Question
Part 2: Comprehensive Tax Return Problems c ompreheNsive T ax r eTurN p roblem 1 1. David R. and Susan L. Holman a. David and
Part 2: Comprehensive Tax Return Problems
c
ompreheNsive
T
ax
r
eTurN
p
roblem
1
1.
David R. and Susan L. Holman
a.
David and Susan Holman are married and file a joint return. David is 38 years
of age and Susan is 36. David is a self-employed certified real estate appraiser
(C.R.E.), and Susan is employed by Wells Fargo Bank as a trust officer. They
have two children: Richard Lawrence, age seven, and Karen Ann, age four. The
Holmans currently live at 5901 W. 75th Street, Los Angeles, California 90034, in a
home they purchased and occupied on September 6,
2017
.
Until August 12,
2017
the Holman family lived at 3085 Windmill Lane in
Dallas, Texas, where David was employed by Vestpar Company, a real estate ap
-
praisal company and Susan was a bank officer for First National Bank. They sold
their home in Dallas and moved to Los Angeles so that Susan could assume her
new job as a trust officer and David could become self-employed.
b.
The Holmans purchased their new home for $525,000 by making a $125,000 down
payment and financing the remaining balance with a 30-year, 6% conventional
mortgage loan from California Federal Savings and Loan. They were required to
prepay two points ($8,000) in return for the favorable mortgage terms. New furni
-
ture and drapes cost an additional $27,500.
c.
The Holmans received the following Forms W-2, reporting their salaries for 2017:
1.
David R. Holman, Social Security No. 452-64-5837:
Gross salary from Vestpar, Inc.
..............................
$95,000
Federal income taxes withheld
..............................
9,050
F.I.C.A. taxes withheld:
Social Security
........................................
4,650
Medicare
............................................
1,088
California income taxes withheld
..........................
3,000
2.
Susan L. Holman, Social Security No. 467-32-5452:
First National
Bank
Wells Fargo
Bank
Total
Gross salary
......................
$17,500
$34,000
$51,500
Federal income taxes withheld
........
1,100
4,150
5,250
F.I.C.A. taxes withheld:
Social Security
..................
1,085
2,108
3,193
Medicare
......................
254
493
747
First National
Bank
Wells Fargo
Bank
Total
California income taxes withheld
......
2,950
2,950
d.
On October 1,
2017
David rented office space at 5510 Wacker Drive, Los Angeles,
California 90025. The terms of the one-year lease agreement called for a monthly
rent of $800, with the first and last months rent paid in advance.
David decided to operate his business in the name of David R. Holman, Certified
Real Estate Appraiser, and he elected to use the cash method of accounting for his
revenues and expenses. The following items relate to his business for
2017
:
I-10
Appendix I
Continuous Individual Tax Return Problems and Three Comprehensive Individual Tax Return Problems for 2017
Gross receipts
..............................
$85,000
Expenses:
Advertising
.............................
250
Bank service charges
......................
50
Dues and publications
.....................
450
Insurance
...............................
600*
Interest
................................
275
Professional services
......................
525
Office rent
..............................
3,200**
Office supplies
...........................
700
Meals and entertainment
...................
500
Miscellaneous expenses
....................
75
* Three months of coverage
** Includes prepayment of last months rent for September,
2018
David drove his personal automobile, a 2014 Ford Mustang, 5,000 miles for busi
-
ness purposes from October 1 through December 31. Rather than keeping receipts,
he elected to use the automatic mileage method for determining his auto expenses.
Davids total auto mileage for the year was 20,000 miles.
On October 3,
2017
David purchased the following furniture and equipment for
use in his business:
Office furniture
.......................................
$17,000
Copying machine
......................................
5,800
Computers
...........................................
6,500
Laser printers
.........................................
2,500
Telephone system
......................................
3,100
David elects to expense the maximum amount allowed under the optional expens
-
ing rules of 179. He also elects to compute the maximum depreciation allowance
using the appropriate MACRS percentages.
g.
The Holmans received interest income during
2017
from the following:
U.S. Treasury bills
......................................
$1,475
First National Bank, Dallas
...............................
625
Wells Fargo Bank
......................................
400
Tarrant County municipal bonds
...........................
800
h.
David and Susan received the following dividends during
2017
:
Ford Motor Company
..................................
$
300
Eastman Kodak Company
...............................
575
IBM Corporation
......................................
125
Apple stock dividend (20 new shares of stock valued at
$60 per share, received March 9,
2017
)
..................
1,200
i.
The Holmans have never maintained foreign bank accounts or created foreign
trusts.
j.
The Holmans report the following stock transactions for
2017
:
1.
Sold 100 shares of IBM stock for $120 per share on August 1,
2017
.
David
had inherited 500 shares of IBM stock from his uncle on July 18, 2013, and
the stock was valued at $170 per share on the date of his uncles death.
2.
Sold 400 shares of Apple stock for $78 per share on July 20,
2017
.
Susan had
received 1,000 shares of Apple stock as a birthday present from her grand
-
father on June 3, 2008. Her grandfather had purchased the stock for $35 per
share on May 7, 2004, and the stock was valued at $60 per share on the date of
the gift. Susans grandfather paid gift taxes of $10,000 as a result of the gift.
Note:
The amount of the annual exclusion taken into account in determining
the taxable gift was $10,000.
3.
Sold 300 shares of Intel stock for $40 per share on December 28,
2017
, but
did not receive the sales proceeds until January 3,
2018
.
The Holmans had
paid $25 per share for the stock on May 21, 2014.
Part 2: Comprehensive Tax Return Problems
I-11
k.
Susan has summarized the following cash expenditures for
2017
from canceled
checks, mortgage company statements, and other documents:
Prescription medicines and drugs
..........................
$
982
Medical insurance premiums (paid by Susan)
.................
2,830
Doctors and hospital bills (net of reimbursements)
............
1,535
Contact lenses for David
................................
218
Real estate taxes paid on:
Dallas residence
....................................
3,400
Los Angeles residence
................................
5,600
Sales taxes paid on Susans new auto
.......................
1,485
Ad valorem
taxes paid on both autos
.......................
350
Interest paid for:
Dallas home mortgage
...............................
5,250*
Los Angeles home mortgage
. . . . . . . . . . . . . . . . . . . . . . . . . . .
10,200**
Credit card interest
..................................
480
Personal car loan
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,720
Cash contributions to:
United Methodist Church
.............................
5,200
Salvation Army
.....................................
1,500
Barack Obama Campaign Fund
........................
250
Susans unreimbursed employee expenses
...................
470***
Davids unreimbursed employee expenses
...................
360
Tax return preparation fee
...............................
375
*Does not include the mortgage prepayment penalty identified in item (b) above.
**Does not include the interest points charged for the new mortgage identified in item (d) above.
***Does not include any costs for meals or entertainment.
Susan also noted that she and David had driven their personal automobiles
500 miles to receive medical treatment for themselves and their children. She
also has a receipt for 100 shares of Apple stock that she gave to her alma mater,
Southern Methodist University, on November 12,
2017
.
The stock was valued at
$70 per share on the date of the gift and was from the block of Apple stock Susan
had received as a wedding present from her grandfather (see item (j)(2) above for
details).
l.
The Holmans paid the following child care expenses during
2017
:
1.
Kindergarten Daycare School
.......................
$2,800
1177 Valley View
Dallas, Texas 75210
EIN: 74-0186254
2.
Happy Trails Day Center
...........................
2,200
3692 Airport Blvd.
Los Angeles, California 90034
EIN: 78-0593676
Of the $5,000 total child care expenses, $3,000 was for Karen, and the remaining
$2,000 was for Richard.
m.
Social Security numbers for the Holman children are provided below:
Richard L. Holman, Social Security No. 582-60-4732
Karen A. Holman, Social Security No. 582-60-5840
n.
David and Susan made estimated Federal income tax payments of $1,750 each
quarter, on 4/15/17, 6/15/17, 9/15/17, and 1/15/18.
o.
The Holmans have always directed that $6 go to the Presidential Election
Campaign by checking the yes boxes on their Form 1040.
Required:
Complete the Holmans Federal income tax return for
2017
.
If they have a refund
due, they would prefer having it credited against their
2018
taxes.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started