Please complete the 3 case requirements by filling out the supporting tax documents.

Tax Confusion and Form 1040 Turmoil Louise Single Steve Rosner St. Edward's University ABSTRACT: This case in the area of Individual Federal Taxation descrbes the dilemma faced by a young couple who were trying to file an accurate 1040. The couple had some major life events during the year and decided to have heir return prepared by a national chain of walk-in tax return preparation services. They were disappointed in the result and didn have a lot of faith in the person who worked on their return. The case picks up on the eve of April 15 with the couple trying to decide whether to fle the quesionable return or to try to prepare one themselves, Students review client-provided tax information and apply the tax law learned during the semester to identify the correct presentation of the items in the tax retun, identify potential controversial issues that might be challenged by the IRS and recognize where additional information is needed in order to prepare an accurate tax return Keywords: 1040, itemized deductions: home office deductions: selt employment income THE CASE t was the night of April 14 and Daniel was pacing funously around the house mutering to himself. Jessica sat nervously on the couch watching her husband and looking at their tax returns. What to do? What to file? Daniel and Jessica Markham realized their lives had become much, much more complicated than before They met while in college, both studied computer science, and were married shortly after graduation. After landing great jobs Daniel with the local university in the Information Technology Deparment as a database administrator and Jessica in web design with a local fast-growing startup company hey were shocked to tind how much income cas was withheld from their new, wonderful salaries Between taxes and student loans, they didnt feel like they were much better off than in their student days when they watched every penny They had always heard that owning a home would provide some cas deductions and could maybe help them money wise. Since they wanted out of their noisy apartment anyway, they sook the plunge and bought a small house that needed a lintle remodeling and ender loving care. They thought purchasing home would certainly yield some nice tx deductions and save them some money Jessica's Business During her last year in college, Jessica became fascinated with bobblehcad dolls and stated collecting them. Over time.a friends and acquaintances admired her collection, inquiring as to where she found them, she decided to startpart-time business selling them. She contacted the manufacturer, Bobbic Heads, Inc., and started her side business. Bobble Buddies, and began to sell scented bobblehead dolls. She was convinced it would help their financial situaion By agreement, she wa required to carry an inventory of standard dolls that included cartoon figures, comic-book heroes, celebrities, and sport mascots She purchased these figures directly from Bobble Heads, Inc, and all revenues from her party sales and online sales were hers to keep. But she could also order customized cancatures of friends or non-standard figures directly from the manofacturer For these sales she received sales commissions from Bobble Heads, Inc as her share of the revenuce When the dolls bobbleheads moved, they would emit a pleasing scent, chosen from a wide selection and refillable after a month or two. The aromas ranged from lilac and other fowering scents to mone masculme scents and even hemp so as to appeal The auton tar k participants at the 2014 Norts Areenan Cae Rescanch Assocutioe Caference, the ournal rdam nd anonymous revenn and Dr. Kay Guess, D Carole Conn, and Professot Trwle Nobles for thor edbck 4ions for iniving the ca Editors note Accepeed by Lon Holder Webb 20 Single and Rosner to both male and female customers. Not only would there be gross profits from the sales of the dolls and would be additional sales commissions from the special-order dolls Jessica was confident about the prospects for this business despite its past losses of $4.174 in 2013 and $69) in 2014 view of the future, pointing out the time commitment, the continuing drain on their cash, and the constant gifts to potential customers both retailers and acquaintances of hers who would refer their frends. She, however argued that her losses seemed to be declining and profits must surely be around the corner despite an past year apparent repeated loss this Although busy with her demanding job, Jessica plunged ahead and continued the bobbichead business in her spare time from their home. She was using space in the garage to store her inventory but as they began to acquire yard maintenance equipment and other basic household sools, they started nunning out of space for the bobbleheads. The summer heat was also a potential threat to the stability of the scents that were being stored out there. Since they were not really using one of the two spare bedrooms in their home, Jessica decided to set it up as a storage area. She had bought several storage cabinets in March 2015 and installed them so that the inventory couid be kept organized. Unfortunately, it meant that the small room couldn't be used for anything else and Daniel didn's like the idea of taking up one of their rooms just for the business However, they were not planning oo starting a family for a while, and their parents lived in nearby towns, so they didn'i really need the extra sieeping space. Filing the 2015 Return Another financial drain this year was that both Jessica and Daniel bad to see medical specialists Jessica suffered tembly from allergies and had received medications as well as many respiratory treatments from a clinic, and as a result, her health was mproving, Daniel, unfontunately, suffered a hemia in moving into their new home and required surgery as well as follow-UP visits Nevertheless, the good news in all of this, they realized. was that they must have many, many deductions for their new home and medical expenses, In fact, shey were counting 0o a big refund so shat they coold usc some of the money to open an IRA Their parensts kept telling them that it was never too soon to think about retirement. They reallydidn' know anything about IRAs other than that they had to open some kind of account with a financial institution and that there was a limit to how much they could contribute every year. But there could also be an extra tax deduction available for the money they contributed, so they were ready to consider opening an account Jessica had also been putting money into her employer's 401(k) plan, shough, so she didn't really know if they needed an IRA. She wanted to keep the money in their savings account in case they had any more expensive medical issues, but Daniel still thought they should look into IRAs further. In fact. they had planned to do so before they aled theur tax returms for 2015 but figured they would waii and determine what kind of refund they were getting before they met with a banker When the deadine for filing their 2015 taxes loomed on the horizon, they did what most people wouild do when confronted with all of these changes and new adventures they panicked! They gathered all their receipts,rcal estatc closing documents and W-2s and headed to the local office of the national chan, Taxes-Don 't Faze-Us They were assigned to Angela Carson who guided them to her desk and proceeded io ask for vanous documents based on what looked like a chiccklist that she wa reading from her computer Furst she asked for W-2s and went through a whole list of other possable iypes of income lake interest, dividends, and investments. Jessica and Daniel made eye contact don't we wish, they silently communicated. Finally she got around to sking if they had any kind of business income. From the way she askea it was obvious that she didn expect the answer to be ves Jessics pulled out her records for Bobble Buddies Angela reviewed the spreadsiocts showng revenues and expenses and the 1099 from Bobble Buddies. Inc. for the commissions Jessica got for the special-order bobbleheads. She hunded Jessica a list of expense items and asked her to identify what other expenses from the list she might have and the amounts. As Jessica used for anything else and Daniel didn't like the idea of taking up one of their rooms just for the business. However, they were not planning on starting a family for a whic, and their parens lived in nearby towns, so they dido't really need the extra slceping space. Filing the 2015 Return Another financial drain this year was that both Jessica and Daniel had to see medical specialists. Jessica suffered temibly from allergies and had received medications as well as many respiratory treatments from a improving. Daniel, unfortunately, suffered a hemia in moving into their new home and required surgery as well as follow-up clinic., and as a result, her health was visits. Nevertheless, the good news in all of this, they realized, wa hat they must have many, many deductions for their new home and medical expenses. In fact, they were counting on a big refund so that dhey could use some of the money to open an IRA. Their parents kept telling them that it was never too soon to think about retirement. They really didn't know anything about IRAs other than that they had to open some kind of account with a financial insitution and that there was a limit to bow much they could contribute every year. But there could also be an extra tax deduction available for the money they contributed so they were ready to consider opening an account Jessica had also been puting moncy into her employer's 40100 plan, though, so she didn't really know it they nceded a IRA. She wanted to keep the money in their savings account in case they had any more expensive medical issues, but Daniel still thought they should look into IRAs further. In fact, they had planned to do so before they 6led their tax returns for 2015 but figured they would wait and determine what kind of refund they were getting before they met with a banker When the deadline for filing their 201S taxes loomed on the horizon, they did what most people would do when confronted with all of these changes and new adventures they panicked! They gathered all their receipts, real estate closing documents and W/2s and headed to the local office of the national chain, Taxes-Don't-Faze-Us. They were assigned to Angela Carson who guided them to her desk and proceeded to ask for vanous documents based on what looked like a checklist that she was reading from her computer First she asked for W-2s and went through a whole list of other possible types of income like interest, dividends, and investments Jessica and Daniel made eye contactdon 't we wish. they silently communicated. Finally she got around to asking if they had any kind of business income From the way she asked, it was obvious that she didn't expect the answer so b yes! Jessica pulled out her records for Bobble Buddies Angela reviewed the spreadsheets showing revenues and expenses and the 1099 from Bobble Buddies, Inc. for the commissions Jessica got for the special-order bobblebeads She handed Jessica a list of expense items and asked her to identity what other expenses from the list she might have and the amounts As Jessica reviewed the list she saw Angela glancing behind her. Jessica tumed. looked out into the office, and saw that the waiting line was getting longer and longer. Well they'l just have to wait, she thought Jessica needed time to review the list that Angela had give her because she wanted to be sure that she got all the deductions she could get Then things got a little confusing Jessica told Angela about all the expenses, including the ones related to using the space in their home. she in their home to store things. But when Angela finally scened to realize that the storage space was actually told them that would require another form, and since the company charged on a per-fom b basis, it would cost extra. Were they careful records for sure they wanted to do that since it might not result in much of footage of the room used for storage and the business mileage for the car. but they did the bes they could Jessica hing, so they replied that they wanted to complete the form. Jessica and Daniel had to estimate a few things,like the square Although they gave Angela their mongage and real escate oax infornation, she didn' ask about any ocher espenses Dan asked if she needed any more infornation about heir deductoions, since uhey had medical espenses and charitable contribution 201 XTAX CONFUSION.pdf uments/TAX%20CONFUSION.pdf Tax Confusion and Form 1040 Turmo 21 during the year as well. After Jessica showed her the charitable contribution receips and the medical expense log she had kept, Angela told them that it didn't look like they had enough deductions to itemize, especially because they both had employer provided health care covernge. She didn't want to see their house closing documents and said she just neoded the morgage interest and property tax numbers. Jessica and Daniel began to wonder if Angela really knew what she was doing, but they wen ahead and finished the return with her and received a completed tax return showing a refund of taxes -about $2.800. But they had been expecting much more. After all, they claimed almost no exemptions on their seemed high. All of their friends had said that with buying a house, medical expenses, and running a business from their home the Markhams would have sizeable deductions. They expected to get a hoge refund. But sadly, they were not accountants They asked Angela to just give them a printed copy of the tax return and to wait on fling for now W-4 fomms, and their tax withholdings Oace they got home, they started wondering aloud whether Angela really knew what she was doing. "She seemed kind of nervous," said Daniel, Jessica replied that she seemed a bit rushed, too. I can't understand why we didn and why didn's she look closing statement? t get more deductions at our closing statement? Didn't our real estate agent tell us to keep a copy with our tax records for when we prepared our tax retum? What about the form 1098 from the bank? It looked official and should be included in a ta rcturn, right? After talking it over with friends and thinking about it a great deal, they decided that maybe they should not use retum from Taxes-Don t-Faze-Us. Maybe they should try doing their taxes themselves 15 the Markhams were in a quandary. They wanted a bigger refund that would somehow take into house, medical, and other expenses, and it seemed so strange that none were shown on the Taxes-Don' -Faze s the prepared tax return even conreet? They didn't want to get in trouble with the IRS. Before they were marricc Us retum. Wa lessica had always done her own returns and never had any problems, Daniel, however, was hesitant to try it on their since everything seemed so complicated. It would be casy to make some big mistake and cause an audit. The clock was ticking away. They knew they had to make a decision before the next day. CASE REQUIREMENTS 1. Review the supporting documents contained in Exhibits 1-4 and prepare a reum for the Markhams to the best of your ability with the information provided. 2. Prepare a list of additional questions that you would want to ask the Markhams or any additional documentation you would like to review before actually filing the tax retum that you prepare.TTTUT1 3. Review the return prepared by Taxes-Don t-Faze-Us in Exhibit 5 and compare it to the return you prepared. For each difference betwoen your retum and the one from Taes-Don't-Fuze-Us, identity the presentadon that you believe i correct from among the two returns and explain why and/or identify any additional information that you would need to determine the correct presentation See Appendix A for the link for the downloadable Word document cha includes Exhibits - APPENDIXA Case Exhibits Case Exhibis t+5 btplo.oocg/10 2309 35-5 734 01 Tax Confusion and Form 1040 Turmoil Louise Single Steve Rosner St. Edward's University ABSTRACT: This case in the area of Individual Federal Taxation descrbes the dilemma faced by a young couple who were trying to file an accurate 1040. The couple had some major life events during the year and decided to have heir return prepared by a national chain of walk-in tax return preparation services. They were disappointed in the result and didn have a lot of faith in the person who worked on their return. The case picks up on the eve of April 15 with the couple trying to decide whether to fle the quesionable return or to try to prepare one themselves, Students review client-provided tax information and apply the tax law learned during the semester to identify the correct presentation of the items in the tax retun, identify potential controversial issues that might be challenged by the IRS and recognize where additional information is needed in order to prepare an accurate tax return Keywords: 1040, itemized deductions: home office deductions: selt employment income THE CASE t was the night of April 14 and Daniel was pacing funously around the house mutering to himself. Jessica sat nervously on the couch watching her husband and looking at their tax returns. What to do? What to file? Daniel and Jessica Markham realized their lives had become much, much more complicated than before They met while in college, both studied computer science, and were married shortly after graduation. After landing great jobs Daniel with the local university in the Information Technology Deparment as a database administrator and Jessica in web design with a local fast-growing startup company hey were shocked to tind how much income cas was withheld from their new, wonderful salaries Between taxes and student loans, they didnt feel like they were much better off than in their student days when they watched every penny They had always heard that owning a home would provide some cas deductions and could maybe help them money wise. Since they wanted out of their noisy apartment anyway, they sook the plunge and bought a small house that needed a lintle remodeling and ender loving care. They thought purchasing home would certainly yield some nice tx deductions and save them some money Jessica's Business During her last year in college, Jessica became fascinated with bobblehcad dolls and stated collecting them. Over time.a friends and acquaintances admired her collection, inquiring as to where she found them, she decided to startpart-time business selling them. She contacted the manufacturer, Bobbic Heads, Inc., and started her side business. Bobble Buddies, and began to sell scented bobblehead dolls. She was convinced it would help their financial situaion By agreement, she wa required to carry an inventory of standard dolls that included cartoon figures, comic-book heroes, celebrities, and sport mascots She purchased these figures directly from Bobble Heads, Inc, and all revenues from her party sales and online sales were hers to keep. But she could also order customized cancatures of friends or non-standard figures directly from the manofacturer For these sales she received sales commissions from Bobble Heads, Inc as her share of the revenuce When the dolls bobbleheads moved, they would emit a pleasing scent, chosen from a wide selection and refillable after a month or two. The aromas ranged from lilac and other fowering scents to mone masculme scents and even hemp so as to appeal The auton tar k participants at the 2014 Norts Areenan Cae Rescanch Assocutioe Caference, the ournal rdam nd anonymous revenn and Dr. Kay Guess, D Carole Conn, and Professot Trwle Nobles for thor edbck 4ions for iniving the ca Editors note Accepeed by Lon Holder Webb 20 Single and Rosner to both male and female customers. Not only would there be gross profits from the sales of the dolls and would be additional sales commissions from the special-order dolls Jessica was confident about the prospects for this business despite its past losses of $4.174 in 2013 and $69) in 2014 view of the future, pointing out the time commitment, the continuing drain on their cash, and the constant gifts to potential customers both retailers and acquaintances of hers who would refer their frends. She, however argued that her losses seemed to be declining and profits must surely be around the corner despite an past year apparent repeated loss this Although busy with her demanding job, Jessica plunged ahead and continued the bobbichead business in her spare time from their home. She was using space in the garage to store her inventory but as they began to acquire yard maintenance equipment and other basic household sools, they started nunning out of space for the bobbleheads. The summer heat was also a potential threat to the stability of the scents that were being stored out there. Since they were not really using one of the two spare bedrooms in their home, Jessica decided to set it up as a storage area. She had bought several storage cabinets in March 2015 and installed them so that the inventory couid be kept organized. Unfortunately, it meant that the small room couldn't be used for anything else and Daniel didn's like the idea of taking up one of their rooms just for the business However, they were not planning oo starting a family for a while, and their parents lived in nearby towns, so they didn'i really need the extra sieeping space. Filing the 2015 Return Another financial drain this year was that both Jessica and Daniel bad to see medical specialists Jessica suffered tembly from allergies and had received medications as well as many respiratory treatments from a clinic, and as a result, her health was mproving, Daniel, unfontunately, suffered a hemia in moving into their new home and required surgery as well as follow-UP visits Nevertheless, the good news in all of this, they realized. was that they must have many, many deductions for their new home and medical expenses, In fact, shey were counting 0o a big refund so shat they coold usc some of the money to open an IRA Their parensts kept telling them that it was never too soon to think about retirement. They reallydidn' know anything about IRAs other than that they had to open some kind of account with a financial institution and that there was a limit to how much they could contribute every year. But there could also be an extra tax deduction available for the money they contributed, so they were ready to consider opening an account Jessica had also been putting money into her employer's 401(k) plan, shough, so she didn't really know if they needed an IRA. She wanted to keep the money in their savings account in case they had any more expensive medical issues, but Daniel still thought they should look into IRAs further. In fact. they had planned to do so before they aled theur tax returms for 2015 but figured they would waii and determine what kind of refund they were getting before they met with a banker When the deadine for filing their 2015 taxes loomed on the horizon, they did what most people wouild do when confronted with all of these changes and new adventures they panicked! They gathered all their receipts,rcal estatc closing documents and W-2s and headed to the local office of the national chan, Taxes-Don 't Faze-Us They were assigned to Angela Carson who guided them to her desk and proceeded io ask for vanous documents based on what looked like a chiccklist that she wa reading from her computer Furst she asked for W-2s and went through a whole list of other possable iypes of income lake interest, dividends, and investments. Jessica and Daniel made eye contact don't we wish, they silently communicated. Finally she got around to sking if they had any kind of business income. From the way she askea it was obvious that she didn expect the answer to be ves Jessics pulled out her records for Bobble Buddies Angela reviewed the spreadsiocts showng revenues and expenses and the 1099 from Bobble Buddies. Inc. for the commissions Jessica got for the special-order bobbleheads. She hunded Jessica a list of expense items and asked her to identify what other expenses from the list she might have and the amounts. As Jessica used for anything else and Daniel didn't like the idea of taking up one of their rooms just for the business. However, they were not planning on starting a family for a whic, and their parens lived in nearby towns, so they dido't really need the extra slceping space. Filing the 2015 Return Another financial drain this year was that both Jessica and Daniel had to see medical specialists. Jessica suffered temibly from allergies and had received medications as well as many respiratory treatments from a improving. Daniel, unfortunately, suffered a hemia in moving into their new home and required surgery as well as follow-up clinic., and as a result, her health was visits. Nevertheless, the good news in all of this, they realized, wa hat they must have many, many deductions for their new home and medical expenses. In fact, they were counting on a big refund so that dhey could use some of the money to open an IRA. Their parents kept telling them that it was never too soon to think about retirement. They really didn't know anything about IRAs other than that they had to open some kind of account with a financial insitution and that there was a limit to bow much they could contribute every year. But there could also be an extra tax deduction available for the money they contributed so they were ready to consider opening an account Jessica had also been puting moncy into her employer's 40100 plan, though, so she didn't really know it they nceded a IRA. She wanted to keep the money in their savings account in case they had any more expensive medical issues, but Daniel still thought they should look into IRAs further. In fact, they had planned to do so before they 6led their tax returns for 2015 but figured they would wait and determine what kind of refund they were getting before they met with a banker When the deadline for filing their 201S taxes loomed on the horizon, they did what most people would do when confronted with all of these changes and new adventures they panicked! They gathered all their receipts, real estate closing documents and W/2s and headed to the local office of the national chain, Taxes-Don't-Faze-Us. They were assigned to Angela Carson who guided them to her desk and proceeded to ask for vanous documents based on what looked like a checklist that she was reading from her computer First she asked for W-2s and went through a whole list of other possible types of income like interest, dividends, and investments Jessica and Daniel made eye contactdon 't we wish. they silently communicated. Finally she got around to asking if they had any kind of business income From the way she asked, it was obvious that she didn't expect the answer so b yes! Jessica pulled out her records for Bobble Buddies Angela reviewed the spreadsheets showing revenues and expenses and the 1099 from Bobble Buddies, Inc. for the commissions Jessica got for the special-order bobblebeads She handed Jessica a list of expense items and asked her to identity what other expenses from the list she might have and the amounts As Jessica reviewed the list she saw Angela glancing behind her. Jessica tumed. looked out into the office, and saw that the waiting line was getting longer and longer. Well they'l just have to wait, she thought Jessica needed time to review the list that Angela had give her because she wanted to be sure that she got all the deductions she could get Then things got a little confusing Jessica told Angela about all the expenses, including the ones related to using the space in their home. she in their home to store things. But when Angela finally scened to realize that the storage space was actually told them that would require another form, and since the company charged on a per-fom b basis, it would cost extra. Were they careful records for sure they wanted to do that since it might not result in much of footage of the room used for storage and the business mileage for the car. but they did the bes they could Jessica hing, so they replied that they wanted to complete the form. Jessica and Daniel had to estimate a few things,like the square Although they gave Angela their mongage and real escate oax infornation, she didn' ask about any ocher espenses Dan asked if she needed any more infornation about heir deductoions, since uhey had medical espenses and charitable contribution 201 XTAX CONFUSION.pdf uments/TAX%20CONFUSION.pdf Tax Confusion and Form 1040 Turmo 21 during the year as well. After Jessica showed her the charitable contribution receips and the medical expense log she had kept, Angela told them that it didn't look like they had enough deductions to itemize, especially because they both had employer provided health care covernge. She didn't want to see their house closing documents and said she just neoded the morgage interest and property tax numbers. Jessica and Daniel began to wonder if Angela really knew what she was doing, but they wen ahead and finished the return with her and received a completed tax return showing a refund of taxes -about $2.800. But they had been expecting much more. After all, they claimed almost no exemptions on their seemed high. All of their friends had said that with buying a house, medical expenses, and running a business from their home the Markhams would have sizeable deductions. They expected to get a hoge refund. But sadly, they were not accountants They asked Angela to just give them a printed copy of the tax return and to wait on fling for now W-4 fomms, and their tax withholdings Oace they got home, they started wondering aloud whether Angela really knew what she was doing. "She seemed kind of nervous," said Daniel, Jessica replied that she seemed a bit rushed, too. I can't understand why we didn and why didn's she look closing statement? t get more deductions at our closing statement? Didn't our real estate agent tell us to keep a copy with our tax records for when we prepared our tax retum? What about the form 1098 from the bank? It looked official and should be included in a ta rcturn, right? After talking it over with friends and thinking about it a great deal, they decided that maybe they should not use retum from Taxes-Don t-Faze-Us. Maybe they should try doing their taxes themselves 15 the Markhams were in a quandary. They wanted a bigger refund that would somehow take into house, medical, and other expenses, and it seemed so strange that none were shown on the Taxes-Don' -Faze s the prepared tax return even conreet? They didn't want to get in trouble with the IRS. Before they were marricc Us retum. Wa lessica had always done her own returns and never had any problems, Daniel, however, was hesitant to try it on their since everything seemed so complicated. It would be casy to make some big mistake and cause an audit. The clock was ticking away. They knew they had to make a decision before the next day. CASE REQUIREMENTS 1. Review the supporting documents contained in Exhibits 1-4 and prepare a reum for the Markhams to the best of your ability with the information provided. 2. Prepare a list of additional questions that you would want to ask the Markhams or any additional documentation you would like to review before actually filing the tax retum that you prepare.TTTUT1 3. Review the return prepared by Taxes-Don t-Faze-Us in Exhibit 5 and compare it to the return you prepared. For each difference betwoen your retum and the one from Taes-Don't-Fuze-Us, identity the presentadon that you believe i correct from among the two returns and explain why and/or identify any additional information that you would need to determine the correct presentation See Appendix A for the link for the downloadable Word document cha includes Exhibits - APPENDIXA Case Exhibits Case Exhibis t+5 btplo.oocg/10 2309 35-5 734 01