Russell (age 43) and Janie (age 40) Armstrong have brought you the following information regarding their

income and expenses for 2016.

Russell and Janie have two dependent children, Bill (Social Security number 123?23?7654) and Martha (Social

Security number 345?67?8654). Both Bill and Martha are junior high school students, ages 14 and 15,

respectively. Russell?s Social Security number is 664?98?5678 and Janie?s is 554?98?3946.

Russell is a partner in the R&S Services, where he works year?round as an architect. His K?1 is attached.

Janie is a freelance artist and owns a small business called Ramsey, LTD. The business code is 711510. Janie

issued all required Forms 1099. During 2016, Janie had the following income and expenses, using the cash

basis of accounting:

Sales Revenue $ 52,200

Expenses

Advertising 1,950

City business license 65

Meals with clients 2,240

Legal fees 2,167

Office supplies 873

Supplies 3,425

Janie operates the business out of a spare room she has turned into her office (288 square feet of

the 3,200 square foot home). Although advised to take depreciation on the home office, Janie does

not wish to claim any depreciation on her home office but otherwise wants to take the maximum

deduction for her home office. Expenses for the home include:

Insurance for the home $ 682

Repairs and maintenance on the entire home 2,487

Utilities for the home 3,180

Property taxes for the home See Form 1098

Mortgage interest for the home See Form 1098

Janie uses her 2010 Honda Accord for personal and business use. She began using the Honda for

business purposes on June 30, 2011. She traveled a total of 12,300 miles during 2016, of which 4,650

were for business purposes, with no commuting miles. Janie has used the standard mileage method

to calculate vehicle expenses since she purchased the car.

Used office furniture was purchased on 08/26/2015 for $2,325. The furniture was depreciated using

the MACRS half year convention table (No section 179 expense was taken). A new computer was

purchased on 03/25/2016 for $1,940. Janie wishes to take bonus and regular depreciation on the

computer.

Janie purchased a personal health insurance policy for the entire family for $900 per month for the

entire year.

Russell and Janie have a bank account with Utah Bank, where they earned taxable and tax exempt interest.

The tax?exempt interest was earned on Katy City municipal bonds. Their 1099?INT is attached.

Russell and Janie have an investment account. The 1099?DIV they received is attached. They also sold the

following securities during the year, reported on a 1099?B, with basis being reported to the IRS.

Security Description Date

Acquired

Date Sold Selling Price Adjusted

Basis

Circle Corp 48 Shares common 2/02/2015 2/03/2016 4,525 6,047

Triangle Inc 92 Shares common 9/30/2004 8/26/2016 7,162 4,105

Rectangle Corp 62 Shares preferred 10/18/2015 10/17/2016 8,920 4,350

Russell and Janie own and manage a single?family rental house located at 8672 Tulip Way, Katy, UT 84792.

The house rents for $2,750 per month, was rented for the entire year and no 1099s were required to be

filed. The following are the related expenses for the rental house:

Real estate taxes $ 3,800

Mortgage interest 8,800

Insurance 1,200

Depreciation See below

Gardening 4,125

Repairs 2,325

Maintenance 2,436

The rental property was purchased on 05/14/1996 for $350,030 (which does not include the price of

the land). Russell and Janie need you to calculate depreciation for them.

Janie Russell authored several books a few years ago and receives royalties each year. Below are the

royalties and related expenses for 2016. Janie issued the required 1099 for the legal fees paid.

Royalty Income (reported on form 1099?MISC) $9,500

Legal & Professional Fees 1,200

Bank Service Charges 75

During the year, Russell and Janie paid the following expenses (all of which can be substantiated):

Sales taxes paid on small purchases through the year (based on receipts) 2,285

State estimated income tax payment on December 31, 2016 5,750

Home mortgage interest see Form 1098

Real estate taxes paid on their personal residence see Form 1098

Medical & dental expenses 6,257

Tax preparation fees 1,870

Safe deposit box fees 50

Charitable contributions:

United Way, cash $4,800

Southern Baptist Church (SLC, UT), 50 shares of Hexagon Inc Stock (a publicly

traded security), with a fair market value of $96 per share with a cost basis of

$32 per share. The stock was purchased on 4/26/2009 and was donated on

8/16/2016.

When Russell and Janie filed their 2015 tax return, they had an overpayment of $975, which they had

applied to their 2016 return. The couple made estimated tax payments of $8,900 to the IRS on each of the 4

required due dates. If, by chance, the Armstrongs overpaid their Federal taxes, they would like the excess

applied to 2017. If they underpaid their taxes, they want the IRS to send them a bill for any penalties they

may owe.

On December 31, 2015 Russell and Janie made and estimated payment of $750 on their 2015 Utah tax

return. In April 2016, when their return was completed and filed, they received a refund for the

overpayment of the taxes. The 1099?G they received is attached.

RUSSELL and JANIE ARMSTRONG Russell (age 43) and Janie (age 40) Armstrong have brought you the following information regarding their income and expenses for 2016. Russell and Janie have two dependent children, Bill (Social Security number 123237654) and Martha (Social Security number 345678654). Both Bill and Martha are junior high school students, ages 14 and 15, respectively. Russell's Social Security number is 664985678 and Janie's is 554983946. Russell is a partner in the R&S Services, where he works yearround as an architect. His K1 is attached. Janie is a freelance artist and owns a small business called Ramsey, LTD. The business code is 711510. Janie issued all required Forms 1099. During 2016, Janie had the following income and expenses, using the cash basis of accounting: Sales Revenue Expenses Advertising City business license Meals with clients Legal fees Office supplies Supplies $ 52,200 1,950 65 2,240 2,167 873 3,425 Janie operates the business out of a spare room she has turned into her office (288 square feet of the 3,200 square foot home). Although advised to take depreciation on the home office, Janie does not wish to claim any depreciation on her home office but otherwise wants to take the maximum deduction for her home office. Expenses for the home include: Insurance for the home Repairs and maintenance on the entire home Utilities for the home Property taxes for the home Mortgage interest for the home $ 682 2,487 3,180 See Form 1098 See Form 1098 Janie uses her 2010 Honda Accord for personal and business use. She began using the Honda for business purposes on June 30, 2011. She traveled a total of 12,300 miles during 2016, of which 4,650 were for business purposes, with no commuting miles. Janie has used the standard mileage method to calculate vehicle expenses since she purchased the car. Used office furniture was purchased on 08/26/2015 for $2,325. The furniture was depreciated using the MACRS half year convention table (No section 179 expense was taken). A new computer was purchased on 03/25/2016 for $1,940. Janie wishes to take bonus and regular depreciation on the computer. Janie purchased a personal health insurance policy for the entire family for $900 per month for the entire year. Russell and Janie have a bank account with Utah Bank, where they earned taxable and tax exempt interest. The taxexempt interest was earned on Katy City municipal bonds. Their 1099INT is attached. Russell and Janie have an investment account. The 1099DIV they received is attached. They also sold the following securities during the year, reported on a 1099B, with basis being reported to the IRS. Security Circle Corp Triangle Inc Rectangle Corp Description 48 Shares common 92 Shares common 62 Shares preferred Date Acquired 2/02/2015 9/30/2004 10/18/2015 Date Sold Selling Price 2/03/2016 4,525 8/26/2016 7,162 10/17/2016 8,920 Adjusted Basis 6,047 4,105 4,350 Russell and Janie own and manage a singlefamily rental house located at 8672 Tulip Way, Katy, UT 84792. The house rents for $2,750 per month, was rented for the entire year and no 1099s were required to be filed. The following are the related expenses for the rental house: Real estate taxes Mortgage interest Insurance Depreciation Gardening Repairs Maintenance $ 3,800 8,800 1,200 See below 4,125 2,325 2,436 The rental property was purchased on 05/14/1996 for $350,030 (which does not include the price of the land). Russell and Janie need you to calculate depreciation for them. Janie Russell authored several books a few years ago and receives royalties each year. Below are the royalties and related expenses for 2016. Janie issued the required 1099 for the legal fees paid. Royalty Income (reported on form 1099MISC) Legal & Professional Fees Bank Service Charges $9,500 1,200 75 During the year, Russell and Janie paid the following expenses (all of which can be substantiated): Sales taxes paid on small purchases through the year (based on receipts) 2,285 State estimated income tax payment on December 31, 2016 5,750 Home mortgage interest see Form 1098 Real estate taxes paid on their personal residence see Form 1098 Medical & dental expenses 6,257 Tax preparation fees 1,870 Safe deposit box fees 50 Charitable contributions: United Way, cash $4,800 Southern Baptist Church (SLC, UT), 50 shares of Hexagon Inc Stock (a publicly traded security), with a fair market value of $96 per share with a cost basis of $32 per share. The stock was purchased on 4/26/2009 and was donated on 8/16/2016. When Russell and Janie filed their 2015 tax return, they had an overpayment of $975, which they had applied to their 2016 return. The couple made estimated tax payments of $8,900 to the IRS on each of the 4 required due dates. If, by chance, the Armstrongs overpaid their Federal taxes, they would like the excess applied to 2017. If they underpaid their taxes, they want the IRS to send them a bill for any penalties they may owe. On December 31, 2015 Russell and Janie made and estimated payment of $750 on their 2015 Utah tax return. In April 2016, when their return was completed and filed, they received a refund for the overpayment of the taxes. The 1099G they received is attached. 651113 Final K-1 2016 Schedule K-1 (Form 1065) Department of the Treasury Internal Revenue Service Part III Partner's Share of Current Year Income, Deductions, Credits, and Other Items For calendar year 2016, or tax year beginning ending A Information About the Partnership 2 Net rental real estate income (loss) 3 Other net rental income (loss) 4 Guaranteed payments 5 Interest income 6a Ordinary dividends 6b Qualified dividends 15 Credits 16 Foreign transactions 17 Alternative minimum tax (AMT) items Tax-exempt income and nondeductible expenses 29,885 102,000 43 Partnership's name, address, city, state, and ZIP code 189 R & S Services 6610 Westcott St. WVC, UT 84275 C Ordinary business income (loss) Partnership's employer identification number 87-6274382 B 1 , 2016 , 20 Partner's Share of Income, Deductions, a See back of form and separate instructions. Credits, etc. Part I OMB No. 1545-0123 Amended K-1 162 IRS Center where partnership filed return 7 Royalties 8 Net short-term capital gain (loss) 9a Net long-term capital gain (loss) 9b Collectibles (28%) gain (loss) 9c Unrecaptured section 1250 gain 10 Net section 1231 gain (loss) 18 11 Other income (loss) A 210 C 485 Ogden, UT Check if this is a publicly traded partnership (PTP) D 2,800 Part II 750 Partner's identifying number 664-98-5678 F Partner's name, address, city, state, and ZIP code Russell Armstrong 1234 Katy Rd. Katy, UT 84792 G General partner or LLC member-manager Limited partner or other LLC member H Domestic partner Foreign partner I1 What type of entity is this partner? I2 If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here . . . . . . . . . . . . . . . . . . J 50 50 50 Loss Capital . . . . 13 50 50 50 % % % Distributions A Section 179 deduction 12,000 21,000 % Other deductions A 1,742 20 Other information % A % . . 42,685 $ . $ Recourse . $ 18,764 . $ 76,920 Current year increase (decrease) . $ Withdrawals & distributions . . $ ( . . $ . . . . . . 232 Capital contributed during the year Ending capital account . Tax basis . GAAP Self-employment earnings (loss) 131,885 *See attached statement for additional information. Partner's capital account analysis: . 14 A Qualified nonrecourse financing Beginning capital account . $ 11,832 12,000 ) 76,752 Section 704(b) book Other (explain) M 12 Partner's share of liabilities at year end: Nonrecourse L 19 . Partner's share of profit, loss, and capital (see instructions): Beginning Ending Profit K Individual For IRS Use Only E Information About the Partner Did the partner contribute property with a built-in gain or loss? No Yes If \"Yes,\" attach statement (see instructions) For Paperwork Reduction Act Notice, see Instructions for Form 1065. IRS.gov/form1065 Cat. No. 11394R Schedule K-1 (Form 1065) 2016 Schedule K-1 (Form 1065) 2016 Page This list identifies the codes used on Schedule K-1 for all partners and provides summarized reporting information for partners who file Form 1040. For detailed reporting and filing information, see the separate Partner's Instructions for Schedule K-1 and the instructions for your income tax return. 1. Ordinary business income (loss). Determine whether the income (loss) is passive or nonpassive and enter on your return as follows. Report on See the Partner's Instructions Passive loss Passive income Schedule E, line 28, column (g) Nonpassive loss Schedule E, line 28, column (h) Nonpassive income Schedule E, line 28, column (j) 2. Net rental real estate income (loss) See the Partner's Instructions 3. Other net rental income (loss) Net income Schedule E, line 28, column (g) Net loss See the Partner's Instructions 4. Guaranteed payments Schedule E, line 28, column (j) 5. Interest income Form 1040, line 8a 6a. Ordinary dividends Form 1040, line 9a 6b. Qualified dividends Form 1040, line 9b Schedule E, line 4 7. Royalties 8. Net short-term capital gain (loss) Schedule D, line 5 Schedule D, line 12 9a. Net long-term capital gain (loss) 9b. Collectibles (28%) gain (loss) 28% Rate Gain Worksheet, line 4 (Schedule D instructions) 9c. Unrecaptured section 1250 gain See the Partner's Instructions 10. Net section 1231 gain (loss) See the Partner's Instructions 11. Other income (loss) Code A Other portfolio income (loss) See the Partner's Instructions B Involuntary conversions See the Partner's Instructions C Sec. 1256 contracts & straddles Form 6781, line 1 D Mining exploration costs recapture See Pub. 535 E Cancellation of debt Form 1040, line 21 or Form 982 F Other income (loss) See the Partner's Instructions 12. Section 179 deduction See the Partner's Instructions 13. Other deductions A Cash contributions (50%) B Cash contributions (30%) C Noncash contributions (50%) D Noncash contributions (30%) See the Partner's E Capital gain property to a 50% Instructions organization (30%) F Capital gain property (20%) G Contributions (100%) H Investment interest expense Form 4952, line 1 I Deductionsroyalty income Schedule E, line 19 J Section 59(e)(2) expenditures See the Partner's Instructions K Deductionsportfolio (2% floor) Schedule A, line 23 L Deductionsportfolio (other) Schedule A, line 28 M Amounts paid for medical insurance Schedule A, line 1 or Form 1040, line 29 N Educational assistance benefits See the Partner's Instructions O Dependent care benefits Form 2441, line 12 P Preproductive period expenses See the Partner's Instructions Q Commercial revitalization deduction See Form 8582 instructions from rental real estate activities R Pensions and IRAs See the Partner's Instructions S Reforestation expense deduction See the Partner's Instructions T Domestic production activities information See Form 8903 instructions U Qualified production activities income Form 8903, line 7b V Employer's Form W-2 wages Form 8903, line 17 W Other deductions See the Partner's Instructions 14. Self-employment earnings (loss) Note: If you have a section 179 deduction or any partner-level deductions, see the Partner's Instructions before completing Schedule SE. A Net earnings (loss) from self-employment Schedule SE, Section A or B B Gross farming or fishing income See the Partner's Instructions C Gross non-farm income See the Partner's Instructions 15. Credits A Low-income housing credit (section 42(j)(5)) from pre-2008 buildings B Low-income housing credit (other) from pre-2008 buildings C Low-income housing credit (section 42(j)(5)) from See the Partner's Instructions post-2007 buildings D Low-income housing credit (other) from post-2007 buildings E Qualified rehabilitation expenditures (rental real estate) F Other rental real estate credits G Other rental credits H Undistributed capital gains credit Form 1040, line 73; check box a I Biofuel producer credit J Work opportunity credit See the Partner's Instructions K Disabled access credit } } } 16. } Report on Code L Empowerment zone employment credit M Credit for increasing research activities See the Partner's Instructions N Credit for employer social security and Medicare taxes O Backup withholding P Other credits Foreign transactions A Name of country or U.S. possession B Gross income from all sources Form 1116, Part I C Gross income sourced at partner level Foreign gross income sourced at partnership level D Passive category E General category Form 1116, Part I F Other Deductions allocated and apportioned at partner level Form 1116, Part I G Interest expense H Other Form 1116, Part I Deductions allocated and apportioned at partnership level to foreign source income I Passive category J General category Form 1116, Part I K Other Other information L Total foreign taxes paid Form 1116, Part II M Total foreign taxes accrued Form 1116, Part II N Reduction in taxes available for credit Form 1116, line 12 Form 8873 O Foreign trading gross receipts P Extraterritorial income exclusion Form 8873 Q Other foreign transactions See the Partner's Instructions Alternative minimum tax (AMT) items A Post-1986 depreciation adjustment See the Partner's B Adjusted gain or loss C Depletion (other than oil & gas) Instructions and D Oil, gas, & geothermalgross income the Instructions for E Oil, gas, & geothermaldeductions Form 6251 F Other AMT items Tax-exempt income and nondeductible expenses A Tax-exempt interest income Form 1040, line 8b B Other tax-exempt income See the Partner's Instructions C Nondeductible expenses See the Partner's Instructions Distributions A Cash and marketable securities B Distribution subject to section 737 See the Partner's Instructions C Other property Other information A Investment income Form 4952, line 4a B Investment expenses Form 4952, line 5 Form 4136 C Fuel tax credit information D Qualified rehabilitation expenditures See the Partner's Instructions (other than rental real estate) E Basis of energy property See the Partner's Instructions F Recapture of low-income housing Form 8611, line 8 credit (section 42(j)(5)) G Recapture of low-income housing Form 8611, line 8 credit (other) H Recapture of investment credit See Form 4255 I Recapture of other credits See the Partner's Instructions J Look-back interestcompleted long-term contracts See Form 8697 K Look-back interestincome forecast method See Form 8866 L Dispositions of property with section 179 deductions M Recapture of section 179 deduction N Interest expense for corporate partners O Section 453(l)(3) information P Section 453A(c) information Q Section 1260(b) information R Interest allocable to production See the Partner's expenditures Instructions S CCF nonqualified withdrawals T Depletion informationoil and gas U Reserved V Unrelated business taxable income W Precontribution gain (loss) X Section 108(i) information Y Net investment income Z Other information } } } 17. 18. 19. 20. } } } 2