Tax Return Problem 5

Required:

Use the following information to complete Armando and Lourdes Gonzales 2017 federal income tax return. If any information is missing, use reasonable assumptions to fill in the gaps.

You may need the following forms and schedules to complete the project: Form 1040, Schedule A, Schedule B, Schedule C, Schedule D, Schedule E, Schedule SE, Form 4562 (dental practice), Form 4562 (rental property), Form 4797, Form 8863, and Form 8949. www.irs.gov

Facts:

Armando and Lourdes Gonzales are married and file a joint return. Armando is self-employed as a dentist, and Lourdes is a college professor. They have three children

Oldest is Ricardo lives at home, law student at U of C and worked part time during the year, earning $1,500, which he spent for his own support. A and L provided $6,000 toward Ricardos support (Including $4000 for Ricardos fall tuition).

They also provided over half the support of their daughter, Selena, who is a full-time student at Edgecliff College in Cincinnati. Selena worked part time as an independent contractor during the year, earning $3200. Selena lived at home until she was married in December 2017. She filed a joint return with her husband, Tony, who earned $20,000 during the year.

Felipe is the youngest and lived in the Gonzales home for the entire year

More info:

Want to take advantage of any educational expenses paid for the children

Do not want to contribute to the presidential election campaign

621 Franklin Ave, Cincinnati, Ohio 45211

Armandos bday: 3/5/1959 and SS: 3334566666

Lourdes bday: 4/24/1962 and SS: 566778888

Ricardo: 11/6/1994 and SS: 576187928

Selena: 2/1/1998 and SS: 575924321

Felipe: 12/12/2005 and SS: 613978465

No foreign bank accounts or trusts

Lourdes is a lecturer at Xavier U, where she earned $30,000. The university withheld federal income tax of $3375, state income tax of $900, Cincinnati city income tax of $375, $1860 of Social Security tax, and $435 of Medicare tax. She also worked part of the year for Delta Airlines. Delta paid her $10,000 in salary, and withheld federal income tax of $1,125, state income tax of $300, Cincinnati city income tax of $125, Social Security tax of $620, and Medicare tax of $145

The Gonzaleses received $800 of interest from State Savings Bank on a joint account. They received interest of $1000 on City of Cincinnati bonds they bought in January with the proceeds of a loan from Third National Bank of Cincinnati. They paid interest of $1100 on the loan. Armando received a dividend of $540 on General Bicycle Corporation stock he owns. Lourdes received a dividend of $390 on Acme Clothing Corporation stock she owns. Armando and Lourdes received a dividend of $865 on jointly owned stock in Maple Company. All of the dividends received in 2017 are qualified dividends.

Armando practices under the name Armando Z. Gonzales, DDS His business is located at 645 West Avenue, Cincinnati, Ohio 45211, and his employer identification number if 01-2222222. Armandos gross receipts during the year were $111,000. Armando uses the case method of accounting for his business. Expenses are

Advertising 1200

Professional dues 490

Professional journals 360

Contributions to employee benefit plans 2000

Malpractice insurance 3200

Fine for overbilling State of Ohio for work performed on welfare patient 50000

Insurance on office contents 720

Interest on money borrowed to refurbish office 600

Accounting services 2100

Miscellaneous office expense 388

Office rent 12000

Dental supplies 7672

Utilities and telephone 3360

Wages 30,000

Payroll taxes 2400

In June, Armando decided to refurbish his office. This project was completed and the assets placed into service on July 1. Armandos expenditures included $8000 for new office furniture, $6000 for new dental equipment (7 year recovery period), and $2000 for a new computer. Armando elected to compute his cost recovery allowance using MACRS. He did not elect to use 179 immediate expensing, and he chose not to claim any bonus depreciation.

Lourdes mother, Maria, died on July 2, 2012, leaving Lourdes her entire estate. Included in the estate was Marias residence (325 Oak Street, Cincinnati, Ohio, 45211). Marias basis in the residence was $30,000. The FMV of the residence on July 2, 2012, was $155,000. The property was distributed to Lourdes on January 1, 2013. The Gonzaleses have held the property as rental property and have managed it themselves. From 2013 until June 30, 2017, they rented the house to the same tenant. The tenant was transferred to a branch office in California and moved out at the end of June. Since they did not want to bother finding a new tenant, Armando and Lourdes sold the house on June 30, 2017. They received $140,000 for the house and land ($15000 for the land and 125,000 for the house), less a 6% commission charged by the broker. They had depreciated the house using the MACRS rules applicable to residential real estate. To compute depreciation on the house, the Gonzaleses had allocated $15,000 of the propertys basis to the land on which the house in located. The Gonzaleses collected rent of $1000 a month during the 6 months the house was occupied during the year. They incurred the following related expenses during this period:

Property insurance = 500

Property taxes = 800

Maintenance = 465

Depreciation = to be computed

The Gonzaleses sold 200 shares of Capp Corporation stock on September 3, 2017, for $42 a share (minus a $50 commission). The Gonzaleses received the stock from Armandos father on June 25, 1981, as a wedding present. Armandos father originally purchased the stock for $10 per share on January 1, 1969. The stock was valued at $14.50 per share on the date of the gift. No gift tax was paid on the gift.

Armando and Lourdes have given you a file containing the following receipts for expenditures during the year:

Prescription medicine and drugs (net of insurance reimbursement) = 376

Doctor and hospital bills (net of insurance reimbursement) = 2468

Penalty for underpayment of last years state income tax = 15

Real estate taxes on personal residence = 4762

Interest on home mortgage (paid to Home State Savings & Loan) = 8250

Interest on credit cards (consumer purchases) = 595

Cash contribution to St. Matthews church = 3080

Payroll deductions for Lourdes contributions to the United Way = 150

The Gonzaleses filed their 2016 federal, state, and local returns on April 12, 2017. They paid the following additional 2016 taxes with their returns: federal income taxes of $630, state income taxes of $250, and city income taxes of $75.

The Gonzaleses made timely estimated federal income tax payments of $1500 each quarter during 2017. They also made estimated state income tax payments of $300 each quarter and estimated city income tax payments of $160 each quarter. The Gonzaleses made all fourth quarter payments on December 31, 2017. They would like to receive a refund for any overpayments.

Armando and Lourdes have qualifying insurance for purposes of the Affordable Care Act (ACA).