Jorge Lopez age 44 (SSN 111-11-1111) and his wife Margarita Lopez age 42 (SSN 111-22-2222) live at 145 Gulf View Drive, Palm View, FL 34221. The Lopez have a daughter Amanda (SSN 111- 33-3333), age 20 and a son Max, age 10 (SSN 111-44-4444). In addition, they provide 100% of the support for Jorge's mother Celia (SSN 112-11-1111) who is a resident of Mexico. Amanda is a single full-time college student at FSU; she is now enrolled in her first year of law school, which she began in August of 2020. Amanda worked during the summer as a lifeguard for Lifeguards R Us at the Palm View Beach. She was able to work on her tan as well as earn $5,250, for which she received a W-2 and had no federal income taxes withheld. Amanda completed her undergraduate studies in May of 2020 also at FSU, earning her bachelor's in Psychology. Amanda also had the following sources of income: $300 of interest income and $500 of qualified dividend income. The Palm View Bar Association awarded Amanda a $2,500 per semester scholarship assuming she maintains a high GPA in law school. Amanda applied the scholarship to her tuition. Jorge and Margarita help Amanda during the school year by paying her room $7,000, board $2,500 and tuition $15,000 ($3,000 for undergraduate studies and $12,000, for law school.) Jorge and Margarita provide more than 50% of Amanda's support for the year. Max is enrolled in an after-school program for 10 months of the year at a cost of $250 a month at Palm Youth Program (FEI# 11-8989898 123 Main Street Palm View FL 34221). During school summer and winter breaks he attends a day camp offered by the same youth program for a total cost of $1,800. Max attends St Mary's Parochial School where the tuition is $ 400 per month for 10 months, for "active parishioners" (those who donate a minimum of $2,000 per year to St Mary's Church.) For non-parishioners the tuition is $650 per month. Jorge Lopez worked as a Sales Executive for Smiley Inc. (FEI 34-9876543 located at 123 Corporate Drive, Chicago, II 60606) He received a salary and bonuses totaling gross wages of $150,000 (withholdings include $19,700 of federal income tax, social security of $8,537.4 and Medicare of $2,175). Additionally, Smiley provides Jorge with a retirement plan and medical insurance worth $8,400; the entire family is covered under this policy. Margarita is a sole practitioner; her business is not a "specified trade or business." She along with her 2 part-time employees sews custom wedding dresses from the detached garage at the home under the label Daisy Couture (EIN 59-1234567). The garage is 15% of the house's total square footage of 3,500. The business code is 315240. She had the following income and expenses: Gross Revenue Cost of materials (material, thread, etc.) Wages (including all payroll taxes required) Website & Domain Business telephone $142,000 30,000 45,000 800. 1,000. The Lopez home cost a total of $575,000, of which the cost of the land was $75,000. The current FMV of the house is $850,000 and the FMV in January 2014 was $685,000. The garage as a workspace is depreciable under MACRS using the mid-month convention. They purchased the home in June of 2012 and Margarita began her business in January of 2014. They spent an additional $32,000 in 2014 to remodel the garage to create a separate workroom as well as 3 dressing rooms and an area to meet with prospective brides and their entourage. It was placed in service on 6/1/2014. In addition, Daisy Couture purchased 3 sewing machines in 2015 for $4,200 each as well as computer equipment for $4,000. She has not taken Sec 179 nor bonus depreciation in the past. During the current year, an additional specialized sewing machine for working with lace was purchased for $8,000 on April 1. The Lopez incurred the following other income and expenses: Total Expenses related to the Principal Residence: Utility bills Real Estate taxes Mortgage interest Homeowner's Insurance Eyeglasses and exam for Margarita (unreimbursed by insurance) Braces for Max (unreimbursed by insurance) Cash contribution to Mayor Crawley's Re-election Campaign Cash contribution to St Mary's Church Sales tax on purchases (nonbusiness) Dividends from 3G stock Interest from City of Tampa bonds Interest from savings account $4,600 4,300 6,800 1,900 600 10,000 500 3,000 4,700 1,000 700 110 During the year the following events also occurred: a. During the year on October 1, Margarita's great aunt Consuelo died. Jorge and Margarita received $100,000 from the life insurance policy. Neither Jorge nor Margarita paid any of the premiums. b. In addition to the life insurance, Consuelo bequeathed to Margarita her collection of antique fans. Consuelo had started the collection as a child and her basis in the fans, was $ 750, the FMV of the fans at the date of Consuelo's death was $10,000. Margarita sold them to a collector on December 30 for $12,800. c. Jorge enjoys playing the drums and plays in a band on weekends. His band, Las Cucarachas has developed a local following and they decided to try recording some original music. The recording was completed in October of this past year. His share of the gross revenue was $1,600 for playing shows and $150 of recording sales. His share of the expenses are as follows: Studio Rental Recording production New drums and drumsticks Website Printing Flyers $1,500 1,000 400 200 350 d. Jorge and Margarita had purchased a plot of land in North Carolina in 2015 for $25,000. This year on June 7h they sold the property for $110,000, to an unrelated third party. $5,000 in selling expense was part of the closing costs paid by the Lopez. In accordance with the agreement, the buyers paid a deposit of $30,000 at closing and agreed to pay $20,000 plus 5% interest each year for the next four years. e. The Lopez had the following sales activity in their E-Trade brokerage account during the year (all transactions were reported on a Form 1099-B. Basis information on each stock was reported to the IRS): Description Date Basis Date Sold Amount Purchased Realized 2,000 shares of Microsoft 1/18/2020 $22,000 8/1 $27,500 125 shares of Apple Inc. 5/18/2005 15,000 8/1 32,000 150 shares of Visa 6/15/2011 18,000 8/1 24,000 1,000 shares of Cardinal 5/15/2016 23,000 8/1 28,000 250 shares of 3G 6/17/2013 14,000 8/1 12,500 Additional Info: The Lopez's hove o $12,000 long-term capital loss corryover from the prior tax year. Both basis and amount realized include all brokerage fees. f. On September 1 of this year, the Lopez's purchased a 2-bedroom condo in Breckenridge, CO. This property is held as a rental investment. The property cost $465,000 (of which $50,000 is allocated to land and $15,000 to the furniture and fixtures) and is located on 1234 Ski Runway, Breckenridge, CO 80424. The family resided in the home for personal recreation for 25 days and rented the condo for 75 days during 2020. $25,000 in gross rental receipts was collected in 2020, which included $4,600 that was received in advance for the 2021 ski season. They will use the IRS Method when allocating the rental expenses and MACRS mid-month convention for calculating depreciation. They pay a rental management company to handle all aspects of renting and care for the property. Additional information regarding the property are summarized below: Description Amount Property Taxes (allocated for the portion of year) $3,000 Interest on mortgage 3,200 Repairs 1,500 Condo Maintenance Fees 4,000 Insurance (allocated for the portion of year) 600 Utilities 1,200 Management Fee paid to rental management company 4,400 g. During the year Margarita contributed $3,000 to an IRA for 2020. h. Margarita purchased an annuity in 2016 and invested $36,000 and receives $4,000 yearly over a 12-year period. She received a $4,000 payment in December of this year. i. The Lopez total federal income tax bill for 2019 was $20,500 and they made timely quarterly estimated payments for 2020 of $3,600 per quarter. j. Additional information about the Lopez family. If a refund results, the taxpayers want a check sent to them. They do not wish to contribute to the Presidential Election Campaign fund. The Lopez did not own, control or manage any foreign bank accounts nor were they grantors or beneficiaries of a foreign trust during the tax year, They did not acquire, sell or exchange virtual currency. o They do not elect to defer any taxes pursuant to the CARES Act. 5 Required: Prepare the 2020 ederal income tax returns, including all required forms and schedules, as needed for all members of the Lopez family. Remember that they have hired you prepare their return correctly while minimizing their current tax liability, Any decisions, assumptions position you take should be defensible and have tax savings for the client at their core. Throughout the return you will see instances where a line on the 1040, indicates to allach either a schedule or a specific form. You should review the information and instructions to determine and if required include it as part of a completed return. You can ignore the requirement to attach a W-2. When the form contains the phrase (attach schedule), without identifying a specific form or schedule, this indicates that the amount on the form needs to be further detailed but there is no specific form on which to do so. In these cases, you should prepare a schedule that does so, such as in the following example: Professional Fees $1,200 Auto expenses 300 Miscellaneous 120 Total, Form 1040, Schedule A, line 11 $1,620 Be sure to attach a list and explanations of any positions, assumptions or conclusions that you made in the preparation of the return. These will assist in the grading of the return and would be part of the expectations at a firm to be included in the client file for the reviewer. 6 Jorge Lopez age 44 (SSN 111-11-1111) and his wife Margarita Lopez age 42 (SSN 111-22-2222) live at 145 Gulf View Drive, Palm View, FL 34221. The Lopez have a daughter Amanda (SSN 111- 33-3333), age 20 and a son Max, age 10 (SSN 111-44-4444). In addition, they provide 100% of the support for Jorge's mother Celia (SSN 112-11-1111) who is a resident of Mexico. Amanda is a single full-time college student at FSU; she is now enrolled in her first year of law school, which she began in August of 2020. Amanda worked during the summer as a lifeguard for Lifeguards R Us at the Palm View Beach. She was able to work on her tan as well as earn $5,250, for which she received a W-2 and had no federal income taxes withheld. Amanda completed her undergraduate studies in May of 2020 also at FSU, earning her bachelor's in Psychology. Amanda also had the following sources of income: $300 of interest income and $500 of qualified dividend income. The Palm View Bar Association awarded Amanda a $2,500 per semester scholarship assuming she maintains a high GPA in law school. Amanda applied the scholarship to her tuition. Jorge and Margarita help Amanda during the school year by paying her room $7,000, board $2,500 and tuition $15,000 ($3,000 for undergraduate studies and $12,000, for law school.) Jorge and Margarita provide more than 50% of Amanda's support for the year. Max is enrolled in an after-school program for 10 months of the year at a cost of $250 a month at Palm Youth Program (FEI# 11-8989898 123 Main Street Palm View FL 34221). During school summer and winter breaks he attends a day camp offered by the same youth program for a total cost of $1,800. Max attends St Mary's Parochial School where the tuition is $ 400 per month for 10 months, for "active parishioners" (those who donate a minimum of $2,000 per year to St Mary's Church.) For non-parishioners the tuition is $650 per month. Jorge Lopez worked as a Sales Executive for Smiley Inc. (FEI 34-9876543 located at 123 Corporate Drive, Chicago, II 60606) He received a salary and bonuses totaling gross wages of $150,000 (withholdings include $19,700 of federal income tax, social security of $8,537.4 and Medicare of $2,175). Additionally, Smiley provides Jorge with a retirement plan and medical insurance worth $8,400; the entire family is covered under this policy. Margarita is a sole practitioner; her business is not a "specified trade or business." She along with her 2 part-time employees sews custom wedding dresses from the detached garage at the home under the label Daisy Couture (EIN 59-1234567). The garage is 15% of the house's total square footage of 3,500. The business code is 315240. She had the following income and expenses: Gross Revenue Cost of materials (material, thread, etc.) Wages (including all payroll taxes required) Website & Domain Business telephone $142,000 30,000 45,000 800. 1,000. The Lopez home cost a total of $575,000, of which the cost of the land was $75,000. The current FMV of the house is $850,000 and the FMV in January 2014 was $685,000. The garage as a workspace is depreciable under MACRS using the mid-month convention. They purchased the home in June of 2012 and Margarita began her business in January of 2014. They spent an additional $32,000 in 2014 to remodel the garage to create a separate workroom as well as 3 dressing rooms and an area to meet with prospective brides and their entourage. It was placed in service on 6/1/2014. In addition, Daisy Couture purchased 3 sewing machines in 2015 for $4,200 each as well as computer equipment for $4,000. She has not taken Sec 179 nor bonus depreciation in the past. During the current year, an additional specialized sewing machine for working with lace was purchased for $8,000 on April 1. The Lopez incurred the following other income and expenses: Total Expenses related to the Principal Residence: Utility bills Real Estate taxes Mortgage interest Homeowner's Insurance Eyeglasses and exam for Margarita (unreimbursed by insurance) Braces for Max (unreimbursed by insurance) Cash contribution to Mayor Crawley's Re-election Campaign Cash contribution to St Mary's Church Sales tax on purchases (nonbusiness) Dividends from 3G stock Interest from City of Tampa bonds Interest from savings account $4,600 4,300 6,800 1,900 600 10,000 500 3,000 4,700 1,000 700 110 During the year the following events also occurred: a. During the year on October 1, Margarita's great aunt Consuelo died. Jorge and Margarita received $100,000 from the life insurance policy. Neither Jorge nor Margarita paid any of the premiums. b. In addition to the life insurance, Consuelo bequeathed to Margarita her collection of antique fans. Consuelo had started the collection as a child and her basis in the fans, was $ 750, the FMV of the fans at the date of Consuelo's death was $10,000. Margarita sold them to a collector on December 30 for $12,800. c. Jorge enjoys playing the drums and plays in a band on weekends. His band, Las Cucarachas has developed a local following and they decided to try recording some original music. The recording was completed in October of this past year. His share of the gross revenue was $1,600 for playing shows and $150 of recording sales. His share of the expenses are as follows: Studio Rental Recording production New drums and drumsticks Website Printing Flyers $1,500 1,000 400 200 350 d. Jorge and Margarita had purchased a plot of land in North Carolina in 2015 for $25,000. This year on June 7h they sold the property for $110,000, to an unrelated third party. $5,000 in selling expense was part of the closing costs paid by the Lopez. In accordance with the agreement, the buyers paid a deposit of $30,000 at closing and agreed to pay $20,000 plus 5% interest each year for the next four years. e. The Lopez had the following sales activity in their E-Trade brokerage account during the year (all transactions were reported on a Form 1099-B. Basis information on each stock was reported to the IRS): Description Date Basis Date Sold Amount Purchased Realized 2,000 shares of Microsoft 1/18/2020 $22,000 8/1 $27,500 125 shares of Apple Inc. 5/18/2005 15,000 8/1 32,000 150 shares of Visa 6/15/2011 18,000 8/1 24,000 1,000 shares of Cardinal 5/15/2016 23,000 8/1 28,000 250 shares of 3G 6/17/2013 14,000 8/1 12,500 Additional Info: The Lopez's hove o $12,000 long-term capital loss corryover from the prior tax year. Both basis and amount realized include all brokerage fees. f. On September 1 of this year, the Lopez's purchased a 2-bedroom condo in Breckenridge, CO. This property is held as a rental investment. The property cost $465,000 (of which $50,000 is allocated to land and $15,000 to the furniture and fixtures) and is located on 1234 Ski Runway, Breckenridge, CO 80424. The family resided in the home for personal recreation for 25 days and rented the condo for 75 days during 2020. $25,000 in gross rental receipts was collected in 2020, which included $4,600 that was received in advance for the 2021 ski season. They will use the IRS Method when allocating the rental expenses and MACRS mid-month convention for calculating depreciation. They pay a rental management company to handle all aspects of renting and care for the property. Additional information regarding the property are summarized below: Description Amount Property Taxes (allocated for the portion of year) $3,000 Interest on mortgage 3,200 Repairs 1,500 Condo Maintenance Fees 4,000 Insurance (allocated for the portion of year) 600 Utilities 1,200 Management Fee paid to rental management company 4,400 g. During the year Margarita contributed $3,000 to an IRA for 2020. h. Margarita purchased an annuity in 2016 and invested $36,000 and receives $4,000 yearly over a 12-year period. She received a $4,000 payment in December of this year. i. The Lopez total federal income tax bill for 2019 was $20,500 and they made timely quarterly estimated payments for 2020 of $3,600 per quarter. j. Additional information about the Lopez family. If a refund results, the taxpayers want a check sent to them. They do not wish to contribute to the Presidential Election Campaign fund. The Lopez did not own, control or manage any foreign bank accounts nor were they grantors or beneficiaries of a foreign trust during the tax year, They did not acquire, sell or exchange virtual currency. o They do not elect to defer any taxes pursuant to the CARES Act. 5 Required: Prepare the 2020 ederal income tax returns, including all required forms and schedules, as needed for all members of the Lopez family. Remember that they have hired you prepare their return correctly while minimizing their current tax liability, Any decisions, assumptions position you take should be defensible and have tax savings for the client at their core. Throughout the return you will see instances where a line on the 1040, indicates to allach either a schedule or a specific form. You should review the information and instructions to determine and if required include it as part of a completed return. You can ignore the requirement to attach a W-2. When the form contains the phrase (attach schedule), without identifying a specific form or schedule, this indicates that the amount on the form needs to be further detailed but there is no specific form on which to do so. In these cases, you should prepare a schedule that does so, such as in the following example: Professional Fees $1,200 Auto expenses 300 Miscellaneous 120 Total, Form 1040, Schedule A, line 11 $1,620 Be sure to attach a list and explanations of any positions, assumptions or conclusions that you made in the preparation of the return. These will assist in the grading of the return and would be part of the expectations at a firm to be included in the client file for the reviewer. 6