OVERVIEW In the following pages, you will find all the information necessary to complete a 2019 U.S. Individual Income Tax Return for Clark and Ellen Griswold. While this assignment is not designed to be tricky, it may be difficult for many students, and it will most certainly require a significant input of your time. The purpose of this project is twofold. First, your ability to examine the receipts, disbursements, and situations of taxpayers, identify the relevant tax issues, and determine the appropriate tax treatment, as covered explicitly in the text, lectures, and homework, will be gauged. Second, completion of the project will require you to use forms and publications from the Internal Revenue Service to actually prepare the documents the taxpayer would be required to submit. GUIDELINES AND INSTRUCTIONS You can work individually or form groups of 2-4 people to work on this project. You may choose your own groups, and it is solely your own responsibility to ensure that you turn in a completed project. I strongly encourage you to work in groups for this project as it will likely result in a better work product. You will only need to turn in one project per group. Students must individually (within your own group only) complete the midterm project using resources from http://www.irs.gov, lecture notes, tax texts, etc. As this is a project, and not a homework assignment, I will be providing a little less guidance in office hours, etc. for students, although I will strive to point everyone in the right direction. For the entire project, students must assume that the taxpayers are interested in the tax-minimizing legal position. You can ignore alternative minimum tax (AMT) for the entirety of this project. IRS forms and instructions are designed to be read, understood, and followed by taxpayers without significant accounting backgrounds. While it may be challenging at first, upper-level accounting students should be able use their analytical skills to read the instructions for each form and figure out how to complete the project. IRS Publication 17 is a very good resource and is the most appropriate authoritative reference for completion of the project. I also encourage you to look up the instructions (line-by-line) by searching for the form name followed by "instructions" using a search engine. Please note that instructions are not currently available for the Form 1040 and Schedules 1-3 or Form 8995; however, you can use the instructions for the 2018 forms and schedules to arrive at the solution for this project (with the exception of the tax calculation and other annually indexed numbers; also please note that some line numbers have changed from 2018 to 2019).You are not allowed to use any tax return software to complete this project. I have not provided supporting documents like W-2s and 10995, and this exclusion will make use of a software package more difficult and unlikely to generate a correct return. Understanding how the numbers on a return interact is a valuable skill to have early in any accounting career, especially in tax, so to gain these skills, you will need to complete this project without the assistance of any software. The only submission required for grading is a complete 2019 U.S. Individual Income Tax Return, which at minimum will consist of the following forms (submit in following order): -Form 1040-V --Form 1040 (and Schedules 1, 2, & 3) --Form 1040, Schedule A --Form 1040, Schedule B --Form 1040, Schedule C --Form 1040, Schedule D --Form 1040, Schedule E --Form 1040, Schedule SE Depending on the tax treatment for some items determined to be appropriate by the preparer, Forms 2441, 4562, 8889, 8949, and/or 8995 may also be required. Submit these forms as needed in this order following the required forms. Each form submitted for grading must be filled out COMPLETELY. For uniformity, I require that the forms be TYPED and printed, that any line with an entry of -0- be left blank, and negative numbers should be indicated in parentheses. Please round all numbers to the nearest whole dollar and omit "00" in the cents column. Since the final 2019 forms have not yet been released, you can find all of the forms you will need (adapted for 2019 use) on Blackboard in the "2019 Forms" folder. This is a group assignment, so you may only work with students inside your own group. For your final submission, you MUST staple a cover sheet (template provided on Blackboard) to the entire return with each group member's name, PUID, and section clearly printed and easily visible. Good luck! Check Figures: Form 1040, Line 1:97,734 Form 1040, Line 8b: 181,175 Form 1040, Line 10: 15,799 Form 1040, Line 17: 27,920 Schedule 1, Line 14: 6,005 Schedule 2, Line 4: 12,010Scenario: You are a tax accountant at the respected accounting firm Purdue, Krannert, and Rawls LLP ("PKR") and the preparer for Clark and Ellen Griswold's 2019 federal income tax return. PKR's information is as follows: EIN: 56-9291122; Address: 403 West State Street, West Lafayette, Indiana 47907; Phone number: 765-867-5309. Since you have agreed upon a flat fee of $3,900 for completing this return in 2020, be sure to complete the paid preparer's information on the tax return. Also note that Clark and Ellen want to allow you to discuss this return with the IRS if needed. You need to complete only the 2019 federal income tax return for Clark and Ellen Griswold (no state tax return). Ignore the requirement to attach form(s) W-2 to the first page of the Form 1040, as this will be done by your administrative assistant when the return is processed to give to your client. Clark W. Griswold (Age 46) and his wife Ellen S. Griswold (Age 44) live in Chicago, Illinois with two children: Audrey (Daughter, Age 19) and Rusty (Son, Age 11). Both children qualify as dependents of Clark and Ellen (qualifying children) for federal income tax purposes. Neither Clark nor Ellen can be claimed as a dependent on another's return, and neither would like to contribute to the Presidential Election Campaign Fund. Clark and Ellen have no carryovers from the prior year. The Griswolds did not have a financial interest in or signature authority over a foreign financial account at any time in 2019. They also did not receive any distributions (or were grantors of or transferors to) a foreign trust in 2019. Ellen's cousin, Eddie Johnson (Age 41), lost his job in 2018 has lived with the Griswolds since November 2018 (i.e., Eddie lived with the Griswolds for the entire year in 2019). Clark and Ellen provide the majority of the support for Eddie, and Eddie earned $3,000 from a part-time job in 2019. He will report this income on his own tax return. The entire Griswold family was covered by minimum essential health insurance during each month in 2019. The Griswolds provided the following information: Social Security Numbers: Clark: 111-11-1111 D Ellen: 222-22-2222 O Audrey: 333-33-3333 o Rusty: 444-44-4444 o Eddie: 555-55-5555 Address: O 2657 North Kedzie Avenue, Chicago, Illinois 606471. In 2019, Clark was a food scientist working for LPQ Corporation in Oaklawn, Illinois. His wages were $97,734, with $27,920 in federal taxes withheld and $3,029 in state taxes withheld. Since Ellen works as a self-employed engineer, Clark adjusted his federal withholding to account for her tax liability. 2. Ellen is a self-employed structural engineer in the Chicago area and runs this enterprise as Boiler Structural Engineering LLC ("BSE LLC"). BSE LLC is conducted as a sole proprietorship with Ellen being the sole owner. BSE LLC started business on January 1, 2017 and is located at 809 West Randolph Street, Chicago, Illinois 60607. The EIN for the business is 57-9999999, and the NAICS code is 541330. The financial information provided by Ellen on this business (cash method) is enclosed at the end of the problem. This income is eligible for the deduction for qualified business income. You can assume her deduction for Qualified Business Income (all from this activity) is $15,799 for the purposes of Form 8995 and Form 1040. Their Qualified Business Income is equal to their Schedule C income minus 2 of their self-employment tax on Schedule SE. 3. Clark and Ellen own a rental house located at 27 Summer St, Lubec, Maine 04652. The house (a single-family residence) was rented for 365 days in 2019, and all assets related to the house are fully depreciated as they have owned the property for 30 years and have not made substantial improvements to the property in 17 years. The financial information provided by Clark on this rental property (cash method) is enclosed at the end of the problem (Peacock House Rental Property). Assume the income from this property does not qualify for the QBI deduction. 4. The Griswolds received a state tax refund (from 2018) in 2019 of $1,000. In 2018, they took the standard deduction of $24,000. 5. The Griswolds jointly received the following interest and dividend payments in 2019 (Note that qualified dividends should still be included in your total dividends): a. Ordinary Dividends from Smyth Corporation: $778 b. Ordinary Dividends from Loyalist Corporation: $1,243 c. Qualified Dividends from Acadia Corporation: $1,000 d. Interest from Purdue Federal Credit Union: $875 ($1,000 interest with $125 early withdrawal penalty e. Interest from City of Chicago municipal bonds: $1,200 f. Interest from Bank of America: $50 6. Clark has a self-managed equities account and made two trades during 2019. Neither of these stocks qualify as $1244 Small Business stock. Note: You do not need to complete the Qualified Dividends and Capital Gain Tax Worksheet, but it may help you some in calculating tax liability. a. He purchased 1,000 shares of Willett Corporation stock on January 7, 2019 for $30.75 per share ($30,750 total cost, no commissions). He sold all 1,000 shares on December 12, 2019 for $30.58 per share net of commissions ($30,580 total proceeds less commissions). The cost basis for this sale was reported to the IRS. b. Clark's other trade was the purchase of 10 shares of Four Roses Corporation stock on March 19, 2019 for $510.00 per share ($5,100 total cost, no commissions). He sold this stock on December 20, 2016 for $110.00 per share ($1,100 total proceeds less commissions). The basis of this stock was reported to the IRS.7. Clark and Ellen paid personal property taxes of $240 on Clark's 1995 Toyota Land Cruiser and $730 on Ellen's 2019 Subaru Ascent. Both are their personal vehicles (no business use). 8. In 2019, Clark and Ellen incurred the following unreimbursed medical expenses (all paid out of pocket): a. Doctor's office visits for Audrey and Rusty: $500 Rhytidoplasty (face lift surgery, elective cosmetic surgery) for Clark: $7,500 C. Laparoscopic Cholecystectomy (Gall Bladder Removal Surgery) for Ellen: $15,750 d. Prescription eyeglasses and contacts for Clark and Ellen: $1,250 e. Prescription drugs for Clark, Ellen, and Rusty: $1,750 9. Rusty attended daycare in 2019 at The Garfield Park Conservatory for Gifted Children (EIN #57- 5555555) at 300 North Central Park Avenue, Chicago, Illinois 60624. The total fees paid for Rusty amount to $2,000 for 2019. Neither Clark nor Ellen received dependent care benefits from an employer in 2019. 10. Clark made one estimated payment of state income tax of $500 on June 15, 2019. Clark and Ellen have paid over 90% of their current year tax liability, so there is no underpayment penalty. 11. Clark and Ellen own their house, which is their principal residence, but have a mortgage on the property ($295,724 loan balance). In 2019, they paid $5,499 in real estate taxes on the property and $9,425 in interest (reported on a Form 1098). The fair market value of the house is $980,000. 12. Clark contributed $1,500 (after-tax dollars) to a Health Savings Account (with family coverage) for 2019. The Griswolds made no disbursements from this account in 2019. This contribution qualifies as an above-the-line deduction since it was not made through an employer. 13. Additionally, Clark and Ellen made the following charitable contributions in 2019: a. $11,000 cash donation to The Salvation Army (a qualified charity) b. $3,000 cash donation to a family in need c. $300 cash donation to the Eddie Johnson for Alderman political campaign 14. The Griswolds replaced some appliances in their house in 2019. They donated their old appliances valued at $250 to Habitat for Humanity (a qualified charity) in 2019. They originally paid $4,200 for these appliances. A receipt was provided, and no goods or services were rendered by the non-profit in exchange for this donation. Nothing from this replacement qualifies for a Residential Energy Tax Credit. 15. For Schedule SE, you are permitted to use Section A - Short Schedule SE. You could follow the decision tree at the top of the form to arrive at this determination as well. If you choose to use Section B, this choice will not affect your calculations. 16. Be sure to calculate the tax by using the schedules attached at the back of the project (round the tax to the nearest dollar).BOILER STRUCTURAL ENGINEERING LLC INFORMATION Ellen reported the following information for Boiler Structural Engineering's business activities (BSE LLC uses the cash method of accounting): Revenues: Consulting Revenue $101,000 Design Revenue 355,435 Total revenue $456,435 Expenses: Advertising $ 2,780 Wages 101,848 Employee Benefits 40,000 Insurance-Professional 20,000 Office building rent 68,500 Vehicle lease 39,320 Utilities 25,750 Depreciation 4,847 Meals 900 Supplies 17,000 Taxes and licenses 37,440 Legal and professional fees 12,500 Repairs and maintenance 1,000 Total Expenses $371,885 BSE LLC purchased and placed in service the following fixed assets (assume no fixed assets were in service prior to 2019): Item Depreciable Life Date Purchased Amount MacBook Pro Computer 5.0 December 1 $1,900 iPad 5.0 January 2 $900 Office Furniture 7.0 January 7 $30,000 BSE LLC does not want to claim any bonus depreciation or Section 179 expensing on any of these assets. While you typically would need to do so in practice, you do not have to attach the election out of bonus depreciation to this return. The depreciation included in the profit & loss statement above represents the correct amount for tax depreciation. BSE LLC filed Forms 1099 for payments made to contractors when required to do so.PEACOCK HOUSE RENTAL PROPERTY INFORMATION Clark reported the following information for the Peacock House rental property: Revenues: Rental Income $18,400 Total revenue $18,400 Expenses: Insurance $2,400 Commissions $3,080 Repairs $2,120 Cleaning & Maintenance $1,000 Taxes $4,800 Total Expenses $13,400 Clark and Ellen were not required to file any Forms 1099 for this property as separate payments to repair contractors did not exceed $600.2019 Tax Rate Schedules Schedule X-Single Schedule Z-Head of Household If taxable If taxable income is But not Income Is But not over! over! The tax is: over: over: The tax is: ( $ 9.700 10% of taxable income $ 0 $ 13.850 10% of taxable income 9.700 $ 39.475 5970 plus 12% of the excess $ 13,850 5 52.850 $1,385 plus 12%% of the excess over $9.700 over $13,850 $ 39.475 $ 84.200 54,543 plus 22% of the excess $ 52,850 $ 84.200 $6.065 plus 22% of the excess over $39,475 over $52.850 5 84.200 $160.725 $14.382.50 plus 24% of the excess 5 84.200 5160.700 $12.962 plus 24% of the excess over $84,200 over $84.200 $160, 725 $204, 100 $32,748.50 plus 32% of the excess $160,700 $204.100 $31,322 plus 324 of the excess over $160.725 over $160.700 $204,100 $510.300 546,628.50 plus 35% of the excess $204.100 5510.300 $45.210 plus 35% of the excess over $204.100 over $204.100 $510.300 $153.798.50 plus 37% of the excess $510,300 $152.380 plus 37% of the excess over $510.300 over $510,300 Schedule Y-1-Married Filing Jointly Schedule Y-2-Married Filing Separately or Qualifying Widow(er) If taxable If taxable income is But not income is But not over: over: The tax is: over: over: The tax is: 0 5 9,700 10% of taxable income 0 $ 19,400 10% of taxable income 9,700 5 39,475 5970 plus 12% of the excess $ 19,400 $ 78.950 $1,940 plus 12% of the excess over $9,700 over $19,400 5 39,475 5 84.200 54.543 plus 22% of the excess 5 78,950 $168,400 59.086 plus 22% of the excess over $39,475 over $78,950 $ 84,200 $160,725 $14,382.50 plus 24% of the excess $168,400 $321.450 $28,765 plus 24% of the excess over $84,200 over $168,400 $160,725 5204,100 $32.748.50 plus 32% of the excess $321,450 $408,200 $65,497 plus 32% of the excess over $160,725 over $321,450 $204, 100 $306,175 $46,628.50 plus 35% of the excess $408,200 $612.350 593.257 plus 35% of the excess over $204.100 over $408,200 $306,175 $82.354.75 plus 37% of the excess $612,350 $ 164,709.50 plus 37% of the excess over $306,175 over $612,350 2019 Tax Credit for Qualifying Children under age 17: $2,000 2019 Tax Credit for Other Qualifying Dependents: $500 Standard Deduction Amounts 2018 2019 Filing Status Amount Amount Married Filing Jointly $24,000 $24,400 Qualifying Widow or Widower $24,000 $24,400 Married Filing Separately $12.000 $12.200 Head of Household $18,000 $18,350 Single $12,000 $12,200