PLEASE USE 2018 TAX FORMS

PROBLEM 1 John R. and Anne L. Miller are married and live at 13071 Sterling Drive, Aitkin, MN 56431. John is a self-employed insurance claims adjuster (business activity code 524290), and Anne is the dietitian for the local school district. They choose to file a joint tax return each year. 1. John represents several national casualty insurance companies on a contract basis. He operates this business on the cash basis. He is paid a retainer and receives additional compensation if the claims he processes for the year exceed a specified number. As an independent contractor, he is responsible for whatever expenses he incurs. John works out of an office near his home. The office is located at 1202 Motel Road. He shares Suite 326 with a financial consultant, and operating expenses are divided equally between them. The suite has a common waiting room with a receptionist furnished and paid by the landlord. John paid his one-half share of the 2014 expenses as detailed below: Contribution to traditional IRA $5,500 Job hunting expense 720 Continuing education program 350 Membership dues to the National Association of Dietitians 120 Subscription to Nutrition Today 90 In order to work full time and earn a larger salary, Anne applied for a position as chief dietitian for a chain of nursing homes. According to the director of the recruiting service she hired, the position has not yet been filled and Anne is one of the leading candidates. The continuing education program was sponsored by the National Association of Dietitians and consisted of a one-day seminar on special diets for seniors. Anne drove the family Chevrolet Malibu 930 miles on job-related use, out of a total of 8,670 miles driven for the year. The Millers purchased the car on July 11, 2012, for $23,400. Anne uses the automatic mileage method for computing any available deduction for business use of the car. 5. The Millers have supported Gary Simon (Anne's widowed father) for several years, appropriately claiming him as a dependent for tax purposes. On December 27, 2013, Gary suffered a massive stroke. The doctors did everything they could for Gary, but he died in the intensive care unit of Riverwood Hospital on January 8, 2014. In January and February of 2014, the Millers paid the following for Gary: medical expenses of $11,800 not covered by Medicare ($6,000 incurred in 2013 and $5,800 in 2014) and funeral expenses of $15,300. Gary's health insurance was limited to his Medicare coverage because the Millers' medical insurance (see item 3 above) only covered John, Anne, and their sons. Gary's will named Anne as executor and sole heir of his estate. 6. One of the assets that Anne inherited with the transfer of Gary's estate was his house. Upon the advice of the financial consultant who shares office space with John, the Millers decided to convert Gary's home into a furnished rental house. After several minor repairs (e.g., touching up the paint on the interior walls, replacing various window screens, pressure washing the brick exterior, etc.), the property was advertised for rent in the classified section of the local newspaper on March 1, 2014. The repairs cost $720, and the newspaper ad was $360. Based on reconstructed records and appraisal estimates, information about the property is as follows: 7. Gary's former residence was rented almost immediately with occupancy commencing April 1, 2014, under the following terms: one-year lease; $2,400 per month due the first day of the month; first and last month's rent in advance; $2,000 damage deposit; lawn care included but not utilities. The tenant complied with all terms, except the December rent payment was not made until January 1, 2015the tenant took an extended holiday trip that started on Thanksgiving Day (November 27) through Christmas Day (December 25). Expenses in connection with the property were as follows: property taxes, $2,600; repairs, $320; lawn maintenance, $540; insurance, $1,800; and street paving assessment, $2,100. The property is located at 12120 Lake Road, Aitkin, MN 56431. (Note: If you are using H&R Block software, input 365 in the days owned box and in the days rented box. Otherwise, the program will apportion the expenses inappropriately.) 8. In early December 2013, a friend advised John to buy stock in Pioneer Aviation, Inc. (PAI). At that time, PAI was in serious financial straits and was headed toward bankruptcy. Nevertheless, according to John's friend, the value of the corporation's underlying assets was such that the shareholders were bound to recover considerably more than the current market price of $.50 per share. Excited at the chance for a sure profit, on December 15, 2013, John purchased 20,000 shares for $10,000. In September 2014, the trustee in bankruptcy announced that the stock was worthless and that even some of PAI's preferred creditors would not be paid. 9. On June 14, 2014, the Millers sold 500 shares of Garnet Corporation for $17,500 ($35 per share). They owned 1,000 shares, acquired as follows: 500 shares on November 5, 2013, for $25 a share and 700 shares on April 5, 2014, for $30 a share. The Millers did not instruct their broker as to which shares to sell, so Form 1099B for this sale reported $12,500 basis for these shares. ound that John's acceptance of the payments does not violate state or local law. John sincerely believes that the payments he receives have no effect on the referrals he makes. During December 2014, John received cards containing $7,200. One additional card containing $900 was delayed in the mail and was not received by John until January 4, 2015. 13. In addition to those previously noted, the Millers' receipts during 2014 are summarized below: Payments made for 2014 expenditures not mentioned elsewhere are as follows: Medical: Medical: Copayment portion of medical expenses $1,300 Dental (orthodontist) 1,200 Taxes: State income tax (see item 17 below) 3,456 State sales taxes 1,120 Property taxes on personal residence 3,800 Interest on home mortgage reported on Form 1098 4,200 Charitable contributions 3,600 The Millers' medical insurance does not cover dental services. The Millers pledge contributions of $1,200 per year to their church. In 2014, they paid the pledges for 20132015. During 2014, the Millers drove the Malibu 270 miles for medical purposes (e.g., trips to the hospital, doctor and dentist offices) and 320 miles delivering meals to the poor for Meals-on-Wheels, a qualified charity. The Form W2 Anne receives from her employer reflects wages of $32,000. Appropriate amounts for Social Security and Medicare taxes were deducted. Income tax withholdings were $1,320 for Federal and $1,056 for state. The Millers made quarterly tax payments of $2,000 for Federal and $600 for state on each of the following dates: April 15, 2014, June 16, 2014, September 15, 2014, and December 29, 2014. None of the Millers hold any foreign financial accounts. Relevant Social Security numbers are noted below: Name Social Security Number Birth Date John R. Miller 111-11-1111 06/06/1972 Anne L. Miller 123-45-6781 08/14/1973 Gary Simon 123-45-6784 03/12/1934 Trace Miller 123-45-6788 09/13/1997 Trevor Miller 123-45-6789 07/20/1999 Requirements Prepare an income tax return (with all appropriate forms and schedules) for the Millers for 2014 following these guidelines: Make necessary assumptions for information not given in the problem but needed to complete the return. The taxpayers are preparing their own return (i.e., no preparer is involved). The taxpayers have substantiation (e.g., records, receipts) to support all transactions for the year. If any refund is due, the Millers want a refund check sent to them by mail. The Millers had itemized deductions from AGI for 2013 of $16,700, of which $1,500 was for state and local income taxes. The Millers do not want to contribute to the Presidential Election Campaign Fund.