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ACCT 328 Tax Return Project Fall Semester 2020

This project will give you the experience of preparing a Federal income tax (FIT) return (return) for the tax year ending December 31, 2019 using actual forms. It is worth 75 points, or 15% of your final grade.

It is due in my Loyola email account inbox (jjaniga@LUC.edu) no later than midnight on Thursday, December 3, 2020. A failure to turn in the project by the due date and time for any reason will result in a 10% penalty for every 24-hour period, or portion thereof, that the project is turned in late.

You must:

(1) Prepare the return with Intuit ProConnect Tax Online software (Intuit) for the tax year 2019 (or the 2019 edition of comparably sophisticated tax preparation software). Your rental copy of the textbook contains a sheet (either toward the front or back of the text, labeled Intuit Proconnect at the top with the photo of a woman who appears to be looking at a computer screen) that contains the e-mail address that allows you to download the software, which is compatible with a PC or Mac. If you did not purchase the rental copy, go to TaxEducation.Inutuit.com to get started. Once loaded, click on Welcome Tour for a slideshow and then on How-tos to watch a video on navigating a tax return (it also may be helpful to print the pdf document on this topic). Also, you should find and read the relevant instructions for the forms and/or schedules in preparing the return. These can be found on-line in several locations, including irs.gov. Be very careful which tax year you are selecting within Intuit: it may give you the option to prepare the return for years other than 2019; be sure to select 2019.

(2) To gain the knowledge and skills that this project is intended to develop, I expect every student to prepare the return on their own. However, in developing and finalizing the return, you may work with up to three other students in the class. Thus, including you, groups should total no more than four students. The group will be assigned a grade based upon a single group-submitted return. Alternatively, you may work on the return on your own if you prefer.

If you would like to work with a group and experience difficulty in establishing or joining one, you must let me know immediately so that I can assist you in finding a group to work with. I will try to assist you but, if unsuccessful, you will be required to prepare the return on your own.

(Important Note: If you form a group, I expect you to police it on your own. Everyone in the group should do their fair share of the work and should provide input and feedback in developing the return. If you believe that anyone in your group is not doing so, it is your responsibility to let me know immediately so that I can intervene. In such cases, I reserve the right to utilize any remedial action that I deem appropriate, including removing a student from a group. In this event, the student will be forced to prepare a solo return.

My expectation is that everyone in the group will prepare a return based on their own analysis. Then, it is up to the group members to discuss and reconcile the individual responses to produce a singular group return that represents the collective judgment of the group members.)

Prepare the return as if it is an assignment from a manager or partner in the CPA firm in which you are employed. View me as the assigning manager or partner. I will be available to answer questions (during my office hours or by appointment) if you encounter difficulties. Be sure, however, that you have thoroughly researched a question before you approach me. I will not respond to questions that clearly can be answered from material in the book or in the instructions to the Form 1040 or related forms and schedules.

The facts that you need to prepare the return appear on pages 3 - 4. Additional instructions, information, and assumptions that you must accept in preparing the return follow. A failure to consider or adhere to these items will result in significant point loss.

(1) If you prepare the return as a group, whichever group member is selected to electronically submit the solution to me should include in their email containing the attached pdf file the names of the group members.

(2) Do not complete the "Sign Here" or the "Paid Preparer's Use Only" sections at the bottom of page 2 of Form 1040, except that for Preparers signature enter Self-Prepared by virtue of selecting that choice in the software.

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(3) As you input information into the software, be aware of the following points. First, the software may ask you to input information (e.g., taxpayers phone number and email address) that may not be provided. Simply ignore these requests or make up data that is not inconsistent with the project facts. Second, when the return is complete, to prepare it for submission click on Partial Print under File Return. Check the boxes for 1040, Schedules 1, 2, 3, A, C, D, and SE, and Form 8995 only. Once done, first click on Create PDF, do not check any boxes under Print Options, and then click on Download PDF. Make sure the file appears correct and complete and, if so, save the file as Tax Return Project I Solution. It is that file, which should only contain 11 pages, that will be submitted to me. Note that the return may have the words Do Not File printed across the various pages. That is fine.

(4) Assume that:

you are required to prepare Leahs FIT return only, not any state or local income tax returns. Thus, do not worry about any Suggestions you get from the software under Check Return related to the Ohio return.

Leah chooses not to file electronically, but instead will file a hard copy return. (Thus, in the software, de-select any boxes related to e-filing the return.)

Leah does not want to contribute to the Presidential Election Campaign Fund.

Leah is not blind for FIT purposes.

the FIT return is being timely filed (even though it is clearly past the actual filing due date).

Leah does not wish to designate a third party to discuss their return with the IRS.

if Leah is overpaid, she wants the entire overpayment refunded to her by check.

Leah has never had an interest in or a signature or other authority over a financial account in a foreign country, nor has she ever been the grantor of or transferor to a foreign trust.

Leah did not engage in any virtual currency transactions during 2019.

Leah did not receive a refund of state income taxes in 2019.

Leah lists her occupations as Entrepreneur at the bottom of page 2, Form 1040.

Leah would like to apply the CARES Act provisions to her 2019 FIT return. (To reflect this, check the related box in the Misc. Info./Direct Deposit input screen.)

you are not required to prepare any 2020 Federal or State estimated tax payment vouchers.

(5) Leah owns and operates a business, Lafon Enterprises, LLC (i.e., a limited liability company), which was formed under Ohio law. For FIT purposes, the LLC is treated as a sole proprietorship, meaning that any reportable amounts from the business should appear on a Schedule C.1 In addition, for Schedule C purposes: [1] the business was started several years ago; [2] the principal business for line A is Data Processing Service; [3] the business code for line B is 5182102; [4] she materially participates in the activity; [5] the LLC made payments in 2019 that would require it to file Forms 1099, all of which it did on a timely basis; [6] all of her investment in the LLC is "at-risk;" and [7] the LLC is a qualified trade or business (but not a specified services business); thus, the 2019 qualified business income (QBI) that it generates will permit Leah to take a QBI deduction on her 2019 FIT return.

1 Also, for FIT purposes, Leah is treated as being self-employed, not as an employee of the LLC.

2 Enter this code in the box labelled principal business code on the Business Income (Sch C) input screen and a box will appear just below with the line data processing, hosting, and related services. Click on the line and the code should auto-populate.

(6) Further assumptions, information, or clarification may be provided through Sakai or e-mail based on student questions, so check for messages regularly. Do not make any additional assumptions in preparing the project unless you clear them with me first. If any other issues arise that I have not discussed herein, it is your responsibility to discuss them with me so that they can be addressed and resolved well before the due date.

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Facts:

1. Leah Lafon lives throughout 2019 at 1310 Meadow Lane, Wayne, OH 43466, and her Social Security number (SSN) is 357-45-6789. She was born on March 1, 1974, is currently single, and has no dependents.

2. Leah is the sole owner (aka member) of Lafon Enterprises, LLC, a data processing service. Its employer identification number (EIN) is 98-7654321. It is located at 456 Hill Street, Wayne, OH 43466, just a few blocks from Leahs personal residence. Because she walks to and from her residence to the business, she has no need for a business vehicle. Assume that the business-related meals constitute ordinary, necessary, and reasonable expenses (i.e., Leah had lunch or dinner with current and prospective clients where business was discussed), all of which are well-documented and which were paid using a credit card in the LLCs name. All these expenses were incurred near the LLCs location; thus, there were no associated transportation expenses. Items that may impact Leahs 2019 Schedule C for the LLC include the following items:

Revenues3 $315,000

3 None of the revenues appeared on reporting forms, such as 1099-MISC, 1099-K, or 1099-PATR.

Expenses:

Employee wages $63,000

Employee payroll taxes 4,820

Legal and professional 1,800

Meals - Business-related (before 50% reduction) 4,900

Office 66,759

Pension plan contributions (SEP plan for employees)) 6,300

Postage 450

Rent:

Equipment 4,000

Other - Office Space 30,000

There is no depreciation because all depreciable equipment owned by the LLC has been fully depreciated in previous years. Due to the nature of the business, the LLC does not hold any inventory for sale. Except for the $6,300 contribution to a simplified employee pension plan (SEP) reflected above, the LLC provides no fringe benefits to its employees.

3. Leah personally purchases gold rated health insurance for herself from an insurance company. For 2019, she paid total premiums of $23,000. Assuming that if there is statutory authority to take a deduction for the premiums and if she has the choice to deduct it either as a deduction for AGI or an itemized deduction, she wants to maximize the FIT savings by deducting it as a deduction for AGI.

4. Leah has a stock portfolio and has prepared the following analysis of it for 2019:

Number Date Date Per-Share Per-Share Total

Stock of shares Purchased Sold Cost Selling Price Dividends

Beige, Inc. 10 10/18/18 10/11/19 $80 $ 74 $30

Garland, Inc. 30 10/11/12 10/11/19 43 157 70

Puce, Inc. 15 3/10/19 8/11/19 62 33 45

Note: Leah received a Form 1099-B from her stockbroker that included the adjusted basis and sales proceeds for each of the above stock transactions. Box 3 (basis reported to IRS) was checked, and no adjustments to the reported basis are necessary. The per-share cost includes commissions, and the per share selling price is net of commissions. Also, all the dividends reflected above are the actual dividends received in 2019, and the amounts represent the ordinary dividends, all of which are qualified dividends. (Thus, in the entry screen for dividends, enter the amounts in both the Total Ordinary Dividends and Qualified Dividends boxes.)

5. Leah earned the following interest income in 2019, each of which was reported to her on Form 1099-INT: [1] State of Ohio bonds (reported in box 8), $800 (report in software in box labelled In-State Municipal Bonds); and [2] Wayne Savings Banks

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(reported in box 1), $600 (report in software in box labelled Banks, S&L, etc.).

6. During 2019, Leah paid $25,000 of alimony to her former husband, Louis Lafon. His SSN is 358-45-6788. They were divorced on July 1, 2010, the date on which they both signed their divorce agreement.

7. Leah itemizes her deductions and had the following items (and no others), which may be relevant to her return:

Item Amount Comment

Unreimbursed medical expenses for

Leah (all for treatments not

covered by insurance) $1,786 --

State income taxes paid 1,8304 --

4 This is made up of state estimated income tax payments to Ohio, paid as follows: $450 on 1/15/19 (for 4th quarter of 2018), $460 on 4/15/19 (for 1st quarter of 2019), $460 on 6/15/19 (for 2nd quarter of 2019), and $460 on 9/15/19 (for 3rd quarter of 2019).

Real property taxes on personal

residence 3,230 --

Interest paid on home mortgage

(reported in box 1, Form 1098,

from Wells Fargo) 8,137 The loan is secured by the residence and was incurred when

the home was purchased. The loan balance was below $400,000 throughout 2019.

State and local sales taxes ? Leah made no major purchases in 2019 and, thus, uses

the standard sales tax deduction to compute her state and

local sales taxes paid. The local sales tax rate is 5.75%. She

will deduct the larger of her state income taxes paid (listed

above) or the standard sales tax deduction amount computed

by the software.

8. Leah made 2019 quarterly Federal estimated tax payments (FETPs) totaling $27,000, with $6,750 paid on each of the following dates: 4/15/19 (1st quarter), 6/15/19 (2nd quarter), 9/15/19 (3rd quarter), and 1/15/20 (4th quarter). She is not eligible for any other credits for 2019 except for these FETPs.

Required:

In accord with the above, prepare and electronically submit to me Leahs 2019 FIT return in pdf file format.