PROBLEM 1 Matthew B. (age 42) and Courtney S. (age 41) Mumford are married and live at 11426 W. Antelope Drive, Sioux Falls, SD 57107. Matthew is the manager for The Pour House, a popular bar and grill in Sioux Falls. Courtney is a self-employed architect. They are calendar year, cash basis taxpayers. 1. Matthew's annual salary from The Pour House is $98,000. He also earns an annual bonus. The amount is determined in late December based on performance dur- ing the year and is paid in January of the following year. Matthew's 2018 bonus was $6,000 (received in 2019), and his 2019 bonus was $7,000 (received in 2020). Matthew participates in his employer's group health insurance plan to which he contributed $7,200 in 2019 for medical coverage. These contributions are made with after-tax dollars. The health plan covers Matthew, Courtney, and their two dependent children. The Pour House does not provide any retirement benefits, but it has established a $ 401(k) plan to enable its employees to save for retire- ment. Matthew contributed $19,000 to the plan in 2019. Matthew commutes to and from work 6 days a week (a roundtrip of 18 miles) in the family SUV. During 2019, Matthew drove the SUV a total of 12,700 miles. 2. Courtney is a licensed architect who works part time as an architectural consult- ant. Her professional activity code is 541310. Her major clients are real estate developers (both residential and commercial) for whom she prepares structural designs and construction plans. She also advises on building code requirements regarding the renovation and remodeling of existing structures. Courtney does some of her work at client locations and the remainder in her office at home (see item 3 below). Courtney collected $72,000 in consulting fees during 2019. This total includes a $3,000 payment for work she performed in 2018 and does not include $5,000 she billed in December for work performed in late 2019. In addition, Courtney has a $6,400 unpaid invoice for work done in 2017. This client was convicted of arson in August 2016 and is now serving a 5-year sentence in a state prison. Country feels certain that del collect the showed Her business expenses for 2019 are as follows Drafting supplies Reproduction materials tegnols model photos bluepriecie! On site work clothing leg. He boots salty goes tete Probessional licensed Subscriptions to professional journals Dues to professional organizations $4900 3.200 400 250 240 of 10,000 miles 1250 miles on her job assignments. She was the standard mileage method to deduct In addition, Courtney drove the family Acura (purchased on June 7, 2018) 9:40 business costs related to the AcuraDuring 2019. Courtney drove the car a focal 5. When the Mumfords purchased their home on February 2 2017, they set aside ney's office. The Mumfords do not use the simplified method for computing the home office deduction. As of January 1, 2019, the home had an adjusted basis of $250,000 ($10,000 of which is tributable to the land for purposes of line 37 of Form 8829. The fair market value of the property was $282.000. Relevant information concerning the residence for all of 2019 appears below Homeowners Insurance Repairs and maintenance $1.200 Utilities 180g 6.200 Painting fofice are only The cost of Courtney's office fumiture and equipement was previously deducted under $ 179 in the years these assets were acquired. On june 29, 2019, she pur- chased a fireproof file cabinet for $800 to safeguard the blueprints of her struc tural designs and construction plans. Whenever posible, Courtney prefers to avoid depreciating capital expenditures over time. 4. One of Courtney's clients was interested in building a shopping center on a tract of land she owned in Lincoln County Courtney inherited the property from her uncle when he died on June 6, 1999. At that time, the land was valued at $40,000 It has since been rezoned for commercial use and us a current value of $200.000 On February 10, 2019. Courtney exchanged the Lincoln parce for a similar tract in Minnehaha County worth $190.000 and cash of $10,000 5. On September 2, 2019, Courtney sold a tract of land in McCook County to a farmer who owned the adjoining property. The land was inherited from the same uncle who died in 1999 and was valued at $30.000 on June 6, 1999. Under the terms of the sale, Courtney received cash of $20.000 and a note receivable to be paid in four equal installments at 1-year intervals from the date of sale. Each note calls for the payment of $25.000 plus simple interest of 8%. To the extent allowed by law. Courtney wants to defer recognition of gain for as long as possible 6. In early 2018, Matthew learned that one of the restaurant's best servers, Mindy Smith, was suffering domestic abuse at the hands of her husband Billy. When Billy started to abuse their 5-year-old daughter as well. Mindly decided it was time to leave. Before they left on April 14, 2018, Matthew loaned Mindy $5,500 to help her relocate with her daughter. Matthew had het sign an interest-free note due in 1 year Matthew never heard from Mindy again. In late 2019. Matthew learned that Billy tracked Mindy and their daughter down and killed both of them before committing suicide. Given these tragic circumstances, Matthew has no expecta tion that the loan will ever be repaid APPENDIXE Practices 7 On August 5, 2017, Matthew purchased 1,000 shares of Farmees Markets America (PMA) common stock for $16 a share as part of its initial public of The corporation was formed to establish and operate farmers markets in mids cities thoughout the United States. Although some market locations were profil atsle, the venture as a whole proved to be a failure. In November 2019, FMA remaining assets were seized by its creditors, and FMA stock became wonless 8. In addition to the items previously noted, the Mumfords had the following receipts for 2019 Interest income from General Motors Corporate bonds $1900 City of Sioux Falls, SD bonds Castle Bank certificate of deposit 1400 53.510 Qualified dividends from MGA Inc 1100 Refund from HomeStuff 30 Loan repayment by Sarah Mumford-Caine 4500 Cash gifts from Courtney's parents 32.000 2018 Federal income tax refund In December 2018, the Mumfords made a major purchase of household items (es, appliances, furniture, etc.) at HomeStuff. They called the manager when they realized they did not receive the advertised sale price. Consequently the store corrected the mistake and sent a 5430 refund to the Mumfords in January 2019 Four years ago, Matthew lent his st Sarah $4,000 to help pay for a hon eymoon trip following her wedding to John Caine, Manhw was pleasantly sur prised when Sarah paid him back (plus interest of $500) on December 23, 2019 On March 20 of each year, Courtney's parents send a generosit of cha birthday present. Just as she has done for the past 7 years, Courtney immediately invested the cash in her children $ 529 college savings plans 9. The Mumfords had the following expenditures for 2019 $ 6.000 Courtney's contribution to her traditional IRA 1000 Net gambling loss 2.700 Life insurance premiums 16.612 Medical and dental expenses not covered by insurance Taxes: 54.100 Ad valorem taxes on personal residence 2.800 6.900 State and local sales taxes from receipts 4000 Interest on home mortgage reported on Form 1090 Cash contributions $1750 2.050 Feeding South Dakota (EIN 36-3293534 South Dakota governor's election campaign fund 300 The $1.000 net gambling loss for 2019 is the difference between the limfocs gambling winnings of $1,200 and losses of $2,200. The life insurance premium relate to the universal life insurance policies that Mathew and Courtney own The first beneficiary on both policies is the other spouse, with the second benef- ciaries being the children. Included in the medical expenses are $1.200 incurred in 2018, which were paid in early February 2019. While South Dakota does not impose income taxes on individuals, it does impose sales taxes. The Mumfords can substantiate the $2,800 in sales taxes paid based on their purchase receipes for the year. The local sales tax rate in Sioux Falls is 2. Hot Be sure to check to see if the Optional Sales Tax Tables provide the Mumfords with a greater deduction) Courtney contributed to the governor's campaign fund because she thinks her influence was key in getting the Minnehaha County land toned for commercial use (see item 4 above), omprehensive Tax Return Problems 10. The Mumfords maintain a household that includes their two children, Nickolas (age 16 and Kaleigh (age 19). Nickolas is a junior in high school and a talented wrestler. In hopes of competing at the state tournament, all of his free time is consumed with weight training and wrestling practices. Kaleigh graduated from high school on June 7, 2018, and is undecided about college. She is an accom- plished vocalist and during 2019 earned $7,200 performing at various events (e.g., weddings, funerals). Kaleigh placed most of her earnings in a savings account for 11. Matthew's Form W-2 from The Pour House shows $15.800 withheld for Federal future use and kept only a small amount to spend on herself. income tax. The Mumfords also made estimated tax payments to the IRS totaling $5,000 for 2019 12. Relevant Social Security numbers are noted below. Name Matthew B. Mumford Courtney S. Mumford Kaleigh J. Mumford Nickolas W. Mumford Social Security Number 123-45-6786 123-45-6787 123-45-6788 123-45-6798 . Requirements Prepare an income tax return (with all appropriate forms and schedules) for the Mum- fords for 2019, using the following guidelines: The Mumfords choose to file a joint income tax return. The Mumfords do not wish to contribute to the Presidential Election Campaign Fund. The Mumfords do not own any foreign bank accounts or other investments. In addition, the Mumfords do not have any financial interests in virtual currencies. The Mumfords prefer to receive a refund of any overpaid taxes. The taxpayers are preparing their own return (i.e., no preparer is involved). For the past several years, the Mumfords have itemized their deductions from AGI The taxpayers have the necessary substantiation (e.g., records, receipts) to support all transactions reported on their tax return. Make necessary assumptions for information not given in the problem but needed to complete the return