500 in credit card interest. State personal property taxes (based on value) on Mrs. Heavho's car, a 2012 Toyota Camry, were $650 paid in 2018. Mr. Heavho also owns a personal car, a 1989 Yugo, and state personal property taxes (based on value) on this car were $100 paid in 2018. The Heavho's gave $1,800 in cash ($150 per month) to the 19th Sellville Hooptherian Church in 2018. The church sent the Heavho's a written acknowledgement of their 2018 contributions. In 2018, The Heavhos paid a total of $1,200 to their prior income tax accountant for the preparation of their 2017 income tax return. In addition, the Heavho's paid $300 for rental of a safe deposit box where they store securities (bonds, stock certificates, etc.), and paid $475 for investment advice publications. The Heavho's daughter, Klarice, attended a child care center: Sellville Child Care Center at 6299 Selling Way, Sellville, Missouri, 63003, whose identification number is 43-0000699. The Heavhos paid $7,930 to the child care center in 2018. They did not receive any employer- provided dependent care benefits. The 2018 Casualty Losses On March 25, 2018, lightning struck Mr. Heavho's backyard man-shed and burned it to the ground. The shed was built on July 25, 2012 at a cost of $8,500. The fair market value of the shed was $12,000 at the time of the theft. The Heavho's homeowner's insurance policy did not provide coverage on the shed. Further, on May 3, 2018, the Heavhos lost their Montana vacation cabin in the Montana Flooding disaster (DR-4405) (FEMA Major Disaster Declaration on October 31, 2018). The vacation cabin, located at 7 Wilderness Way, Actona, Montana 59002, was purchased on November 6, 2006 for $55,000, and the fair market value of the vacation cabin at the time of the fire was $65,000. The Heavho's insurance policy paid $40,000 for the complete loss of the cabin. Investment Income During 2018, the Heavho's received $1,100 in interest from Sellville National Bank. They also received $800 in tax-exempt interest from municipal bonds issued by the City of Sellville. The Sellville bonds are not private activity bonds. In 2018, the Heavhos received qualified ordinary dividend income from (1) Black Inc. of $550, (2) Nojoke Capital Fund of $450, and (3) Working World Mutual Fund of $260. They also received a $400 capital gain distribution from Working World Mutual Fund. In addition, they received $1,700 in ordinary nonqualified foreign corporation dividends from Consolidated Large Company Ltd. The Heavhos have no authority over any foreign financial accounts, and have no connection with any foreign trusts. The Heavhos received Forms 1099-DIV for all their dividends received. In 2018, the Heavhos sold the following stock. They received a Form 1099-B from their online broker (TD Smalltrade; EIN #43-0089696), and thus all transactions were reported to the IRS. No tax was withheld on these transactions, and all transactions involved publicly-traded stock. For all transactions, the cost basis of the stock had previously been reported to the IRS: 1. 3/12/2018 - 100 shares of White Inc. were sold for $2,000. They were purchased on 1/12/2016 for $2,500. 2. 11/5/2018 - 500 shares of Gibbett Corp. were sold for $7,000. They were purchased on 1/5/2017 for $5,000. 3. On 12/4/2018, 200 shares of Horseland Corp. were sold for $11,000. They were purchased on 5/11/2006 for $6,000. 4. On 12/1/2018, 400 shares of Slackland Corp. were sold for $4,500. They were purchased on 12/14/2017 for $5,500. Rental Property The Heavhos own and rent a two-story commercial office building at 27 Snarkland Street, Sellville, Missouri 63002. They acquired the property on March 15, 2004 for $450,000 (excluding the cost of land), and have made no improvements to the property since then (other than routine maintenance). The office building is not used for personal purposes by any member of the Heavho family, and Mr. Heavho actively participates in the operation and rental of the property, and devotes more than 850 hours per year to this rental activity (including making most of the repairs, cleaning and maintenance). No contractors were paid with respect to this property, and no Forms 1099 need to be filed by the Heavhos. The following 2018 financial information relates to the rental property and was supplied by Mr. Heavho; however, Mr. Heavho relies on his tax accountant (that means YOU) for the depreciation number: Rental income Security deposits received = $ 39,000 4.100 $5,200 8,900 Cleaning and maintenance Mortgage interest (paid to Sellville National Bank) Repairs Advertising Insurance Real estate taxes Depreciation 2,600 1,200 1,500 2.900 Gambling Winnings and Expenses Mr. and Mrs. Heavho enjoy occasional trips to the Cardinal Casino (address is 700 Cardinal Way, Losertown, Missouri, 63001, EIN 43-9199191) located down by the river. On December 1, 2018 they won $2,900 in a bingo game. The casino reported this to the IRS and gave them a copy of a Form W-2G which reported this amount in Box 1. No income taxes were withheld from this amount. They also had gambling losses in the amount of $2,250 for the year (all losses are very well documented by Mrs. Heavho). Mr. Heavho's Sole Proprietorship Business Mr. Heavho operates Stylish Distress Products, which sells multi-colored, patterned motion distress bags at retail, as a sole proprietorship. The business address is 633 Style Pointe Drive, Largeville, MO 63003. His employer identification number is 43-6754321. The business code is 453990. Mr. Heavho maintains his inventory at cost, and he uses the accrual method of accounting for his business. Total gross receipts from the business for 2018 were $156,398, and sales returns and allowances were $1,200. The business books show the following information, however, Mr. Heavho relies on his tax accountant (that means YOU) to prepare the 2018 depreciation expense: Inventory at the beginning of the year (at cost) Merchandise purchased $27,000 $85,000 Utilities Advertising $1,800 $1,440 $23,500 Legal and accounting fees $550 $755 $560* Office expense Inventory at the end of the year Van repair and operating expenses Business credit card interest expense and fees Equipment rent expense Property repairs Taxes and licenses Labor (all contract labor, none in COGS) Insurance (fire and theft $450 $8,300 $680 Depreciation expense Business travel expense Business meals Fines and penalties Contribution to elect Joe Goodface for State Senator Supplies $550 $1920 $375 $2,550 $12,340 $1,650 $700 $230 * The van expenses of $360 include gasoline of $200, repairs and maintenance of $260, and insurance of $100. All property used in Mr. Heavho's sole proprietorship business is used 100% in the business, and he maintains a written policy that no employee or contract laborer can use any property for other than business use (including himself). He does not need to file any Forms 1099 for his business; all labor used in the business is contract labor which maintained by an outside employment firm The cost and accumulated depreciation information is listed on Mr. Heavho's schedule of property for 2017, which he furnished to you in the initial meeting and which is shown below. The van used in the business is a 2015 Chevy Econoline cargo van, with a GVWR greater than 6,000 lbs. Additionally, this van has been modified with shelves in the cargo area (no seats) and has the company logo painted on the sides. The van was driven 180 miles in 2018, and all were business miles (local deliveries). Mr. Heavho has always claimed actual automobile expenses on his tax returns with respect to the van, and has never used the standard mileage rate. Mr. Heavho paid $3,250 in premiums for health insurance coverage for himself during 2018 as the self-employed owner of Stylish Distress Products. Your tax partner, Mortimer Taxxus IV, has suggested that you review Schedule C and its instructions carefully, to determine if this is an expense of Mr. Heavho's sole proprietorship business, or if these insurance premiums are potentially deductible elsewhere on the Heavho's tax return During 2018, Mr. Heavho purchases several items of property, which he uses 100% in his business. Mr. Heavho would like to take a $179 deduction to the full extent possible. 1. On March 28, 2018, Mr. Heavho purchased new office furniture at a cost of $9,300 2. On June 10, 2018, Mr. Heavho purchased a copy machine at a cost of $3,800. On May 11, 2018, Mr. Heavho sold the plant machinery used in his business (purchased on 5/1/2007) for $11,100. In addition, on September 13, 2018, Mr. Heavho sold the office furniture used in his business (purchased on 6/15/2014) for $4,700. In prior years, Mr. Heavho has never med a $179 deduction or bonus depreciation on any of his property purchased for use in his business except for $179 on the computers in 2017. All cost and accumulated depreciation information is listed on Mr. Heavho's schedule of depreciable property for 2017. Stylish Distress Products Property Record and Tax Depreciation Schedule - Regular Tax MACRS For year ended 12/31/2017 Date Acquired 2017 Current Year) $179 2017 Depreciable Basis 2016 Prior Year Accum Depr & 5179 Unadjusted Cost Basis 2017 Current Year Depr Expense Updated Accum Depr &$179 Adj Basis 12/31/17 Description Depr Method Life Land 1/1/2001 None N/A 55,000 55,000 Building 1/1/2001 MACRS MMSL 39 185,000 185,000 75,702 3 MACRS DE/HY 7 80,445 285,00 5.8000 104,555 195,00 3,000 473 2.45 1065 75,702 3,000 Plant machinery 5/1/2007 MACRS DB/HY 7 9,800 9,800 9,800 9,800 Office copiers 16:00 - 9/15/2009 MACRS DB/HY 16 5 16:00 16,000 16,000 16,000 15,000 Plant machinery 4/30/2012 MACRS DB/HY 8,000 8,000 6,215 6,929 1,071 Office furniture 6/15/2014 MACRS DB/HY 7 7,200 7,200 4,051 899 4,951 2,249 Delivery Van 6/15/2015 MACRS DB/HY 5 43,000 43,000 22,360 8,256 30,616 12,384 Computers 4/14/2017 MACRS DB/HY 5 5,500 6,500 6,500 a 269,000 14,612 Total deduction (a+b) L 2 1,112 INCOME TAX RETURN PROJECT (35 POINTS) ACCT 341 Fall 2019 Due November 25, 2019 no later than 6:00 pm in PH #233 You are a beginning tax associate at Taxxus and Taxxus LLC, 1000 Badapril Ct, Sellville, Missouri 63001 (Employer Identification Number 37-0000009). You and the firm's senior tax partner, Mortimer Taxxus IV (PTIN #P98765441) have just met with new clients, Jethro and Janice Heavho. You have collected a large amount of information regarding the Heavhos, which is detailed in the following pages. Mr. and Mrs. Heavho have given you virtually all information necessary to prepare their income tax return, but do point out that tax depreciation calculations (and $179 calculations as applicable) for Mr. and Mrs. Heavho's rental property, and Mr. Heavho's property used in his sole proprietorship, will need to be prepared by you. Neither Mr. nor Mrs. Heavho desires to contribute to the presidential election campaign. If a refund is due after completion of the tax return, the Heavhos desire to have the refund applied to their 2019 estimated tax After meeting with the Heavhos, Mortimer Taxxus IV assigns you the task of preparing their joint 2018 Form 1040, U.S. Individual Income Tax Return. He additionally has prepared a list of the forms you will likely need to complete their income tax return. These forms include the following: Form 1040 (U.S. Individual Income Tax Return) Schedule 1 (Additional Income and Adjustments to Income) Schedule 3 (Nonrefundable Credits) Schedule 4 (Other Taxes) Schedule 5 (Other Payments and Refundable Credits) Schedule A (Itemized Deductions) Schedule B (Interest and Ordinary Dividends) Schedule C (Profit or Loss from Business) Schedule D (Capital Gains and Losses) Form 8949 (Sales and Other Dispositions of Capital Assets) Schedule E (Supplemental Income and Loss) Schedule SE (Self-Employment Tax) Form 2441 (Child and Dependent Care Expenses) Form 4684 (Casualties and Thefts) Form 4797 (Sales of Business Property) Form 8863 (Education Credits) Form 4562 (Depreciation and Amortization) "PRELIMINARY" OR "REVIEW COPY" MARKINGS ON THE RETURN THAT YOU TURN IN FOR CREDIT). HAVING SUCH MARKINGS ON YOUR RETURN WILL RESULT IN A LOSS OF THREE POINTS. YOU MAY WORK INDIVIDUALLY, OR IN GROUPS OF NO MORE THAN THREE (3) INDIVIDUALS. A GROUP OF TWO OR THREE INDIVIDUALS MAY COMPLETE AND TURN-IN A TAX RETURN AS THEIR JOINT PROJECT AND THE GRADE ON THE PROJECT WILL BE IDENTICAL FOR ALL SUCH INDIVIDUALS. ALL SUCH GROUPS MUST SPECIFICALLY ATTACH A SHEET TO THE TAX RETURN INDICATING THE NAMES AND STUDENT ID NUMBERS FOR THOSE WHO WORKED ON THE RETURN. Client Background Information Jethro C. Heavho (social security number 495-77-7777) (birthdate 2.7.1964) and Janice P. Heavho (social security number 495-77-7778) (birthdate 2.26.65) are married taxpayers with good eyesight. They live at 345 Lowgrade Way, Sellville, Missouri 63002. They have two children that live with them. Klaus (social security number 495-76-7717) (birthdate 1.5.1999) is their son. He lives with them, and attends college (he is a full time student). Klaus earned $3,800 during the summer of 2018 working as a dumpster cleaner. He has no other earned or unearned income, and the Heavhos provided much more than 50% of his support for the year. Klarice (social security number 495-97-7771) (birthdate 4.12.2009) is their daughter. She is an elementary school student who lives with them. She has no earned or unearned income during the year. In January 2018, the Heavhos paid $6,800 in total tuition for Klaus to attend Smokesbury University (address of Three Smokey Way, Fireland, MO 63637; Federal ID# is 43-0013133) for the academic periods January - May, 2018 and September - December, 2018. Klaus did not receive any scholarships from Smokesbury University. This is the 15 year Klaus attended college. Klaus was required to spend $600 for books for his studies. Jethro and Janice received a Form 1098-T which indicated in Box 1) that the university received $6,800 in qualified tuition and related expenses. Personal Financial Information Employment Income Information During 2018, Mrs. Heavho was employed as a salesperson for Stuff Materials Corp. (26 Goodstuff Lane, Sellville, MO 63002: EIN: 43-9929992). Her Form W-2 for 2018 reports the following: Box #1: Box #2: Box #3: Box #4: Box #5: Box #6: Wages, tips and other compensation = $91,000 Federal income tax withheld = $5.800 Social security wages = $91,000 Social security tax withheld = $5,642 Medicare wages and tips = $91,000 Medicare tax withheld = $1,319.50 Box #16: Box #17: State wages, tips, etc. State income tax = $91,000 = $3,200 Mrs. Heavho is not covered by her employer's retirement plan. She made a $2,500 contribution to a traditional individual retirement account (IRA) and a $2,500 contribution to a Roth IRA in 2018. Mr. Heavho is a self-employed individual. He actively participates in and runs the Heavho's rental property described in "Rental Property" below) and operates Stylish Distress Products as a sole proprietorship (described in "Mr. Heavho's Sole Proprietorship Business" below). He does not maintain any type of SIMPLE or SEP plan. He contributed to $2,500 to a traditional IRA and $2,500 to a Roth IRA in 2018. The Heavhos also received a $695 federal income tax refund in 2018 when they filed their 2017 return. Personal Expense Information The Heavhos made 2018 federal estimated tax payments of $1,000 on each of April 17. June 15, and September 17, 2018, for a total of $3,000 in federal estimated tax payments in 2018. They also made state income tax payment of $550 in 2018 when they filed their 2017 Missouri state income tax return. The Heavho's incurred the following unreimbursed medical expenses in 2018: = Prescription drugs Doctor bills Hospital bills Eyeglasses $2,400 $6,650 $4,900 $ 800 The Heavhos paid their 2017 real estate property taxes on their personal residence of $2,600 on June 1, 2018. They estimate that their 2018 real estate taxes will be approximately $2,800. The Heavhos also paid $600 in real estate property taxes on some vacation property they own in Montana. In 2018, the Heavho's paid $5,820 in home mortgage interest to Sellville National Bank. On May 1, 2018, they refinanced this loan with a new bank, Bigville National Bank. They paid $2,800 (2 points) when they refinanced their home (a conventional 30-year mortgage, $140,000 secured by their home) with Bigville National Bank, and paid $3,280 in home mortgage interest to Bigville National Bank. The balance on their home mortgage was $140,000 throughout the year. The mortgage interest was provided to them on the Forms 1098 they received from the banks. The points were reported on their closing statement with Bigville National Bank. The Heavhos paid personal interest in 2018 of $1,400 to finance Mrs. Heavho's personal car (used by Mr. and Mrs. Heavho, and occasionally Klaus), and $1500 in credit card interest. State personal property taxes (based on value) on Mrs. Heavho's car, a 2012 Toyota Camry, were $650 paid in 2018. Mr. Heavho also owns a personal car, a 1989 Yugo, and state personal property taxes (based on value) on this car were $100 paid in 2018. The Heavho's gave $1,800 in cash ($150 per month) to the 19th Sellville Hooptherian Church in 2018. The church sent the Heavho's a written acknowledgement of their 2018 contributions. In 2018, The Heavhos paid a total of $1,200 to their prior income tax accountant for the preparation of their 2017 income tax return. In addition, the Heavho's paid $300 for rental of a safe deposit box where they store securities (bonds, stock certificates, etc.), and paid $475 for investment advice publications. The Heavho's daughter, Klarice, attended a child care center: Sellville Child Care Center at 6299 Selling Way, Sellville, Missouri, 63003, whose identification number is 43-0000699. The Heavhos paid $7,930 to the child care center in 2018. They did not receive any employer- provided dependent care benefits. The 2018 Casualty Losses On March 25, 2018, lightning struck Mr. Heavho's backyard man-shed and burned it to the ground. The shed was built on July 25, 2012 at a cost of $8,500. The fair market value of the shed was $12,000 at the time of the theft. The Heavho's homeowner's insurance policy did not provide coverage on the shed. Further, on May 3, 2018, the Heavhos lost their Montana vacation cabin in the Montana Flooding disaster (DR-4405) (FEMA Major Disaster Declaration on October 31, 2018). The vacation cabin, located at 7 Wilderness Way, Actona, Montana 59002, was purchased on November 6, 2006 for $55,000, and the fair market value of the vacation cabin at the time of the fire was $65,000. The Heavho's insurance policy paid $40,000 for the complete loss of the cabin. Investment Income During 2018, the Heavho's received $1,100 in interest from Sellville National Bank. They also received $800 in tax-exempt interest from municipal bonds issued by the City of Sellville. The Sellville bonds are not private activity bonds. In 2018, the Heavhos received qualified ordinary dividend income from (1) Black Inc. of $550, (2) Nojoke Capital Fund of $450, and (3) Working World Mutual Fund of $260. They also received a $400 capital gain distribution from Working World Mutual Fund. In addition, they received $1,700 in ordinary nonqualified foreign corporation dividends from Consolidated Large Company Ltd. The Heavhos have no authority over any foreign financial accounts, and have no connection with any foreign trusts. The Heavhos received Forms 1099-DIV for all their dividends received. In 2018, the Heavhos sold the following stock. They received a Form 1099-B from their online broker (TD Smalltrade; EIN #43-0089696), and thus all transactions were reported to the IRS. No tax was withheld on these transactions, and all transactions involved publicly-traded stock. For all transactions, the cost basis of the stock had previously been reported to the IRS: 1. 3/12/2018 - 100 shares of White Inc. were sold for $2,000. They were purchased on 1/12/2016 for $2,500. 2. 11/5/2018 - 500 shares of Gibbett Corp. were sold for $7,000. They were purchased on 1/5/2017 for $5,000. 3. On 12/4/2018, 200 shares of Horseland Corp. were sold for $11,000. They were purchased on 5/11/2006 for $6,000. 4. On 12/1/2018, 400 shares of Slackland Corp. were sold for $4,500. They were purchased on 12/14/2017 for $5,500. Rental Property The Heavhos own and rent a two-story commercial office building at 27 Snarkland Street, Sellville, Missouri 63002. They acquired the property on March 15, 2004 for $450,000 (excluding the cost of land), and have made no improvements to the property since then (other than routine maintenance). The office building is not used for personal purposes by any member of the Heavho family, and Mr. Heavho actively participates in the operation and rental of the property, and devotes more than 850 hours per year to this rental activity (including making most of the repairs, cleaning and maintenance). No contractors were paid with respect to this property, and no Forms 1099 need to be filed by the Heavhos. The following 2018 financial information relates to the rental property and was supplied by Mr. Heavho; however, Mr. Heavho relies on his tax accountant (that means YOU) for the depreciation number: Rental income Security deposits received = $ 39,000 4.100 $5,200 8,900 Cleaning and maintenance Mortgage interest (paid to Sellville National Bank) Repairs Advertising Insurance Real estate taxes Depreciation 2,600 1,200 1,500 2.900 Gambling Winnings and Expenses Mr. and Mrs. Heavho enjoy occasional trips to the Cardinal Casino (address is 700 Cardinal Way, Losertown, Missouri, 63001, EIN 43-9199191) located down by the river. On December 1, 2018 they won $2,900 in a bingo game. The casino reported this to the IRS and gave them a copy of a Form W-2G which reported this amount in Box 1. No income taxes were withheld from this amount. They also had gambling losses in the amount of $2,250 for the year (all losses are very well documented by Mrs. Heavho). Mr. Heavho's Sole Proprietorship Business Mr. Heavho operates Stylish Distress Products, which sells multi-colored, patterned motion distress bags at retail, as a sole proprietorship. The business address is 633 Style Pointe Drive, Largeville, MO 63003. His employer identification number is 43-6754321. The business code is 453990. Mr. Heavho maintains his inventory at cost, and he uses the accrual method of accounting for his business. Total gross receipts from the business for 2018 were $156,398, and sales returns and allowances were $1,200. The business books show the following information, however, Mr. Heavho relies on his tax accountant (that means YOU) to prepare the 2018 depreciation expense: Inventory at the beginning of the year (at cost) Merchandise purchased $27,000 $85,000 Utilities Advertising $1,800 $1,440 $23,500 Legal and accounting fees $550 $755 $560* Office expense Inventory at the end of the year Van repair and operating expenses Business credit card interest expense and fees Equipment rent expense Property repairs Taxes and licenses Labor (all contract labor, none in COGS) Insurance (fire and theft $450 $8,300 $680 Depreciation expense Business travel expense Business meals Fines and penalties Contribution to elect Joe Goodface for State Senator Supplies $550 $1920 $375 $2,550 $12,340 $1,650 $700 $230 * The van expenses of $360 include gasoline of $200, repairs and maintenance of $260, and insurance of $100. All property used in Mr. Heavho's sole proprietorship business is used 100% in the business, and he maintains a written policy that no employee or contract laborer can use any property for other than business use (including himself). He does not need to file any Forms 1099 for his business; all labor used in the business is contract labor which maintained by an outside employment firm The cost and accumulated depreciation information is listed on Mr. Heavho's schedule of property for 2017, which he furnished to you in the initial meeting and which is shown below. The van used in the business is a 2015 Chevy Econoline cargo van, with a GVWR greater than 6,000 lbs. Additionally, this van has been modified with shelves in the cargo area (no seats) and has the company logo painted on the sides. The van was driven 180 miles in 2018, and all were business miles (local deliveries). Mr. Heavho has always claimed actual automobile expenses on his tax returns with respect to the van, and has never used the standard mileage rate. Mr. Heavho paid $3,250 in premiums for health insurance coverage for himself during 2018 as the self-employed owner of Stylish Distress Products. Your tax partner, Mortimer Taxxus IV, has suggested that you review Schedule C and its instructions carefully, to determine if this is an expense of Mr. Heavho's sole proprietorship business, or if these insurance premiums are potentially deductible elsewhere on the Heavho's tax return During 2018, Mr. Heavho purchases several items of property, which he uses 100% in his business. Mr. Heavho would like to take a $179 deduction to the full extent possible. 1. On March 28, 2018, Mr. Heavho purchased new office furniture at a cost of $9,300 2. On June 10, 2018, Mr. Heavho purchased a copy machine at a cost of $3,800. On May 11, 2018, Mr. Heavho sold the plant machinery used in his business (purchased on 5/1/2007) for $11,100. In addition, on September 13, 2018, Mr. Heavho sold the office furniture used in his business (purchased on 6/15/2014) for $4,700. In prior years, Mr. Heavho has never med a $179 deduction or bonus depreciation on any of his property purchased for use in his business except for $179 on the computers in 2017. All cost and accumulated depreciation information is listed on Mr. Heavho's schedule of depreciable property for 2017. Stylish Distress Products Property Record and Tax Depreciation Schedule - Regular Tax MACRS For year ended 12/31/2017 Date Acquired 2017 Current Year) $179 2017 Depreciable Basis 2016 Prior Year Accum Depr & 5179 Unadjusted Cost Basis 2017 Current Year Depr Expense Updated Accum Depr &$179 Adj Basis 12/31/17 Description Depr Method Life Land 1/1/2001 None N/A 55,000 55,000 Building 1/1/2001 MACRS MMSL 39 185,000 185,000 75,702 3 MACRS DE/HY 7 80,445 285,00 5.8000 104,555 195,00 3,000 473 2.45 1065 75,702 3,000 Plant machinery 5/1/2007 MACRS DB/HY 7 9,800 9,800 9,800 9,800 Office copiers 16:00 - 9/15/2009 MACRS DB/HY 16 5 16:00 16,000 16,000 16,000 15,000 Plant machinery 4/30/2012 MACRS DB/HY 8,000 8,000 6,215 6,929 1,071 Office furniture 6/15/2014 MACRS DB/HY 7 7,200 7,200 4,051 899 4,951 2,249 Delivery Van 6/15/2015 MACRS DB/HY 5 43,000 43,000 22,360 8,256 30,616 12,384 Computers 4/14/2017 MACRS DB/HY 5 5,500 6,500 6,500 a 269,000 14,612 Total deduction (a+b) L 2 1,112
