Prepare the Federal Income Tax return for

Bill and Nancy Quigley for the year ended 2015

Davenport University Federal Taxation I ACCT 315/715 Instructor: TAXRETURN PROBLEM *********************************************************** REQUIREMENT Prepare the Federal Income Tax return for Bill and Nancy Quigley for the year ended 2015 *********************************************************** Bill and Nancy Quigley are married and file a joint return. Bill was born on 3/17/1960 and Nancy was born on 6/19/1964. Bill owns a used book store (self-employed, Sch. C), and Nancy is a college professor. Bill's Social Security number is 354-69-2250, and Nancy's is 448-39-2985. The Quigleys live at 455 Cherry St, Grand Rapids, MI 49508. Their phone number is: 616-584-5621. The Quigleys each designate that $3 is to go to the Presidential Election Campaign Fund. Bill has one son, Adam (SS# 307-50-4861; BD 08/04/1992), from a previous marriage. Adam is age 23 and a full-time law student at Wayne State University. He worked part-time during the year earning $3,590, which he spent for his own support. In addition, he received a $5,000 scholarship from Wayne State University. Adam lived at home while not in school and Bill and Nancy provided $5,800 toward Adam's support. They also provided over half the support of Nancy's daughter, Allison (SS# 306-15-8012, BD 05/20/1997), from a previous marriage. Allison is age 19 and a full- time student at Davenport University. Allison worked part-time during the year, earning $2,900. She filed a joint return with her husband Roger, who earned $12,700 during the year. Bill and Nancy also have twins, Amelia (SS 386-54-2189; BD 02/18/2005) and Abby (SS 386-542190), age ten, who live with them. Bill's mother, Darlene, (SS# 101-52-1317), was born on 8/26/1930. Darlene is blind and lives with the Quigleys. The Quigleys pay $5,500 per year for dependent care expenses for Darlene, so they ACCT 315/715 -FALL 16 Page 1 of 4 can both be employed. The dependent care provider is Senior Care, 1215 Magna Carta, Grand Rapids, MI, 49503 (EIN# 38-6451321). In addition, Bill and his brother Joe each incurred out-of-pocket costs of $2,950 for Darlene's support. Also, Bill provided lodging for Darlene during the entire year. Bill estimates the fair rental value of the lodging is $6,000. Darlene received $9,100 in Social Security Benefits and $650 of interest during the year, all of which she put in the bank. Joe is willing to do whatever is necessary to enable Bill to claim Darlene as a dependent. Nancy is a professor at Kalamazoo Valley Community College (#38-7854123; 6767 W O Ave, Kalamazoo, MI 49003), where she earned $ 89,500. The University withheld Federal income tax of $11,480, state income tax of $3,497, Grand Rapids city income tax of $785, and the correct amount of FICA. Her employer pays for health care for the entire family except for Allison who bought healthcare in the marketplace and has received a form 1095-A. The Quigley's received $3,975 of interest from Wauwautosa Bank on a joint account. They received interest of $1,750 on City of Denver bonds they bought in January. Bill received a dividend of $920 on General Bicycle Corporation stock he owns. Nancy received a dividend of $1475 on Acme Clothing Corporation stock she owns. General Bicycle and Acme Clothing are both domestic Corporations. Bill and Nancy received a dividend of $181 on jointly owned stock in Maple Leaf Brewing Company, a Canadian corporation. All of the securities were held with a Grand Rapids brokerage firm and are \"qualified dividends\". In July, a severe storm came through the area and did considerable damage to the summer home (382 Flying Dutchman, Holland, MI 49423) that they had purchased for $96,000 two years earlier. Fair market value before the storm on the building was $131,000 and was valued at $45,000. Insurance recovery was $75,000. Bill's business, Bill's Bargain Books, is located at 645 Ball Ave., Grand Rapids, MI. 49503, and his employer identification number is #38-6478224. Bill's sales for the year were $259,157. He uses the cash method of accounting for tax purposes and his business expenses on the cash basis are as follows: Advertising.................................... Bank service charges........................... Professional dues.............................. Professional journals.......................... Contributions to employee benefit plans..... Insurance on office contents................... Accounting services............................ Miscellaneous office expense................... Store and equipment rental......................... Utilities and telephone........................ Wages.......................................... Payroll taxes.................................. Purchases............................... ACCT 315/715 -FALL 16 $ 2,400 145 500 360 8,800 1,900 3,840 346 36,000 2,850 40,450 3,417 55,000 Page 2 of 4 Beginning Inventory................... Ending Inventory........................ 77,900 41,300 Bill put 13,297 business miles on his truck this year and 12,916 personal miles (total miles= 29,652). He uses the automatic mileage method. Bill purchased the truck July 11, 2012 and did not take any Sec 179 Immediate Expensing. He does keep written records of his mileage. June 16, 2015 Bill purchased a new business computer information system to track inventory and customers, etc., the cost was $8,000. On the same date he spent $21,325 for furniture to refurbish his office. He did elect Sec.179 Immediate Expensing, for these items. Nancy's mother, Carol, died on May 2, 2003, leaving Nancy her entire estate. Included in the estate was Carol's residence at 1541 Lighthouse Dr., Holland, MI 49424. Carol's basis in the residence was $26,000. Fair market value of the residence on May 2, 2003 was $117,000 (this is Nancy's basis). Nancy began renting the house January 1, 2004. In 2015 the house was rented the entire year at $1,600 a month. The house is depreciated using the MACRS straight-line method for residential real estate with zero salvage value. In computing depreciation, they allocate a value of $29,000 to the lot on which the house is located. They incurred the following expenses during the year on the rental property: Property insurance..................... $1,300 Property taxes......................... 5,200 Maintenance............................ 1,400 Management fees......................... 1,750 The Quigleys sold 1,000 shares of Capp Corp stock they had received as a wedding present on June 25, 2000. The stock was worth $50 per share in January. By September 3, its value had dropped to $36 per share, and the Quigleys sold the stock on that date. They had been given the stock by Bill's father, who had paid $11 per share for it in 1972. Its value at the date of gift was $16.50 per share. No gift tax was paid on the gift. (The Quigley's basis would be $11 per share.) On December 30, 2015 as he was leaving the grocery store, Bill found a Michigan lottery ticket someone had apparently dropped. On January 3, 2016 when the lottery held its weekly drawing, Bill discovered he had won $32,000, which he received on January 8. Nancy is required by her employer to visit several high schools in the Battle Creek- Lansing area to evaluate KVCC students who are doing their medical rotations. She also spent $673 on meals taking out the students afterwards to discuss how the rotations were progressing. She is not reimbursed by KVCC for the expenses she incurs in doing this. During the year, she drove her personal automobile 8,200 miles in fulfilling this obligation. Nancy purchased her car in April of 2013, and put a total of 26,900 miles on it in 2015. All other miles driven were personal. Nancy did not keep detailed records of her gas and oil purchases and had no major repairs on the car this ACCT 315/715 -FALL 16 Page 3 of 4 year. She does journal her business mileage. Since Nancy must travel out of town, the Quigleys take their twins, Amelia and Abby to daycare. Their daycare provider is Betty Bop Babies at 324 Sybil St, Grand Rapids, MI 49508. The EIN number is #38-2546946. The Quigleys received a receipt for $6,642 in daycare costs for 2015. The cost was evenly divided for the care for the twins. Bill contributed $5,500 to Self-Employed SEP Plan on December 30. Nancy is covered by a KVCC retirement plan. Bill and Nancy have given you a file containing the following receipts for out-of-pocket expenditures during the year: Medicines and drugs.................... $ 886 Doctors and hospital bills............. 5,348 Penalty for underpayment of last year's state income tax....................... 544 Real estate taxes on personal residence 5,962 Michigan vehicle registration fees 321 State sales tax on new furniture....... 480 State sales tax on new sailboat........ 675 Interest on Home mortgage (paid to Home Bank)........................... 10,650 Interest on credit cards............... 735 Cash contributions to Hope Church...... 9,600 Payroll deductions for Nancy's contribution to the United Way.................... 500 Professional dues (Nancy).............. 325 Professional subscriptions (Nancy)..... 225 Fee for preparation of last year's 1040 950 On the 15th of January, April, June and September the Quigley's made quarterly estimated Federal income tax payments of $ 1,500 ($6,000 total payments). They made estimated payments for state income tax of $1,000 for the year. All Michigan estimated payments were made in 2015. ACCT 315/715 -FALL 16 Page 4 of 4 ACCT 315/715 -FALL 16 Page 5 of 4 ACCT 315/715 -FALL 16 Page 6 of 4 ACCT 315/715 -FALL 16 Page 7 of 4 ACCT 315/715 -FALL 16 Page 8 of 4