Tax Return

In 2016, Sterling and Lana Archer (ages 31 and 29) are married and live in New York, NY. Their address is 880 5^th Ave Unit 22A, New York, NY 10021. They have a two year old child, AJ. Their phone number is 212-123-4567. Sterling, Lana and AJs social security numbers are 123-45-6789, 234-56-7891 and 345-67-8912 respectively.

Sterling received $8,000 of qualified Microsoft dividends, as well as $5,000 of non-qualified dividends from Xerox. Sterling also received $5,000 of interest from City of New York bonds, and $10,000 of interest from Proctor & Gamble bonds. The remaining income came from their own business. Sterling and Lana both run Clandestine Operations (CO) as a calendar year end, cash basis, schedule C company (EIN 9-87654321). CO was formed in 2012, and only sells its services (no inventory). In 2016, CO had $3,257,000 of revenue. The Archers also listed the following expenses:

-$36,000 to lease their office at 900 6^th Ave, New York, NY 10021.

-$500,000 in employee wages

-$45,000 in payroll taxes

-$50,000 in health insurance premiums for CO employees

-$10,000 in health insurance premiums for the Archer family

-$15,000 in business loan interest

-$5,000 in legal fees

-$25,000 in new supplies

-$15,000 in utilities

Further, CO gave more detailed information on the following items:

-Travel Expenses: Sterling estimates their vehicle was driven 8,000 miles for qualifying overnight business trips, but only documented 3,457 of those miles (standard mileage rate is 57.5 cents). Sterling also saved gas receipts totaling $600, toll receipts totaling $350, parking fines totaling $1,300, and food receipts totaling $3,000. The Archers also flew to two locations for business. The first was a 7 day trip to Miami, FL, and the second a 5 day trip to Aspen, CO. Per discussions with Sterling, business was only conducted for 5 of the 7 days in Miami, with the other two days spent lounging on South Beach. CO paid $3,200 for two first class tickets to Miami, $300 per night for a hotel, $220 in taxi fares to get to and from business meetings, and $574 for meals. On the second trip, business was only conducted on 2 of the 5 days. CO paid $2,800 for two first class tickets to Aspen, $250 per night for a hotel, $130 in taxi fares to get to and from business meetings, and $350 for meals.

-Depreciable Assets: CO currently owns various office furniture put in service on March 1^st, 2014 when CO opened for business. The office furniture has a total original cost of $25,000. CO also owns 5 computers, also placed in service on March 1^st, 2014, with a total original cost of $10,000. Further, 2 new computers were purchased in 2016 and placed in service on September 1^st, with a total cost of $4,000. CO purchased a 2012 Ford Escape for $22,000, also placed in service on March 1^st, 2014. CO also owns a warehouse on the outskirts of town for storage. The warehouse had an original cost of $250,000, and was placed in service on March 1^st, 2014. No section 179 or bonus depreciation was taken in 2014. However, the Archers would like to fully utilize any available 179 on new assets placed in service during 2016 (ignore bonus depreciation).

Sterling also informed you of the following personal information:

-Paid $7,500 of unreimbursed medical expenses

-Paid $20,450 of state and local income taxes

-Paid $4,250 in property taxes

-Paid $102,000 in home related interest (6% interest on a $1,500,000 acquisition mortgage and 6% interest on a $200,000 home equity loan [proceeds used for home renovation])

-Donated $50,000 to NYU, Sterlings Alma Mater, and artwork with a basis of $100,000 and a FMV of $500,000 to The Metropolitan Museum of Art

-Sterling contributed $5,000 to a traditional IRA, and Lana contributed $5,000 to a Roth IRA

-Sterling is divorced from his first wife (SS#456-78-9123), with whom he has a 5 year old child (the child resides with the mother year round, and the mother takes all possible tax benefits related to the child). Sterling pays a court ordered $12,000 annually as part of the divorce agreement, with this amount decreasing to $4,000 annually when the child turns 18 years old.

-The Archers made four $180,000 quarterly estimated tax payments, which exceeded 110% of the prior year tax liability.

-The Archers paid $20,000 in child care necessary for both parents to work.

The last item Sterling informs you of is a rental property they own in Destin, FL. The address is 631 Gulf Shore Drive, Destin FL 32541. The property was purchased November 1^st, 2009 with an original cost of $400,000. This property is rented year-round. While Gulf Emerald Coast Realty is engaged as a property manager to manage the bulk of the rental work, Lana participates enough to be considered an active participant of the rental. In 2016, the property brought in $1,800 per month in rent, with 10% of each rent check being taken as property management fees. The Archers also incurred the following expenses related to this property:

-$200 in advertising

-$1,250 in cleaning

-$2,400 in insurance

-$18,300 in mortgage interest

-$3,750 in property taxes

-$3,800 in utilities

You have been contracted to prepare the Archers personal federal tax return in 2016. They wish for you to take whatever tax positions you can to minimize their 2016 tax liability. Sterling would like $3 to go to the presidential election campaign fund, but Lana does not. The Archers do not want to designate anyone as a third party designee. Any overpayment should be refunded. Round all line items to the nearest dollar.

Notes:

-You will need to submit a 1040, schedule A, schedule C, schedule E, and schedule SE.

-For schedule A, you will need to make use of the schedule A limitation worksheet (but you do not need to turn in a copy of it)

-For schedule C, you can ignore parts III, IV and V, as well as the business code. Also, instead of submitting form 4562 for depreciation, you can calculate depreciation without the form and simply place the total on line 13 of schedule C. However, you need to submit your depreciation calculations (an excel file for instance, or scanned in hand written work).

-For schedule E, you can ignore form 8562

-You can ignore schedule B

-For schedule SE, you can use the short form (page one of the schedule)