Individual Tax Return (see module 10)

Required:

Use the following information to complete Armando and Lourdes Gonzales's 2020

federal income tax return. If any information is missing, use reasonable assumptions to

fill in the gaps.

Any required forms, schedules, and instructions can be found at the IRS website

(

www.irs.gov). The instructions can be helpful in completing the forms. You will need

the following tax forms and schedules that are accessible at irs.gov (forms and

publications).

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Form 1040, Schedules 1, 2, 3, A, B, C, D, E, SE, Forms 4562 (for dental

business), 4562, (for rental property), 4797, 8849, 8995 and 8863.

You will use Tax Act Software (see Module 12 for instructions on downloading). Tax

Act isn't compatible with Mac computers. If you have a Mac, you will have to prepare a

manual paper return. It is strongly recommended that you use Tax Act to minimize your

errors.

Submit the entire tax return as one PDF thru HCCS email to me by the due date. See the

course schedule. Late submissions will not be accepted and will result in a zero for the

assignment.

The facts are presented in chapter order. It is highly recommended that you determine

the tax effect of each factual item and input the transaction in Tax Act as soon as we

complete the relative chapter(s) to avoid end-of-the semester delays in submission.

Facts:

Chapter 4

1. Armando Z. and Lourdes K. Gonzales are married and file a joint return. Armando is

self-employed as a dentist, and Lourdes is a college professor.

2. Armando and Lourdes have three children.

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The oldest is Ricardo, who lives at home. Ricardo is a law student at the University of

Cincinnati and worked part time during the year, earning $1,500, which he spent for his

own support. Armando and Lourdes provided $6,000 toward Ricardo's support.

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They also provided over half the support of their daughter, Selena, who is a full-time

student at Edgecliff College in Cincinnati. Selena worked part time as an independent

contractor during the year, earning $3,200. Selena lived at home until she was married in

December 2020. She filed a joint return with her husband, Tony, who earned $20,000

during the year.

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Felipe is the youngest and lived in the Gonzales's home for the entire year.

3. The Gonzales's provide you with the following additional information:

The Gonzales's do not want to contribute to the presidential election campaign.

The Gonzales's live at 621 Franklin Avenue, Cincinnati, Ohio 45211.

Armando's birthday is 3/5/1968 and his Social Security number is 333-45-6666.

Lourdes's birthday is 4/24/1969 and her Social Security number is 566-77-8888.

Ricardo's birthday is 11/6/1996 and his Social Security number is 576-18-7928.

Selena's birthday is 2/1/2000 and her Social Security number is 575-92-4321.

Felipe's birthday is 12/12/2007 and his Social Security number is 613-97-8465.

The Gonzales's do not have any foreign bank accounts or trusts.

They did not buy, sell, exchange, or otherwise acquire any financial interest in a

virtual currency.

Armando and Lourdes received

Chapters 5 and 7

4. Lourdes is a lecturer at Xavier University in Cincinnati, where she earned $30,000. The

university withheld federal income tax of $3,375, state income tax of $900, Cincinnati

city income tax of $375, $1,860 of Social Security tax, and $435 of Medicare tax. She

also worked part of the year for Delta Airlines. Delta paid her $10,000 in salary, and

withheld federal income tax of $1,125, state income tax of $300, Cincinnati city income

tax of $125, Social Security tax of $620, and Medicare tax of $145.

5. The Gonzales's received $800 of interest from State Savings Bank on a joint account.

6. They received interest of $1,000 on City of Cincinnati bonds they bought in January with

the proceeds of a loan from Third National Bank of Cincinnati. They paid interest of

$1,100 on the loan.

7. Armando received a dividend of $540 on General Bicycle Corporation stock he owns.

8. Lourdes received a dividend of $390 on Acme Clothing Corporation stock she owns.

9. Armando and Lourdes received a dividend of $865 on jointly owned stock in Maple

Company. All of the dividends received in 2020 are qualified dividends.

10. The Gonzales's sold 200 shares of Capp Corporation stock on September 3, 2020, for $42

a share (minus a $50 commission). The Gonzales's received the stock from Armando's

father on June 25, 1993, as a wedding present. Armando's father originally purchased the

stock for $10 per share on January 1, 1971. The stock was valued at $14.50 per share on

the date of the gift. No gift tax was paid on the gift. The sale was reported to the taxpayer

and the IRS on Form 1099-B.

Chapter 6

11. Armando and Lourdes have given you a file containing the following receipts for

expenditures during the year:

Prescription medicine and drugs (net of insurance reimbursement)

$ 376

Doctor and hospital bills (net of insurance reimbursement)

2,468

Penalty for underpayment of last year's state income tax

15

Real estate taxes on personal residence

4,762

Interest on home mortgage (paid to Home State Savings & Loan)

8,250

Interest on credit cards (consumer purchases)

595

Cash contribution to St. Matthew's church

9,080

Payroll deductions for Lourdes's contributions to the United Way

150

Allowable itemized deductions will be reported on Form 1040 Schedule

A.

Chapter 8

12. Armando and Lourdes paid $4,000 for Ricardo's tuition to attend law school during

2020. Ricardo received a Form 1098-T for the year 2020 from the University of

Cincinnati, 123 Oak St., Cincinnati, Ohio, 45211, EIN 74-1234567. Ricardo was a full-

time student earning a law degree. He already completed a 4-year undergraduate degree

in Political science. He has never been convicted of a felony. The Gonzales's would like

to claim the educational benefits on Form 8863.

13. The Gonzales's made timely estimated federal income tax payments of $1,500 each

quarter during 2020 but the fourth-quarter payment was made on December 31, 2020.

They also made estimated state income tax payments of $300 each quarter and estimated

city income tax payments of $160 each quarter. They would like to receive a refund for

any overpayments.

14. Armando is subject to the self-employment tax on his schedule C net profit. Form 1040

Schedule SE is used to compute the self-employment tax.

Chapter 9

15. Armando practices under the name "Armando Z. Gonzales, DDS." His business is

located at 645 West Avenue, Cincinnati, Ohio 45211, and his employer identification

number is 01-2222222. Also, the business income and deductions will be reported on the

Form 1040 Schedule C. The business code number is 621210. He didn't make any

payments in 2020 that would require him to file Form(s) 1099. Armando's gross receipts

during the year were $111,000. Armando uses the cash method of accounting for his

business. Armando's business expenses are as follows:

Advertising

$ 1,200

Professional dues

490

Professional journals

360

Contributions to employee benefit plans

2,000

Malpractice insurance

3,200

Fine for overbilling State of Ohio for work performed on welfare patient

5,000

Insurance on office contents

720

Interest on money borrowed to refurbish office

600

Accounting services

2,100

Miscellaneous office expense

388

Office rent

12,000

Dental supplies

7,672

Utilities and telephone

3,360

Wages

30,000

Payroll taxes

2,400

16. Armando's dental practice qualifies for the Qualified Business Income Deduction as

computed on Form 8995.

17. The Gonzales's filed their 2019 federal, state, and local returns on April 12, 2020. They

paid the following additional 2019 taxes with their returns: federal income taxes of $630,

state income taxes of $250, and city income taxes of $75.

Chapter 10

18. In June, Armando decided to refurbish his office. This project was completed and the

assets placed in service on July 1. Armando's expenditures included $8,000 for new

office furniture, $6,000 for new dental equipment (seven-year recovery period), and

$2,000 for a new computer. Armando elected to compute his cost recovery allowance

using MACRS. He did not elect to use 179 immediate expensing but wishes to claim

any available bonus depreciation. He will use the Form 4562.

Chapters 6, 10, and 11

19. Lourdes's mother, Maria, died on July 2, 2015, leaving Lourdes her entire estate.

Included in the estate was Maria's residence (325 Oak Street, Cincinnati, Ohio 45211).

Maria's basis in the residence was $30,000. The fair market value of the residence on

July 2, 2015, was $155,000. The property was distributed to Lourdes on January 1, 2016.

The Gonzales's have held the property as rental property and have managed it

themselves. From 2016 until June 30, 2020, they rented the house to the same tenant.

The tenant was transferred to a branch office in California and moved out at the end of

June. Since they did not want to bother finding a new tenant, Armando and Lourdes sold

the house on June 30, 2020. They received $140,000 for the house and land ($15,000 for

the land and $125,000 for the house), less a 6 percent commission charged by the broker.

They had depreciated the house using the MACRS rules and conventions applicable to

residential real estate. To compute depreciation on the house, the Gonzales's had

allocated $15,000 of the property's basis to the land on which the house is located. The

sale of the residential rental property will be reported on Form 4797. The Gonzales's

collected rent of $1,000 a month during the six months the house was occupied during the

year. You may assume that the rental activity is considered an investment activity (not a

trade or business) and does not qualify for the Qualified Business Income Deduction.

The form 1040 Schedule E is used to report the income and deductions. They incurred

the following related expenses during this period:

Property insurance

$500

Property taxes

800

Maintenance

465

Depreciation (to be computed)

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