Part 1: Tax return preparation (35 points) You have been engaged to prepare the 2018 federal income tax return for Bob and Melissa Grant. Your tax form submission should include: Form 1040, Schedules 1, 4, A, B, C, D, E, SE and Forms 4684 and 8949 as applicable. You will come across many items on the tax return we have not talked about in class; if we have not covered it in class, and it is not included in the information below, you do not need to address it on this assignment Your solution should contain a detailed Excel workpaper that calculates the tax due or refunded with the return and calculated in the form of the tax formula (see Ch. 4 lecture slides). The calculation should be well labeled and EASY to follow. This presentation will be factored into your grade. Do NOT include any references or citations on your workpaper. You may complete the return by hand (neatly) or typed using 2018 forms found on Canvas or the IRS website. Use the following assumptions in preparing the return: o Use all opportunities under law to minimize the 2018 federal income tax. o Use whole dollars when preparing the tax return. o Do not prepare a state income tax return. o Ignore alternative minimumtax o If required information is missing, use reasonable assumptions to fill in the gaps BOB AND MELISSA GRANT INDIVIDUAL FEDERAL INCOME TAX RETURN Bob (age 43, SSN #987-45-1234) and Melissa Grant (age 43, SSN #494-37-4893) are married and live in Lexington, Kentucky. The Grants would like to file a joint tax return for the year. The Grants' mailing address is 95 Hickory Road, Lexington, Kentucky 40502 The Grants have two children Jared (SSN #412-32-5690), age 23, and Alese (SSN #412-32-6940), age 12 Jared is unmarried and in his fifth year of full-time higher education. He works part-time to help with some of his living expenses and earned $2,300 in gross income during the year. The Grant's provided support for Jared including paying for rent, books, tuition, food, clothes, etc. The Grant's also provide financial support to Bob's grandfather (85 years old), Michael Sr., who is widowed and lives alone Michael Sr.'s Social Security number is 982-21-5543. He has no income and the Grant's provide 100 percent of his support. Bob Grant's Forms W-2 provided the following wages and withholding for the year Employer Gross Wages Federal Income Tax Withholding $8,000 State Income Tax Withholding $5,750 National Storage Lexington Little League $53,900 3,150 Melissa Grant's Form W-2 provided the following wages and withholding for the year: Employer Federal Income Tax Withholding $7,200 Gross Wages State Income Tax Withholding $2,225 Jensen Photography 37,600 All applicable and appropriate payroll taxes were withheld by the Grants' respective employers. All of the Grant family was covered by minimum essential health insurance during each month in 2018. The insurance was provided by Bob's primary employer, National Storage The Grants also received the following during the year: Interest income from First Colorado Bank Interest income from City of Denver, CO Bond Interest income from U.S. Treasury Bond Interest income from Colorado State School Board Bond Dividend income from General Mills Dividend income from Sysco Corporation Dividend income from Tyco Security Dividend income from J.M. Smucker, Inc. Workers' compensation payments to Bob Life insurance proceeds on the death of Bob's mother Cash gift from Melissa's father Disability payments received by Bob on account of injury $ 195 S 450 $ 720 $ 150 $ 600 $ 225 S 380 $ 525 $10,350 38,000 $14,500 $ 6,500 Melissa received the following payments as a result of a lawsuit she filed for damages sustained in a car accident: * Medical Expenses for physical injuries . Emotional Distress (from having been physically injured) . Punitive Damages $6,500 17,300 $30,000 S53,800 Total The Grants also received a 1099-B relating to their investment in 2,000 shares of GE stock, which they purchased on October 7th, 2010 for $45,000 and sold on January 3, 2018 for $60,000 Eight years ago, Melissa purchased an annuity contract for $88,000. She received her first annuity payment on January 1, 2018. The annuity will pay Melissa $15,000 per year for ten years (beginning with this year). The $15,000 payment was reported to Melissa on Form 1099-R for the current year (box 7 contained an entry of "7" on the form) The Grants own a condominium located at 990 El Mar, Unit A, Lexington, Kentucky 40502. They first rented out the condominium on October 1, 2018. The revenue and expenses from the rental unit from October through December are as follows Rental revenue HOA fee expense Property taxes paid Utilities expense $3,600 300 225 350 On January 3, 2018, the Grants sold their prior principal residence. They purchased that residence in 2011 and had lived there full-time until they sold it this year. They originally purchased the home for $310,000. The Grant family has never claimed any tax depreciation (nor were they allowed to) on the home. The sales price of the home was $700,000. The home is located at 45 East Entrada Trail, Lexington Kentucky 40502 Melissa works out at a gym located at the photography studio. The gym is owned and operated by the studio and is available to all employees. The gym is offered at no cost to employees but is worth $750 for the year Melissa also photographs local weddings as a side business, which she runs as a sole proprietorship Assume that this business is a qualified trade or business. She reports the following information for these business activities Income - credit card receipts Advertising Insurance Equipment leases Assistant salaries Miscellaneous supplies 58,000 6,000 1,500 8,000 11,000 2,300 Melissa entered a contest sponsored by a radio station and won 5 tickets to the touring Broadway-style production of Wholesome. The value of the tickets was $200 each. Melissa took her friends from work to the production The Grants took two trips to Atlantic City. While on the first trip they lost $800 gambling, but on the second trip they won $600 The Grants paid or incurred the following expenses during the year: Dentist/Orthodontist (unreimbursed by insurance) Doctor fees (unreimbursed by insurance) Prescriptions (unreimbursed by insurance) KY state tax payment made on 4/15/18 for 2017 tax return liability Real property taxes on residence Vehicle registration fee based upon age of vehicle Mortgage interest on principal residence Interest paid on borrowed money to purchase the City of $ 4,250 S 625 $ 445 1,950 S 3,800 $ 250 $ 7,300 Denver, CO municipal bonds $ 400 Interest paid on borrowed money to purchase $ 240 $ 5,000 $ 2,500 $ 2,000 $ 200 U.S. Treasury bonds Contribution to the Red Cross Contribution to Senator Rick Hartley's Re-election Campaign Contribution to First Baptist Church of Kentucky Fee paid to Jones & Company, CPAs for tax preparation During the year, Bob paid $16,600 in alimony and child support payments to a former spouse, Natalie (SSN #568-72-8787), whom he divorced in 2014, when his daughter wendy (SSN #568-72-666), who lives with her mother full-time, reaches the age of 18 the payments will drop to $5,600 In addition, Bob drove 6,750 miles commuting to work and Melissa drove 8,230 miles commuting to work. The Grants also drove 465 miles in total to receive medical treatment at a hospital in April The Grants have represented to you that they maintained careful logs to support their respective mileage The Grants' personal residence was burglarized on October 1. The Grants had the following personal use property stolen Item Purchase Date Fair Value on Date of Theft Tax Basis of Item Insurance Reimbursement Received 500 500 1,000 500 2,500 Laptop computer 09/01/2018 03/01/2016 03/01/2016 2007 Honda Pilot 07/01/2017 3,000 4,000 5,000 8,000 14,000 3,000 4,500 13,000 10,500 25,000 Rifle TV/Projector Total Part 1: Tax return preparation (35 points) You have been engaged to prepare the 2018 federal income tax return for Bob and Melissa Grant. Your tax form submission should include: Form 1040, Schedules 1, 4, A, B, C, D, E, SE and Forms 4684 and 8949 as applicable. You will come across many items on the tax return we have not talked about in class; if we have not covered it in class, and it is not included in the information below, you do not need to address it on this assignment Your solution should contain a detailed Excel workpaper that calculates the tax due or refunded with the return and calculated in the form of the tax formula (see Ch. 4 lecture slides). The calculation should be well labeled and EASY to follow. This presentation will be factored into your grade. Do NOT include any references or citations on your workpaper. You may complete the return by hand (neatly) or typed using 2018 forms found on Canvas or the IRS website. Use the following assumptions in preparing the return: o Use all opportunities under law to minimize the 2018 federal income tax. o Use whole dollars when preparing the tax return. o Do not prepare a state income tax return. o Ignore alternative minimumtax o If required information is missing, use reasonable assumptions to fill in the gaps BOB AND MELISSA GRANT INDIVIDUAL FEDERAL INCOME TAX RETURN Bob (age 43, SSN #987-45-1234) and Melissa Grant (age 43, SSN #494-37-4893) are married and live in Lexington, Kentucky. The Grants would like to file a joint tax return for the year. The Grants' mailing address is 95 Hickory Road, Lexington, Kentucky 40502 The Grants have two children Jared (SSN #412-32-5690), age 23, and Alese (SSN #412-32-6940), age 12 Jared is unmarried and in his fifth year of full-time higher education. He works part-time to help with some of his living expenses and earned $2,300 in gross income during the year. The Grant's provided support for Jared including paying for rent, books, tuition, food, clothes, etc. The Grant's also provide financial support to Bob's grandfather (85 years old), Michael Sr., who is widowed and lives alone Michael Sr.'s Social Security number is 982-21-5543. He has no income and the Grant's provide 100 percent of his support. Bob Grant's Forms W-2 provided the following wages and withholding for the year Employer Gross Wages Federal Income Tax Withholding $8,000 State Income Tax Withholding $5,750 National Storage Lexington Little League $53,900 3,150 Melissa Grant's Form W-2 provided the following wages and withholding for the year: Employer Federal Income Tax Withholding $7,200 Gross Wages State Income Tax Withholding $2,225 Jensen Photography 37,600 All applicable and appropriate payroll taxes were withheld by the Grants' respective employers. All of the Grant family was covered by minimum essential health insurance during each month in 2018. The insurance was provided by Bob's primary employer, National Storage The Grants also received the following during the year: Interest income from First Colorado Bank Interest income from City of Denver, CO Bond Interest income from U.S. Treasury Bond Interest income from Colorado State School Board Bond Dividend income from General Mills Dividend income from Sysco Corporation Dividend income from Tyco Security Dividend income from J.M. Smucker, Inc. Workers' compensation payments to Bob Life insurance proceeds on the death of Bob's mother Cash gift from Melissa's father Disability payments received by Bob on account of injury $ 195 S 450 $ 720 $ 150 $ 600 $ 225 S 380 $ 525 $10,350 38,000 $14,500 $ 6,500 Melissa received the following payments as a result of a lawsuit she filed for damages sustained in a car accident: * Medical Expenses for physical injuries . Emotional Distress (from having been physically injured) . Punitive Damages $6,500 17,300 $30,000 S53,800 Total The Grants also received a 1099-B relating to their investment in 2,000 shares of GE stock, which they purchased on October 7th, 2010 for $45,000 and sold on January 3, 2018 for $60,000 Eight years ago, Melissa purchased an annuity contract for $88,000. She received her first annuity payment on January 1, 2018. The annuity will pay Melissa $15,000 per year for ten years (beginning with this year). The $15,000 payment was reported to Melissa on Form 1099-R for the current year (box 7 contained an entry of "7" on the form) The Grants own a condominium located at 990 El Mar, Unit A, Lexington, Kentucky 40502. They first rented out the condominium on October 1, 2018. The revenue and expenses from the rental unit from October through December are as follows Rental revenue HOA fee expense Property taxes paid Utilities expense $3,600 300 225 350 On January 3, 2018, the Grants sold their prior principal residence. They purchased that residence in 2011 and had lived there full-time until they sold it this year. They originally purchased the home for $310,000. The Grant family has never claimed any tax depreciation (nor were they allowed to) on the home. The sales price of the home was $700,000. The home is located at 45 East Entrada Trail, Lexington Kentucky 40502 Melissa works out at a gym located at the photography studio. The gym is owned and operated by the studio and is available to all employees. The gym is offered at no cost to employees but is worth $750 for the year Melissa also photographs local weddings as a side business, which she runs as a sole proprietorship Assume that this business is a qualified trade or business. She reports the following information for these business activities Income - credit card receipts Advertising Insurance Equipment leases Assistant salaries Miscellaneous supplies 58,000 6,000 1,500 8,000 11,000 2,300 Melissa entered a contest sponsored by a radio station and won 5 tickets to the touring Broadway-style production of Wholesome. The value of the tickets was $200 each. Melissa took her friends from work to the production The Grants took two trips to Atlantic City. While on the first trip they lost $800 gambling, but on the second trip they won $600 The Grants paid or incurred the following expenses during the year: Dentist/Orthodontist (unreimbursed by insurance) Doctor fees (unreimbursed by insurance) Prescriptions (unreimbursed by insurance) KY state tax payment made on 4/15/18 for 2017 tax return liability Real property taxes on residence Vehicle registration fee based upon age of vehicle Mortgage interest on principal residence Interest paid on borrowed money to purchase the City of $ 4,250 S 625 $ 445 1,950 S 3,800 $ 250 $ 7,300 Denver, CO municipal bonds $ 400 Interest paid on borrowed money to purchase $ 240 $ 5,000 $ 2,500 $ 2,000 $ 200 U.S. Treasury bonds Contribution to the Red Cross Contribution to Senator Rick Hartley's Re-election Campaign Contribution to First Baptist Church of Kentucky Fee paid to Jones & Company, CPAs for tax preparation During the year, Bob paid $16,600 in alimony and child support payments to a former spouse, Natalie (SSN #568-72-8787), whom he divorced in 2014, when his daughter wendy (SSN #568-72-666), who lives with her mother full-time, reaches the age of 18 the payments will drop to $5,600 In addition, Bob drove 6,750 miles commuting to work and Melissa drove 8,230 miles commuting to work. The Grants also drove 465 miles in total to receive medical treatment at a hospital in April The Grants have represented to you that they maintained careful logs to support their respective mileage The Grants' personal residence was burglarized on October 1. The Grants had the following personal use property stolen Item Purchase Date Fair Value on Date of Theft Tax Basis of Item Insurance Reimbursement Received 500 500 1,000 500 2,500 Laptop computer 09/01/2018 03/01/2016 03/01/2016 2007 Honda Pilot 07/01/2017 3,000 4,000 5,000 8,000 14,000 3,000 4,500 13,000 10,500 25,000 Rifle TV/Projector Total