Prepare a 2018 Federal income tax return with appropriate supporting forms and schedules for the Stewarts. In doing this, follow these guidelines:
- Make necessary assumptions for information not given but needed to complete return.
- The Stewarts are preparing their own return.
- The Stewarts have the necessary written substantiation (e.g., records, receipts) to support the transactions reported in their tax return.
- If the Stewarts have an overpayment of tax, they want it applied to their 2019 estimated taxes.
- The Stewarts do not wish to contribute to the Presidential Election Campaign Fund.
Appendix E Practice Set Assignments- Comprehensive Tax Return Problems PROBLEM 1-INDIVIDUALS (FORM 1040) inturt proconnect Roger R. and Michelle N. Stewart (ages 45 and 46) are married and live at 641 Cody Way, Casper, WY 82609. Roger is a consulting engincer, and Michelle is a paralegal, They file a joint retum and use the cash hasis for tax purposes. Trained as a mining engineer, Roger has developed considerable expertise in 1. the treatment and disposition of waste material. He is also well versed in the Federal and state requiremcnts for land reclamation prujects. Rnger operates a consulting business through which he advises clicnts on these matters. Roger's business activity code is 541990. Most of his clients are small and medium-size mine owncrs/operators located in Wyoming and contiguous states (e.g., Montana, Idaho, Utah), Usually, Roger is retained by a client on a contract lee basis and. is reimbursed for all out-of-pocket expenses. In performing his services, Roger usually visits the job site and later submits his recommendations in a written report along with a statement for his services and expenses. Roger received the following amounts from his consulting business in 2018: $ 92,800 Fees for services rendered Expense reimbursements: $8,200 Airfare 6,100 Meals 5,200 Lodging Transportation (taxis, airport limos, car rentals) Subtotal for expense reimbursement Total received 920 20,420 $113,220 2. Roger also provided services for the following companies from his office; there fore, there are no travel expenses. These fecs are not includled in the receipts listed in iteml above. Echo Mining: Work done in December 2018; payment received January 2019 Sesa Mining: Work done in December 2017; payment received January 2018 Cormorant Mining: Work done in March 2018; no payment received to date $5,100 4,400 3,700 Since Cormorant Mining is currently in bankruptcy, Roger does not expect to collect any of this fee. E-1 Practice Set Assignments-Comprehensive Tax Return Problems E-2 APPENDIXE Other expenses paid by Roger in 2018 relating to his practice are as follows: S9,000 Contribution to H.R.10 (Keogh) retirement plan Premiums on medical insurance (covering self, spouse, and dependents) Supplies-landscape models purchased from topographer for projects Advertising in trade journals 3,800 3,200 2,400 1,200 Office expense 60 Business phone and Internet service State occupation license Subscriptions to trade journals Membership dues to trade associations 300 240 180 4. Roger operates his consulting business out of an office in his home. Twenty per- cent of the 3,000-square-foot living area is devoted to the office. Roger inherited the home on Cody Way from his father who died on June 6, 2011. At that time, the home had a fair market value of $400,000 ($40,000 of which was allocated. to the land). The, Stewarts moved into the home in autumn of 2011, and Roger immediately set up his home office. The home's current fair market value is $500,000 ($50,000 allocated to the land). County land records reflect that Roger's father bought the land in 1972 for $6,000 and built the house in 1976 at a cost of $60,000. Roger depreciates the business use of his home using MACRS. Additional 2018 costs related to the home are as follows: $4,800 Utilities 2,900 Repairs and maintenance 2,300 Insurance The 2018 propcrty taxes and mortgage interest are listed in item 15. In addi- tion to the repairs and maintenance noted above, Roger had the office repainted at a total cost of $1,200 Over the years, Roger as roperly deducted the cost of all the furniture and equipment usexd in his office either as 179 expense or bonus depreciation in the year those assets were placcd in service, On March 5, 2018, Roger purchased a heavy-duty, fire-resistant file cabinet with security-vault features for $4,800. He made the acquisition to safeguard and maintain the privacy of client data. Con sistent with past years, Roger prefers to avoid capitalizing and depreciating the cabinet il the law allows. On February 4, 2017, Roger paid $41,000 (including sales tax) for an Infiniti. crossover SUV (gross weight under 6,000 pounds). No trade-in was involved, and he did not claim any 179 expense or bonus depreciation on the cost last year. Under the actual operating cost method, he depreciates the SUV using MACRS. (7lint: See Table 3 in the instructions to Form 4562.) His operating expenses for the Infiniti for 2018 are as follows: $3,300 Gasoline 1,600 Auto insurance 240 Repairs Auto club dues Oil changes and lubrication License and registration 180 120 60 Roger drove the Infiniti a total of 14,500 miles during 2018, 13,050 of which were driven lor business purposes. During business use, Roger received three moving traffic violations for which he paid $680 in fines. He also incurred tolls and parking charges of $440. E-3 Practice Set Assignments-Comprehensive Tax Return Problems APPENDIX E 6. Michelle is a licensed paralegal and is employed on a part-time basis by several local attorneys. She works in their different offices between the hours of 9 AM and 3 PM, three days a week. She commuted to work in the family Suburban and drove a total of 813 miles and paid parking fees of $310. Her 2018 earnings and job-related expenses are summarized as follows: $58,000 Combined wages from three employers Subscriptions and dues to professional organizations Continuing education correspondence course Occupational license fee 180 120 80 Since Michelle is a part-time employee, her employers do not cover her job- related expenses. The correspondence course is required continuing education so that she can retain her license. Michelle is thinking about applying to law school, which would require her to sit for the LSAT Exam. During 2018, she spent $350 on an LSAT preparation course. Because Michclle is a part-time employee, she is not covercd by any of her employers' medical or retirement plans. During 2018, she contributed $5,500 to a tracitional IRA that she had established several years ago. The Stewarts use the automatic mileage method to calculate any tax deductions to which they are entitled for use of the Suburban. 7. With funds received from ihe setlement of his father's estate, Roger purchased rental property at 4620 Cottonwood Lane. Of the $250,000 purchase price, $30,0 was allocated to the land. Alter an $80,000 renovation to the house (e.g replaced the roof, installed new flooring throughout the house, and installed a new furnacc), the property was rented heginning February 1, 2012. In 2016, the Stewarts decided their investment would be more marketable if the house was lully furnished. Conscquently, they spent $38,000 on new funiture, drapes, and appliances. All ol the furnishings were placed in service May 1, 2016. The Stew- arts dil not claim & 179 expense or bonus depreciation lor the year those assets were placed in service. Under the current lease agreement, ihe property renis fer $2,200 a month. Rent is clue the first day of each month. Utilitics are: not included in the rent. Information regarcling the property for 2018 is as follows: $28,600 Rent received 3,100 Property/casualty insurance premiums paid Property taxes paid Yard maintenance paid 2,400 1,200 800 Repairs The rent received includes $2,200 for January 2019. The tenants prepaidd the rent in nid-December because they went on vacation during the Christmas/New Year holidays. In addition to the property taxes listed above, Roger paid a special ax assessment of $1,300 to the City of Casper for repaving the street in front of the property. The Stewarts Use MACRS to depreciate the rental home and the furnishings within it. 8. The Stewarts acquired 1,000 shares of common stock in Cormorant Mining on March 7, 2017, to hold for investment purpuses. Roger performed services for the company in late 2016, submitting a bill for $3,900. Because Cormorant was exe- riencing cash flow problems at the time, Roger accepted the stock as payment for his scrvices, Unforunatcly, Comorant is currently in bankruptcy (sce item 2 above). In late 2018, the bankruptcy judge announced that creclitors will receive a fraction of whaL they are owed and shareholders will recover nothing with respect to their equity investments in the company. The stock is not publicly traded. Appendix E Practice Set Assignments- Comprehensive Tax Return Problems PROBLEM 1-INDIVIDUALS (FORM 1040) inturt proconnect Roger R. and Michelle N. Stewart (ages 45 and 46) are married and live at 641 Cody Way, Casper, WY 82609. Roger is a consulting engincer, and Michelle is a paralegal, They file a joint retum and use the cash hasis for tax purposes. Trained as a mining engineer, Roger has developed considerable expertise in 1. the treatment and disposition of waste material. He is also well versed in the Federal and state requiremcnts for land reclamation prujects. Rnger operates a consulting business through which he advises clicnts on these matters. Roger's business activity code is 541990. Most of his clients are small and medium-size mine owncrs/operators located in Wyoming and contiguous states (e.g., Montana, Idaho, Utah), Usually, Roger is retained by a client on a contract lee basis and. is reimbursed for all out-of-pocket expenses. In performing his services, Roger usually visits the job site and later submits his recommendations in a written report along with a statement for his services and expenses. Roger received the following amounts from his consulting business in 2018: $ 92,800 Fees for services rendered Expense reimbursements: $8,200 Airfare 6,100 Meals 5,200 Lodging Transportation (taxis, airport limos, car rentals) Subtotal for expense reimbursement Total received 920 20,420 $113,220 2. Roger also provided services for the following companies from his office; there fore, there are no travel expenses. These fecs are not includled in the receipts listed in iteml above. Echo Mining: Work done in December 2018; payment received January 2019 Sesa Mining: Work done in December 2017; payment received January 2018 Cormorant Mining: Work done in March 2018; no payment received to date $5,100 4,400 3,700 Since Cormorant Mining is currently in bankruptcy, Roger does not expect to collect any of this fee. E-1 Practice Set Assignments-Comprehensive Tax Return Problems E-2 APPENDIXE Other expenses paid by Roger in 2018 relating to his practice are as follows: S9,000 Contribution to H.R.10 (Keogh) retirement plan Premiums on medical insurance (covering self, spouse, and dependents) Supplies-landscape models purchased from topographer for projects Advertising in trade journals 3,800 3,200 2,400 1,200 Office expense 60 Business phone and Internet service State occupation license Subscriptions to trade journals Membership dues to trade associations 300 240 180 4. Roger operates his consulting business out of an office in his home. Twenty per- cent of the 3,000-square-foot living area is devoted to the office. Roger inherited the home on Cody Way from his father who died on June 6, 2011. At that time, the home had a fair market value of $400,000 ($40,000 of which was allocated. to the land). The, Stewarts moved into the home in autumn of 2011, and Roger immediately set up his home office. The home's current fair market value is $500,000 ($50,000 allocated to the land). County land records reflect that Roger's father bought the land in 1972 for $6,000 and built the house in 1976 at a cost of $60,000. Roger depreciates the business use of his home using MACRS. Additional 2018 costs related to the home are as follows: $4,800 Utilities 2,900 Repairs and maintenance 2,300 Insurance The 2018 propcrty taxes and mortgage interest are listed in item 15. In addi- tion to the repairs and maintenance noted above, Roger had the office repainted at a total cost of $1,200 Over the years, Roger as roperly deducted the cost of all the furniture and equipment usexd in his office either as 179 expense or bonus depreciation in the year those assets were placcd in service, On March 5, 2018, Roger purchased a heavy-duty, fire-resistant file cabinet with security-vault features for $4,800. He made the acquisition to safeguard and maintain the privacy of client data. Con sistent with past years, Roger prefers to avoid capitalizing and depreciating the cabinet il the law allows. On February 4, 2017, Roger paid $41,000 (including sales tax) for an Infiniti. crossover SUV (gross weight under 6,000 pounds). No trade-in was involved, and he did not claim any 179 expense or bonus depreciation on the cost last year. Under the actual operating cost method, he depreciates the SUV using MACRS. (7lint: See Table 3 in the instructions to Form 4562.) His operating expenses for the Infiniti for 2018 are as follows: $3,300 Gasoline 1,600 Auto insurance 240 Repairs Auto club dues Oil changes and lubrication License and registration 180 120 60 Roger drove the Infiniti a total of 14,500 miles during 2018, 13,050 of which were driven lor business purposes. During business use, Roger received three moving traffic violations for which he paid $680 in fines. He also incurred tolls and parking charges of $440. E-3 Practice Set Assignments-Comprehensive Tax Return Problems APPENDIX E 6. Michelle is a licensed paralegal and is employed on a part-time basis by several local attorneys. She works in their different offices between the hours of 9 AM and 3 PM, three days a week. She commuted to work in the family Suburban and drove a total of 813 miles and paid parking fees of $310. Her 2018 earnings and job-related expenses are summarized as follows: $58,000 Combined wages from three employers Subscriptions and dues to professional organizations Continuing education correspondence course Occupational license fee 180 120 80 Since Michelle is a part-time employee, her employers do not cover her job- related expenses. The correspondence course is required continuing education so that she can retain her license. Michelle is thinking about applying to law school, which would require her to sit for the LSAT Exam. During 2018, she spent $350 on an LSAT preparation course. Because Michclle is a part-time employee, she is not covercd by any of her employers' medical or retirement plans. During 2018, she contributed $5,500 to a tracitional IRA that she had established several years ago. The Stewarts use the automatic mileage method to calculate any tax deductions to which they are entitled for use of the Suburban. 7. With funds received from ihe setlement of his father's estate, Roger purchased rental property at 4620 Cottonwood Lane. Of the $250,000 purchase price, $30,0 was allocated to the land. Alter an $80,000 renovation to the house (e.g replaced the roof, installed new flooring throughout the house, and installed a new furnacc), the property was rented heginning February 1, 2012. In 2016, the Stewarts decided their investment would be more marketable if the house was lully furnished. Conscquently, they spent $38,000 on new funiture, drapes, and appliances. All ol the furnishings were placed in service May 1, 2016. The Stew- arts dil not claim & 179 expense or bonus depreciation lor the year those assets were placed in service. Under the current lease agreement, ihe property renis fer $2,200 a month. Rent is clue the first day of each month. Utilitics are: not included in the rent. Information regarcling the property for 2018 is as follows: $28,600 Rent received 3,100 Property/casualty insurance premiums paid Property taxes paid Yard maintenance paid 2,400 1,200 800 Repairs The rent received includes $2,200 for January 2019. The tenants prepaidd the rent in nid-December because they went on vacation during the Christmas/New Year holidays. In addition to the property taxes listed above, Roger paid a special ax assessment of $1,300 to the City of Casper for repaving the street in front of the property. The Stewarts Use MACRS to depreciate the rental home and the furnishings within it. 8. The Stewarts acquired 1,000 shares of common stock in Cormorant Mining on March 7, 2017, to hold for investment purpuses. Roger performed services for the company in late 2016, submitting a bill for $3,900. Because Cormorant was exe- riencing cash flow problems at the time, Roger accepted the stock as payment for his scrvices, Unforunatcly, Comorant is currently in bankruptcy (sce item 2 above). In late 2018, the bankruptcy judge announced that creclitors will receive a fraction of whaL they are owed and shareholders will recover nothing with respect to their equity investments in the company. The stock is not publicly traded
