Tax Retum Problems 6-31 PROBLEM 8 Ronald Lump Objective: Self-employed professional, office in home Ronald Lump, 55, is an unmarried, self-employed medical doctor and resides at 2601 Pennsylvania Avenue, Washington D.C. 20001. His Social Security number is 387-12-3456. Ronald's wife died last year, but he continues to maintain a home for his blind 16 yearold dependent son Ronald, Jr., whose Social Security number is 387-12-3457. Ronald's telephone number is 202-555-1234. The relevant tax information given to you includes the following:

1, Ronald uses the cash method of accounting in his business. His employer identification number is 33-1234567. Income and expenses pertaining to his business follow: a. Fees collected $ 270,000 b. Bad debt written off 2,000 c. Legal and accounting services 2,500 d. Qualifying business meals and entertainment 11400 e. Medical joumals 800 f. Office supplies 1 ,300 g. Continuing education self-study courses 3,550 h. Malpractice insurance 34,000 i. Part-time secretary from "Kelly Girl" 10,000 2. During the year, Ronald worked at City Hospital and University Hospital, both in Bethesda, Maryland. While he spent 30 to 35 hours per week working at the hospitals, Ronald was not provided with an office at either hospital. Instead, Ronald used a bedroom in his house as his office, where he kept a computer, an answering machine, a copier, telephone, patient records, and medical books and journals. From the office, Ronald contacted other doctors and patients by phone. In addition, he often called hospitals to arrange admission for his own patients. He did all necessary to bill his patients in this office. He also spent time in his office reading medical books and joumals, and preparing for patients; however, Ronald did not see any patients at his office. On average, Ronald spent 16 hours per week working in his home office during this year. Ronald did not use the office for any non-business purposes. His part-time secretary also worked in the home office. Tax Return Problems 6-32 Ronald has the following expenses relevant to determining a home office expense deduction: a.The bedroom office represented approximately 20% of the total square footage of his house. b. Total interest expense paid on his home mortgage was $17,000. C. Ronald's annual utility bills for the residence were $2,800. d. Property taxes on the house amounted to $2,100 for the year. e. Ronald elects not to take depreciation on his home office. f. Ronald has a second telephone line that can only be answered in his office. The cost of this business phone was $480 for the year. 3. Ronald kept a log of his business miles. He drove 1,728 miles between hospitals this year. 4. Ronald made timely estimated Federal income tax payments of $80,000 ($20,000 each quarter) during the year; the fourth quarter payment was made on January 15, Yr 3. He also made estimated income tax payments for a total of $3,200 to the Maryland Deoartment of Revenue. Ronald made the last quarter's payment to the Deoartment on December 31, Yr 2. He wanted that tax deduction. Ronald made an additional payment of $345 when he filed his Yr 1 D.C. income tax retum in April, Yr 2. Ronald paid $125 in additional income taxes for Yr 1 to Maryland when he filed in Yr 2. You are preparina the federal return for vear 2. 5. Ronald received $1,000 in dividends on savings held in a D.C. Savings Bank on Form 1099 DIV. 6. Ronald received the final settlement on the life insurance policy held on the life of Mrs. Lump. He received a lump-sum of $100,000, plus the first payment of $5,500, a life-time annuity. The insurance company reported that $11500 of this amount was interest. This was reported on a Form 1099 INT. 7. Ronald and his son had health insurance through a private plan purchased from a health insurance company.

For Lump's Schedule C, box B, Business category, use your software to pick out an appropriate code. The software will calculate the self-employment tax and any other forms necessary.

Notice that Lumpmadeestimated federal incometax payments. Use the payments section of your software to enter these payments. Note Yr 1 = 2015, Yr 2 = 2016 and Yr 3 = 2017.

Lumpshould receive a $23,937 refund.