OBLEM 1-INDIVIDUALS (FORM 1040) Doger R. and Michelle N Stewart Cages 45 and 16) are married and line 61 Cody Way WY 82609. Roger is a consulting engineer, and Michelle is a paralegal. They file return and use the cash basis for tax purposes Casper, WY 82609. Rog 7 proconnect. 1. Trained as a mining engineer, Roger has developed considerable expertise in the treatment and disposition of waste material. He is also well versed in the Federal and state requirements for land reclamation projects: Roger operates a consulting business through which he advises clients on these matters. Roger's business activity code is 541990. Most of his clients are small and medium-size mine owners/operators located in Wyoming and contiguotis states (eg. Montana, Idaho, Utah). Usually, Roger is retained by a client on a contract fee basis and is reimbursed for all out-of-pocket expenses. In performing his services, Roger usually visits the job site and later submits his recommendations in a written report along with a statement for his services and expenses. Roger received the following amounts from his consulting business in 2018 Fees for services rendered Expense reimbursements: $ 92,800 Airfare $8,200 6,100 using 5.200 T p ortation (taxis, airport limos, car rentals) 920 Subtotal for expense reimbursement 20420 Total received $113.220 2. Roger also provided services for the following companies from his office, there fore, there are no travel expenses. These fees are not included in the receipts listed in item 1 above. $5.100 Echo Mining: Work done in December 2018 payment received January 2019 4400 Sesa Mining: Work done in December 2017: payment received January 2018 3.700 Cormorant Mining: Work done in March 2018; no payment received to date Since Cormorant Mining is currently in bankruptcy, Roger does not expect to collect any of this fee. NDIX E Practice Set Assignments---Comprehensive Tax Return Problems 3. Other expenses paid by Roger in 2018 relating to his practice are as fol 59.000 3.809 3.200 Contribution to HR10 Keogh retirement plan Premiums on medical insurance covering sell spouse, and dependents) Supplies-landscape models purchased from topographer for projects Advertising in trade journals Omice expense Business phone and internet service State occupation license Subscriptions to trade journals Membership dues to trade associations Roger operates his consulting business out of an office in his home. The cent of the 3,000-square-foot living area is devoted to the office. Roger Inh wenty per the home on Cody Way from his father who died on June 6, 2011. At that the home had a fair market value of $100.000 ($10,000 of which was alloc to the land). The Stewarts mowed into the home in autumn of 2011, and immediately set up his home office. The home's current fair market value $500,000 ($50,000 allocated to the land). County and records reflect that Roger father bought the land in 1972 for $6,000 and built the house in 1976 at a cost of $60,000. Roger depreciates the business use of his home using MACRS. Additional 2018 costs related to the home are as follows 54,800 Utilities Repairs and maintenance Insurance 2.900 2.300 The 2018 property taxes and mortgage interest are listed in item 15. In addi tion to the repairs and maintenance noted above, Roger had the office repainted at a total cost of $1,200 Over the vears, Roger has properly deducted the cost of all the furniture and equipment used in t he cither as $ 179 expense or bonus depreciation in the year those placed rice. On March 5, 2018, Roger purchased a heavy-duty in th e ir with security-vault features for $4,800. He made the custo d and maintain the privacy of client data. Con- sistent with past years are clers to avoid capitalizing and depreciating the cabinet if the law allows 5. On February 1, 2017 Roger paid $41.000 (including sales tax) for an Infiniti crossover SUV (gross weight under 6,000 pounds). No trade-in was involved, and he did not claim any $ 179 expense or bonus depreciation on the cost last year Under the actual operating cost method, he depreciates the SUV using MACRS (Hint: See Table 3 in the instructions to Form 4562.) His operating expenses for the Infiniti for 2018 are as follows: Gasoline $3,300 Auto insurance 1,600 Repairs 240 Auto club dues Oil changes and lubrication 120 License and registration Roger drove the Infiniti a total of 14.500 miles durine 2018 13.050 of whe were driven for business purposes. During business use, Roger received the moving traffic violations for which he paid $680 in fines. He also incurred to and parking charges of $440. le is a licensed panel and is employed a partire b y se Winthe duch o three days a week. She come to work in the family Suban a total of 15 miles and paid parking fees 3310 2011 caring and related expenses are mained as follo Combined wages from three emplo Subscriptions and dues to professional organisations Continuing education correspondence cours Occupational license fee Since Michelle is a part-time employee, berm e rs do not cover be ob ed expenses. The correspondence coir i dontinuing education so she can retain her license, Michelle is thinking about applying to law school which would require her to sit for the LSAT Tam Thu 18 she went 5350 on an LSAT preparation course Because Michelle is a part-time employee, she is not covered by any of bet employers' medical or retirement plans. During 2015, she contributed $5.500 10 traditional IRA that she had established several years ago. The Stewart use be automatic mileage method to calculate any doctiss to which they are entitled for use of the Suburban. with funds received from the settlement of his father's estate, Roger purchased rental property at 620 Cottonwood Lane of the $250.000 purchase price $20.000 was allocated to the land. After an $80.000 renovation to the house (es. replaced the rool, installed new flooring throughout the house, and installed a new furnace), the property was rented beginning February 1, 2012. In 2016, the Stewarts decided their investment would be moee marketable if the house was fully furnished. Consequently, they spent $38.000 on new furniture, drapes, and appliances. All of the furnishings were placed in service May 1, 2016. The Siew- arts did not claim $ 179 expense or bonus depreciation for the year those assets were placed in service. Under the current lease agreement, the property rents for $2,200 a month. Rent is due the first day of each month. Utilities are not included in the rent. Information regarding the property for 2018 is as follows: 528 600 Rent recen 3,100 Property alty insurance premiums paid 2400 Property See paid 1.200 Yard maintanance paid Repairs The rent received includes $2,200 for January 2019. The tenants prepaid the rent in mid-December because they went on vacation during the Christmas/New Year holidays. In addition to the property taxes listed above, Roger paid a special tax assessment of $1,300 to the City of Casper for repaving the street in front of the property. The Stewarts use MACRS to depreciate the rental home and the furnishings within it. 8 The Stewarts acquired 1,000 shares of common stock in Cormorant Mining on March 7. 2017 to hold for investment purposes. Roger performed services for the company in late 2016, submitting a bill for $3.900. Because Cormorant was expe riencing cash flow problems at the time, Roger accepted the stock as payment for his services. Unfortunately, Cormorant is currently in bankruptcy (see item 2 above). In late 2018. the bankruptcy judge announced that creditors will receive a fraction of what they are owed and shareholders will recover nothing with respect to their equity investments in the company. The stock is not publicly traded. ortunately, woy judge anders will PENDIX E Practice Set A d v e taxeturn Problem 9. On March 10 100 father gave the Stewarts a plot of land be Teton County as an anniversary gift. It had a value of $150.000 at the gift, and not tax was required to be paid on the transfer. The band be purchased by Rope's father on June 1, 1987, for $50,00). In December 2013 real estate developer contacted the Stewarts and made an offer to buy the city. After contrahentations, the Stewarts agreed to transfer the in return for S000 in cash and four city lots in Laramie (WY) worth $702 from the developer The Stewarts considered the city lots to be a good in ment because they are located in a part of the city that is experiencing sign growth. The exchange curred on March 4, 2018. The real estate develop for all closing costs and legal fees related to the exchange 10. Roger inherited an antique gun collection from his father when he died. Although Roger has no idea what his father's cost basis was in these guns, the collection had a date-of-death value of $22,000. Concerned about the maintenance and security of the collection, Roger sold it to a dealer for $29.000 on July 10, 2018 11. On July 12, 2004, using $50,000 of funds she had received from an aunt's life insurance policy, Michelle purchased grazing land in Converse County (WY). On August 2. 2017, she sold the land to a local rancher for $75.000. Under the terms of the sale, Michelle received a down payment of $15,000 and 10 annual notes of $6,000 each, Michelle will also receive simple interest of 8% on the outstand ing principal balance each year. Michelle negotiated the 8% interest rate since she is taking on the risk of financing this acquisition for the rancher, Michelle collected $10.800 on August 2, 2018, from the rancher: $6,000 on the note and interest of $4,800. 12. The Stewarts had several Schedule D transactions during 2017 that netted to a short-term capital loss of $7,000 of this loss, $3,000 was deducted in 2017, and $4,000 carried over to 2018 13. Vivian Olson, Michelle's widowed mother, has lived with the Stewarts for several years and has been claimed by them as a dependent. On December 30, 2017. Vivian suffered a heart attack. After a few days in the ICU of a local hospital, Vivian died on January 5, 2018. In early February 2018, the Stewarts paid the following expenses related to Vivian Burial expenses Medical expenses incurred in 2017 Medical expenses incurred in 2012 not covered by Med Remainder of church pledge for 2018 $17.400 2.800 6,500 900 Besides personal and household effects, Vivian's major asset was a life insur- ance policy. As the sole beneficiary of the policy, Michelle received $45,000 of death benefits on March 30, 2018 14. In addition to the items already noted, the Stewarts had the following receipts during 2018: $1,900 1,100 Interest income City of Cheyenne general purpose bonds Certificate of deposit at Wells Fargo Bank Money market account at Bank of America Yard sale proceeds Qualified dividends on Meadowlark Corporation common stock Jury duty pay 950 700 420 At their yard sale, the Stewarts sold used furniture, books, toys, and other household goods having an estimated original cost of $1,800. In connection with her jury duty assignment in June, Michelle drove the Suburban 40 miles and incurred expenses of $30 for parking and $45 for meals. APPENDIXE Partic on to the items already noted, the Stewart had the o In addition to ures for 2018: a ment n espen ewidental bills for the Stewarts other than those relating to Medical and dental bill Vivian, see item 13) Charitable contributions (not inclus rable contributions that including Vivian's pledge sem valorem property taxes on personal residen home equity loan used to finance the purchase action 57.100 Interest on home equity vehicle in April 2018 1,090 appointments, Wyom general sales tax The The Stewarts drove the Suburban 420 miles to various medical and dental oments. Wyoming has no state or local income tax but does impose a alles tax. The county in which they live imposes an additional local as of 196. Although they do not keep track of their sales taxes, the Stewarts $1.600 of sales tax on the recreational vehicle they purchased in April 2018 sides Vivian (see item 13), the Stewarts' household includes two daughters, kenna (age 19 and Kayleigh age 16), and one son lared (age 14). McKenna raduated from high school in 2017. She earned $19.000 during 2018, all of which she put into her college savings account She heads off to college in fall 2019. Kayleigh and Jared are full-time students in high school and middle school, respectively. Kayleigh earned $1.800 from a summer job, which she put into her college savings account. For tax year 2017, the Stewarts had a Federal income tax overpayment of $150, which they applied toward their 2018 income tax. Michelle's income tax with holdings for the year are $5,100, and the Stewarts made Federal quarterly tax payments totaling $12,000 ($3,000 each installment). 18. Relevant Social Security numbers are as follows: Name Roger Stewart Michelle Stew Vivian Olson McKenna S Kayleigh Stewart Jared Stewart Social Security Number 111-11-1112 123-456785 123-45-6786 123-45-6787 123-45-6788 123-45-6798 Requirements Prepare a 2018 Federal income tax return with appropriate supporting forms and sched- ules for the Stewarts. In doing this, follow these guidelines: Make necessary assumptions for information not given but needed to complete the return The Stewarts are preparing their own return Me Stewarts have the necessary written substantiation (e... records, receipts) to support the transactions reported in their tax return If the Stewarts have an overpayment of tax, they want it applied to their 2019 estimated taxes The Stewarts do not wish to contribute to the Presidential Election Campaign Fund. Form 1040 Scheltule 1 Scheldule 4-affitional taxes Scheldule 5 - other payments Scheldule A Itemized defections Scheltule B Interest & divident incoffie scheldule C Business Scheldule D capital gains of losses Scheldule E pantall property Scheldule SE self employment tax Form 6252 Installment sale income Form 8824 Like kind exchange Form 8829 expenses business use OBLEM 1-INDIVIDUALS (FORM 1040) Doger R. and Michelle N Stewart Cages 45 and 16) are married and line 61 Cody Way WY 82609. Roger is a consulting engineer, and Michelle is a paralegal. They file return and use the cash basis for tax purposes Casper, WY 82609. Rog 7 proconnect. 1. Trained as a mining engineer, Roger has developed considerable expertise in the treatment and disposition of waste material. He is also well versed in the Federal and state requirements for land reclamation projects: Roger operates a consulting business through which he advises clients on these matters. Roger's business activity code is 541990. Most of his clients are small and medium-size mine owners/operators located in Wyoming and contiguotis states (eg. Montana, Idaho, Utah). Usually, Roger is retained by a client on a contract fee basis and is reimbursed for all out-of-pocket expenses. In performing his services, Roger usually visits the job site and later submits his recommendations in a written report along with a statement for his services and expenses. Roger received the following amounts from his consulting business in 2018 Fees for services rendered Expense reimbursements: $ 92,800 Airfare $8,200 6,100 using 5.200 T p ortation (taxis, airport limos, car rentals) 920 Subtotal for expense reimbursement 20420 Total received $113.220 2. Roger also provided services for the following companies from his office, there fore, there are no travel expenses. These fees are not included in the receipts listed in item 1 above. $5.100 Echo Mining: Work done in December 2018 payment received January 2019 4400 Sesa Mining: Work done in December 2017: payment received January 2018 3.700 Cormorant Mining: Work done in March 2018; no payment received to date Since Cormorant Mining is currently in bankruptcy, Roger does not expect to collect any of this fee. NDIX E Practice Set Assignments---Comprehensive Tax Return Problems 3. Other expenses paid by Roger in 2018 relating to his practice are as fol 59.000 3.809 3.200 Contribution to HR10 Keogh retirement plan Premiums on medical insurance covering sell spouse, and dependents) Supplies-landscape models purchased from topographer for projects Advertising in trade journals Omice expense Business phone and internet service State occupation license Subscriptions to trade journals Membership dues to trade associations Roger operates his consulting business out of an office in his home. The cent of the 3,000-square-foot living area is devoted to the office. Roger Inh wenty per the home on Cody Way from his father who died on June 6, 2011. At that the home had a fair market value of $100.000 ($10,000 of which was alloc to the land). The Stewarts mowed into the home in autumn of 2011, and immediately set up his home office. The home's current fair market value $500,000 ($50,000 allocated to the land). County and records reflect that Roger father bought the land in 1972 for $6,000 and built the house in 1976 at a cost of $60,000. Roger depreciates the business use of his home using MACRS. Additional 2018 costs related to the home are as follows 54,800 Utilities Repairs and maintenance Insurance 2.900 2.300 The 2018 property taxes and mortgage interest are listed in item 15. In addi tion to the repairs and maintenance noted above, Roger had the office repainted at a total cost of $1,200 Over the vears, Roger has properly deducted the cost of all the furniture and equipment used in t he cither as $ 179 expense or bonus depreciation in the year those placed rice. On March 5, 2018, Roger purchased a heavy-duty in th e ir with security-vault features for $4,800. He made the custo d and maintain the privacy of client data. Con- sistent with past years are clers to avoid capitalizing and depreciating the cabinet if the law allows 5. On February 1, 2017 Roger paid $41.000 (including sales tax) for an Infiniti crossover SUV (gross weight under 6,000 pounds). No trade-in was involved, and he did not claim any $ 179 expense or bonus depreciation on the cost last year Under the actual operating cost method, he depreciates the SUV using MACRS (Hint: See Table 3 in the instructions to Form 4562.) His operating expenses for the Infiniti for 2018 are as follows: Gasoline $3,300 Auto insurance 1,600 Repairs 240 Auto club dues Oil changes and lubrication 120 License and registration Roger drove the Infiniti a total of 14.500 miles durine 2018 13.050 of whe were driven for business purposes. During business use, Roger received the moving traffic violations for which he paid $680 in fines. He also incurred to and parking charges of $440. le is a licensed panel and is employed a partire b y se Winthe duch o three days a week. She come to work in the family Suban a total of 15 miles and paid parking fees 3310 2011 caring and related expenses are mained as follo Combined wages from three emplo Subscriptions and dues to professional organisations Continuing education correspondence cours Occupational license fee Since Michelle is a part-time employee, berm e rs do not cover be ob ed expenses. The correspondence coir i dontinuing education so she can retain her license, Michelle is thinking about applying to law school which would require her to sit for the LSAT Tam Thu 18 she went 5350 on an LSAT preparation course Because Michelle is a part-time employee, she is not covered by any of bet employers' medical or retirement plans. During 2015, she contributed $5.500 10 traditional IRA that she had established several years ago. The Stewart use be automatic mileage method to calculate any doctiss to which they are entitled for use of the Suburban. with funds received from the settlement of his father's estate, Roger purchased rental property at 620 Cottonwood Lane of the $250.000 purchase price $20.000 was allocated to the land. After an $80.000 renovation to the house (es. replaced the rool, installed new flooring throughout the house, and installed a new furnace), the property was rented beginning February 1, 2012. In 2016, the Stewarts decided their investment would be moee marketable if the house was fully furnished. Consequently, they spent $38.000 on new furniture, drapes, and appliances. All of the furnishings were placed in service May 1, 2016. The Siew- arts did not claim $ 179 expense or bonus depreciation for the year those assets were placed in service. Under the current lease agreement, the property rents for $2,200 a month. Rent is due the first day of each month. Utilities are not included in the rent. Information regarding the property for 2018 is as follows: 528 600 Rent recen 3,100 Property alty insurance premiums paid 2400 Property See paid 1.200 Yard maintanance paid Repairs The rent received includes $2,200 for January 2019. The tenants prepaid the rent in mid-December because they went on vacation during the Christmas/New Year holidays. In addition to the property taxes listed above, Roger paid a special tax assessment of $1,300 to the City of Casper for repaving the street in front of the property. The Stewarts use MACRS to depreciate the rental home and the furnishings within it. 8 The Stewarts acquired 1,000 shares of common stock in Cormorant Mining on March 7. 2017 to hold for investment purposes. Roger performed services for the company in late 2016, submitting a bill for $3.900. Because Cormorant was expe riencing cash flow problems at the time, Roger accepted the stock as payment for his services. Unfortunately, Cormorant is currently in bankruptcy (see item 2 above). In late 2018. the bankruptcy judge announced that creditors will receive a fraction of what they are owed and shareholders will recover nothing with respect to their equity investments in the company. The stock is not publicly traded. ortunately, woy judge anders will PENDIX E Practice Set A d v e taxeturn Problem 9. On March 10 100 father gave the Stewarts a plot of land be Teton County as an anniversary gift. It had a value of $150.000 at the gift, and not tax was required to be paid on the transfer. The band be purchased by Rope's father on June 1, 1987, for $50,00). In December 2013 real estate developer contacted the Stewarts and made an offer to buy the city. After contrahentations, the Stewarts agreed to transfer the in return for S000 in cash and four city lots in Laramie (WY) worth $702 from the developer The Stewarts considered the city lots to be a good in ment because they are located in a part of the city that is experiencing sign growth. The exchange curred on March 4, 2018. The real estate develop for all closing costs and legal fees related to the exchange 10. Roger inherited an antique gun collection from his father when he died. Although Roger has no idea what his father's cost basis was in these guns, the collection had a date-of-death value of $22,000. Concerned about the maintenance and security of the collection, Roger sold it to a dealer for $29.000 on July 10, 2018 11. On July 12, 2004, using $50,000 of funds she had received from an aunt's life insurance policy, Michelle purchased grazing land in Converse County (WY). On August 2. 2017, she sold the land to a local rancher for $75.000. Under the terms of the sale, Michelle received a down payment of $15,000 and 10 annual notes of $6,000 each, Michelle will also receive simple interest of 8% on the outstand ing principal balance each year. Michelle negotiated the 8% interest rate since she is taking on the risk of financing this acquisition for the rancher, Michelle collected $10.800 on August 2, 2018, from the rancher: $6,000 on the note and interest of $4,800. 12. The Stewarts had several Schedule D transactions during 2017 that netted to a short-term capital loss of $7,000 of this loss, $3,000 was deducted in 2017, and $4,000 carried over to 2018 13. Vivian Olson, Michelle's widowed mother, has lived with the Stewarts for several years and has been claimed by them as a dependent. On December 30, 2017. Vivian suffered a heart attack. After a few days in the ICU of a local hospital, Vivian died on January 5, 2018. In early February 2018, the Stewarts paid the following expenses related to Vivian Burial expenses Medical expenses incurred in 2017 Medical expenses incurred in 2012 not covered by Med Remainder of church pledge for 2018 $17.400 2.800 6,500 900 Besides personal and household effects, Vivian's major asset was a life insur- ance policy. As the sole beneficiary of the policy, Michelle received $45,000 of death benefits on March 30, 2018 14. In addition to the items already noted, the Stewarts had the following receipts during 2018: $1,900 1,100 Interest income City of Cheyenne general purpose bonds Certificate of deposit at Wells Fargo Bank Money market account at Bank of America Yard sale proceeds Qualified dividends on Meadowlark Corporation common stock Jury duty pay 950 700 420 At their yard sale, the Stewarts sold used furniture, books, toys, and other household goods having an estimated original cost of $1,800. In connection with her jury duty assignment in June, Michelle drove the Suburban 40 miles and incurred expenses of $30 for parking and $45 for meals. APPENDIXE Partic on to the items already noted, the Stewart had the o In addition to ures for 2018: a ment n espen ewidental bills for the Stewarts other than those relating to Medical and dental bill Vivian, see item 13) Charitable contributions (not inclus rable contributions that including Vivian's pledge sem valorem property taxes on personal residen home equity loan used to finance the purchase action 57.100 Interest on home equity vehicle in April 2018 1,090 appointments, Wyom general sales tax The The Stewarts drove the Suburban 420 miles to various medical and dental oments. Wyoming has no state or local income tax but does impose a alles tax. The county in which they live imposes an additional local as of 196. Although they do not keep track of their sales taxes, the Stewarts $1.600 of sales tax on the recreational vehicle they purchased in April 2018 sides Vivian (see item 13), the Stewarts' household includes two daughters, kenna (age 19 and Kayleigh age 16), and one son lared (age 14). McKenna raduated from high school in 2017. She earned $19.000 during 2018, all of which she put into her college savings account She heads off to college in fall 2019. Kayleigh and Jared are full-time students in high school and middle school, respectively. Kayleigh earned $1.800 from a summer job, which she put into her college savings account. For tax year 2017, the Stewarts had a Federal income tax overpayment of $150, which they applied toward their 2018 income tax. Michelle's income tax with holdings for the year are $5,100, and the Stewarts made Federal quarterly tax payments totaling $12,000 ($3,000 each installment). 18. Relevant Social Security numbers are as follows: Name Roger Stewart Michelle Stew Vivian Olson McKenna S Kayleigh Stewart Jared Stewart Social Security Number 111-11-1112 123-456785 123-45-6786 123-45-6787 123-45-6788 123-45-6798 Requirements Prepare a 2018 Federal income tax return with appropriate supporting forms and sched- ules for the Stewarts. In doing this, follow these guidelines: Make necessary assumptions for information not given but needed to complete the return The Stewarts are preparing their own return Me Stewarts have the necessary written substantiation (e... records, receipts) to support the transactions reported in their tax return If the Stewarts have an overpayment of tax, they want it applied to their 2019 estimated taxes The Stewarts do not wish to contribute to the Presidential Election Campaign Fund. Form 1040 Scheltule 1 Scheldule 4-affitional taxes Scheldule 5 - other payments Scheldule A Itemized defections Scheltule B Interest & divident incoffie scheldule C Business Scheldule D capital gains of losses Scheldule E pantall property Scheldule SE self employment tax Form 6252 Installment sale income Form 8824 Like kind exchange Form 8829 expenses business use