Joseph P. Smith and his wife Gladys G. Smith are married and file a joint return for 2015. Josephs social security number is 499-99-4321 and he is 44 years old. Gladys social security number is 637-44-9876 and she is 43 years old. They live at 1502 Seaman Court, Flemington, NJ 08822.

Mr. Smith is a pharmacist and he took 6 months off to care for a sick relative in 2015.

His form W-2 from the Flemington Pharmacy showed the following:

Wages $65,000

Withholding (federal) 6,000

The Smiths have a 17-year old son, Jackson, who is enrolled in the eleventh grade at Flemington Perpetual Catholic School. Jacksons social security number is 669-90-0099. The Smiths also have an 18-year old daughter, Lois, who is a part-time freshman at Oceanside Community College (OCC). Loiss social security number is 669-90-0100, and she is married to Larry Loser (social security number 664-66-6688) who is 19 years old and also a part-time student at OCC. Lois and Larry have a 1-year old son, Lucky Loser (social security number 664-66-6689). Lois, Larry and Lucky live in an apartment up the street from Joseph and Gladys. Lois and Larry work part-time and earned a combined $8500 in 2015; Joseph and Gladys pay the rent on the apartment as well as the majority of other expenses for Lois, Larry and Lucky.

Joseph and Gladys have the following investment income for 2015:

Interest from the Trustworthy Savings Bank $380

Dividends (qualified) Seaside Bank stock 900

Dividends (qualified) Seaside Gas Company stock 490

Dividends (non-qualified) Hot Mutual Fund 145

Interest on NJ State Municipal Bonds 700

Interest on Seaside Electric Company Bonds 675

Joseph went to the local casino and won $4800 playing the slot machines. This was the only time he gambled during the year, and spent (lost) $1550 that day.

One of Gladys friends died during the year and Gladys received $50,000 in life insurance proceeds.

In July, Josephs aunt died and left him a piece of real estate (undeveloped land) worth $65,000.

Five years ago, Joseph and Gladys were divorced. Joseph married Suzy Sunshine, but the marriage did not work out and they were divorced a year later. They had a child while married, Sara Sunshine (social security number 555-50-5588, age 7). Under the divorce decree, Joseph has to pay Suzy $12,600 per year until Sara reaches age 18 at which time the payment is reduced to $6000 per year. Three years ago, Joseph and Gladys were remarried.

Flemington Pharmacy pays Josephs license fees and membership dues to pharmaceutical organizations. During 2015 Flemington Pharmacy paid $1550 for these fees and dues.

Gladys was laid off from her job on January 2, 2015 and received unemployment compensation of $4255 during 2015.

Joseph and his family are covered under a health insurance plan provided by the Flemington Pharmacy. Flemington pays $700 per month and Joseph pays $100 per month for this plan. During the year, Gladys had an emergency appendectomy; the total bill was $10,500, the insurance covered $8600 and Joseph and Gladys paid the remainder.

On September 1, 2015 Gladys opened a store specializing in medical appliances and accessories. The name of the store is Flemington Medical Appliances and is located at 1204 Main Street, Flemington, NJ 08822. The store uses the cash method of accounting and is operated as a sole proprietorship. Her income and expenses for the year are as follows:

Sales of merchandise $63,400

Inventory, September 1 (purchased in August) 40,100

Inventory, December 31 38,100

Purchases during the year 37,800

Sales returns and allowances 600

Store rental 7,500

Office expense 1,380

Insurance 800

Advertising 3,100

Employee wages 3,350

Payroll and other business taxes 505

Interest on bank loan to open store 2,760

Accounting fees 310

Utilities 992

Telephone 800

Maintenance 427

Miscellaneous 65

In addition to the above items, Gladys incurred travel expenses to attend a seminar on medical appliances and accessories. She spent $500 on airfare, $750 on lodging, $225 on a rental car, and $360 on meals. Gladys has documentation for these expenses.

Gladys drove her 2012 Land Rover 2,845 miles for business related purposes, and the vehicle was driven a total of 8,646 miles during the year. Included in the 8,646 miles is 1040 miles commuting to the store. Gladys uses the standard mileage rates and has substantiation for the mileage.

In July, Joseph loaned a fried $7,000 to purchase a car. His friend lost his job in 2015 and stopped making 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 2015 (all by check or can otherwise be substantiated):

Contributions to Flemington Perpetual Catholic Church $410

Tuition to the Flemington Perpetual Catholic School (for Jackson) 6,000

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

Contributions to George Kerrys Congressional campaign 250

Psychotherapy for Gladys 2,000

Eyeglasses for Jackson 375

Prescription medication and drugs 1,850

Credit card interest 1,345

Interest on Josephs student loans 3,125

Investment interest on stock margin account 345

Auto loan interest (paid for by home equity loan on residence) 900

Auto insurance 1,600

Dave Deduction, CPA, for preparation of last years tax return 700

Safe deposit rental for storage of stocks and tax data 100

Contribution to educational savings account for Jackson 1,000

Home mortgage interest 10,910

Home property (real estate) taxes 8,400

Unreimbursed business expense (seminar on pharmaceuticals) 700

In June, Joseph purchased a new professional digital SLR camera for $6,980. While the Smiths were on vacation in August, someone broke into their residence and stole the camera. Josephs homeowners insurance did not reimburse him for any part of the loss since he declined the special premium add-on for high value items required by his policy.

Josephs grandfather died and left a portfolio of municipal bonds. In 2015 Joseph received $80,000 in tax-free interest (ignore AMT tax calculations).

On November 14, Gladys purchased the building where her store is located. She paid $230,000 for the building and $100,000 for the land the building is located on. Gladys store is the only business in the building.

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, 2015. The market price of Really Huge Airline stock on December 31, 2015 was $35 per share.

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 04/16/15 $3,080 $2,150

Blue, Inc. 100 shares 07/17/01 07/31/15 $2,000 $4,210

Red (Preferred) 100 shares 12/08/14 09/25/2015 $8,975 $10,510

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

Peach Mutual Fund 5,010 shares 05/30/06 10/22/2015 $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, 2015.

Joseph purchased 5 acres of raw land in Speculator, NY, 10 years ago. His basis in the land was $90,000. On August 1, 2015 he sold the land for $150,000 on the installment method. Joseph received $52,500 in the year of the sale, and the balance was payable at $9,750 per year for the next 10 years plus a market rate of interest.

On May 15, 2105 Joseph and Gladys sold their personal residence for $585,150 and purchased a new house for $725,000. They had owned the old house for 20 years and it had an adjusted basis of $35,075. The house had been their personal residence for all the years they were married. They moved into the new house on May 18, 2015.

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 show Schedules and forms.