Required:

• Use the following information to complete Josh Westons federal income tax return for 2021 If any information is missing, use reasonable assumptions to fill in the gaps.

• You will need the following forms and schedules to complete the project:
  • Form 1040
  • Schedule 1
  • Schedule 2
  • Schedule A
  • Schedule B
  • Schedule C
  • Schedule D
  • Schedule SE
  • Form 4562
  • Form 8812
  • Form 8949
  • Form 8995

The forms, schedules, and instructions can be found at the IRS Web site (www.irs.gov). The instructions will be helpful in completing the forms.

• The tax return may be completed individually, or you may work in a group (no more than three people per group). Groups should turn in only one return.
• You must complete the tax return by hand using federal tax forms, i.e., no tax return preparation software.

Josh Weston, age 42, is single and has an 8-year old daughter, Marissa who qualifies as his dependent. Joshs home address is 3023 Calle Real, Santa Barbara, California 93110. His Social Security number is 490-56-1114 and Marissas Social Security number is 405-22- 8572.

1. Josh is a personal trainer and gym owner. His gym, called Fitness Xtreme, is located at 4200 State Street, Santa Barbara, California 93105. Joshs business activity code is 812190. He operates his business as a sole proprietorship.

2. The gym has 8 workstations and a reception area. Josh rents 7 of the workstations to other personal trainers, all considered independent contractors. For 2021, Joshs rental income from the workstations totaled $70,000. Josh reports the rental income on Schedule C (not Schedule E). From his own workstation, Josh earned $42,000.

3. The gym is also a distributor for various fitness products. Josh purchases the products from the manufacturers and resells them to customers of the gym. Below is product sales information for 2021:

Sales revenue from products $138,000

Cost of goods 77,200

Net income from sale of products $ 60,800

4. Fitness Xtreme had the following operating expenses for 2021

Utilities	$15,575
Real estate taxes on gym building	6,000
Supplies	5,700
Fire and casualty insurance	4,100
Liability insurance	4,000
Accounting services and legal fees	5,195
Janitorial services	2,400
Trash collection	2,300
Occupational licenses (city and state)	1,500
Reception area supplies (magazines, coffee, water)	1,300
Mortgage interest expense on building	10,400
Depreciation (see below) *	?
Cost to repaint interior of building	8,000
Repairs to building	1,900

* Calculate Fitness Xtremes depreciation expense based on the following information:

• In early 2021, Josh decided to renovate the reception area. On May 10, he spent $10,400 for new chairs, a sofa, various lamps, coffee bar, etc. Josh expensed the total cost of these items under Section 179. The old furnishings were thrown away or given to customers. For tax purposes, the old furnishings had a zero basis.
• Fitness Xtreme is located at 4200 State Street in a building Josh purchased in March 2013. The purchase cost was $335,000 with $300,000 allocated to the building and $35,000 to the land. For tax purposes, the building is depreciated using MACRS. During 2021, the following repairs and maintenance expenses were attributable to the property:

5. In February 2021, the city of Santa Barbara cited Fitness Xtreme for improper building code violations. Josh paid the $500 fine in 2021.

6. Josh is on good terms with his ex-wife, Alicia, who lives in Texas. Marissa visits Alicia several times a year. Alicia paid Josh $12,000 in child support during 2021.

7. Maggie, one of Joshs best friends, left town in January 2021, to take care of her ailing mother. In order to help Maggie with the move, Josh loaned her $7,000. Maggie signed a note dated January 15, 2021, that was payable in six-months with 4% interest. However, Josh did not receive payment from Maggie when the note came due on July 15, 2021. Although Josh tried to contact Maggie, her phone had been disconnected. On November 30, 2021, Josh received a letter from the bankruptcy court showing that Maggie had been declared bankrupt, and all her debts had been extinguished, including the $7,000 loan from Josh. As a result, Josh will never receive any payment from Maggie.

8. On a morning walk in November 2020, Josh was injured when he was sideswiped by a delivery truck. Josh was hospitalized for several days. In order to avoid adverse publicity, the owner of the truck, a national parcel delivery service, offered Josh a settlement if he would sign a release. Under the settlement, his medical expenses were paid and he would receive a cash award of $200,000. The award specified that the entire amount was for the physical pain he suffered as a result of the accident. Since he suffered no permanent injury, Josh signed the release in April 2021 and received the $200,000 settlement in August 2021.

9. On May 15, 2020, Joshs grandmother, Esther, died and left Josh the following:

• A parcel of land. Esther had purchased the land on March 3, 1980 for $50,000. The value of the land on Esthers date of death (May 15, 2020) was $160,000. On July 25, 2021, Josh sold the land for $178,000. This transaction was not reported on a Form 1099-B.
• Josh was also the beneficiary of Esthers life insurance policy. In January 2021, Josh received life insurance proceeds of $90,000 from the insurance company.

10. In addition to the items already noted, Josh had the following receipts during 2021:

Interest income -
Santa Barbara First National Bank	$1,800
City of Santa Barbara general purposes bonds	600
Money market account at Chase Bank	940
Qualified dividends (also considered ordinary) on stock investments -
Pfizer	$ 386
Exxon	464
Federal income tax refund (for tax year 2020)	1,500
California state income tax refund (for tax year 2020)	205

11. In addition to the items already noted, Josh had the following expenditures for 2021:

Contribution to a self-employed 401(k) plan (the amount of the contribution is within the plans limits for tax-deductibility)	$10,000
Medical -
Premiums on medical insurance	$4,800 **
Dental bills	8,700
Property taxes on personal residence	5,500
Interest on home mortgage	3,200
Charitable contributions (cash) to qualified charities	4,500
Donation to political campaign to re-elect California Governor Gavin Newson	100
Professional expenses -
Subscriptions to trade journals	$ 120
Dues to gym groups	200

** The medical insurance policy covers Josh and his daughter. Since Josh is self-employed he is eligible for the self-employed health insurance deduction. The plan does not cover dental work.

12. Based on a tip from a client, Josh purchased 1,000 shares of common stock in Goforit Exploration for $50,000 on September 15, 2021. In the months following his purchase, the share value of Gorforit plummeted. In order to avoid additional losses, Josh sold the stock for $38,000 on December 28, 2021. This transaction was reported on Form 1099-B with Joshs basis correctly reported to the IRS.

13. During 2021, Josh made total estimated tax payments with respect to his 2021 tax returns as follows:

• Federal estimated income tax payments $15,000
• California estimated income tax payments 5,140
• Santa Barbara estimated income tax payments 800

14. On March 4, 2021, Josh sold 200 shares of Ford stock to his brother, Jeremy for $1,200 (fair market value). Josh had purchased the stock on September 24, 2017 for $1,800.

15. Several years ago, Joshs father, Jared, gifted Josh his stamp collection. Jareds cost basis in the collection was $20,000. On the date of the gift (October 10, 2015) the fair market value of the collection was $15,000. Josh sold the stamp collection to an unrelated party for $19,000 on July 10, 2021.

Additional Information:

• Josh filed as head of household in 2020 and his itemized deductions totaled $21,800. Of this amount, $8,760 was deducted as state taxes on line 5(e) of Schedule A.
• John received a $2,800 economic Stimulus payment in 2021.
• Josh did not received an Advance Child Tax payment in 2021.
• If Josh has an overpayment of tax, he wants it refunded to him.
• Josh does not wish to contribute to the Presidential Election Campaign Fund.
• Assume Josh has adequate substantiation to support all transactions reported in his return.
• Make necessary assumptions for any information not given but needed to complete the return.
• Josh does not have any foreign accounts or virtual currency transactions.