Tax Return Project II

The following situations all occurred during 2017, and Charlies household includes the

following:

Relationship to Charlie Social Security Number

Charlie Brown (age 50) 123-45-6789

Julie Brown (age 46) Wife 123-45-6788

Max Brown (age 17) Son 123-45-6786

S1. Charlie and Julie (calendar year and cash-basis taxpayers) file a joint return and live at 100

Morrissey Blvd, Boston, MA 02125. Max lives with Charlie and Julie. Max is a qualifying child

(i.e., dependent).

S2. Charlie is employed as a legal secretary by Boston Legal, and his salary is $140,000.

S3. On Aug 14th 2017, Charlie identified $500 as a nonbusiness bad debt (which was partially

worthless) not paid by Snoopy.

S4. Regarding capital assets Charlie had own, the following situations occurred:

(1) Facebook Stock: date acquired 07/01/2014, date sold 09/12/2017, selling price $3,000,

adjusted basis $6,500.

(2) LinkedIn Stock: date acquired 02/27/2017, date sold 12/08/2017, selling price $4,000,

adjusted basis $5,100.

(3) Amazon Bond: date acquired 10/05/2012, date sold 03/16/2017, selling price $2,400,

adjusted basis $2,000.

(4) City of Boston bond: date acquired 08/31/2016, date sold 01/15/2017, selling price $3,800,

adjusted basis $3,200.

(5) Personal Car: date acquired 05/04/2017, date sold 09/29/2017, selling price $7,700, adjusted

basis $7,500.

(6) Antique: date acquired 06/07/2017, date sold 08/08/2017, selling price $9,300, adjusted basis

$11,000.

(7) GoBankrupt Stock: date acquired 09/12/2017, adjusted basis $600, became completely

worthless.

S5. Charlie had $100 of short-term capital loss carried from 2016 and $5,000 of long-term

capital loss carried from 2016.

(Continued)

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S6. Julie is a dentist and operates Julies Smile as a sole proprietorship, which is located at 200

Morrissey Blvd, Boston, MA 02125. The principal business is Offices of Dentists, and the

code is 621210. Julies, who materially participates in the business, has the following gross

receipts and expenses related to her business:

? gross receipts from patients $988,000 ? advertising $22,000

? insurance premium for medical accidents $7,000 ? legal service fees $18,000

? equipment rental $40,000 ? office rent $53,000

? supplies $9,000 ? wages to nurses $100,000

S7. Julie is considering opening a new dentist branch in Washington D.C. She incurs $4,000 for

travel, $10,000 for consulting expenses, and $9,000 for market analysis. She did not acquire or

start a new dentist.

S8. The following situations are related to business bad debts:

(1) During 2016, Julie sold products to Peggy on account for $22,000. On July 30st, 2017, when

the balance on account was $10,000, Peggy filed for bankruptcy, and Julie was notified that she

could not receive any of the amounts owed to her.

(2) During 2014, Julie sold another product to Lucy on account for $100,000. In 2015, when the

balance on account was $9,200, Lucy filed for bankruptcy, and Julie was notified that she could

not receive any of the amounts owed to her. Therefore, she claimed a business bad debt

deduction of $9,200 in 2015. However, the bad debt deduction provided tax benefit of $5,000 in

2015. On March 14th, 2017, final settlement was made, and Julie received $7,100.

S9. Julie chooses declining balance (DB) cost recovery method. On March 1st, 2017, Julie

acquires and places in service a 5-year class property, a business car, at a cost of $1,700,000. She

chooses the 179 deduction option but not the 50% additional first-year depreciation deduction

option.

S10. Julie has a net operating loss (NOL) carried over from 2016. The amount is $10,000.

S11. Charlie was involved in a motorcycle accident in 2017. His motorcycle was partially

destroyed. The motorcycle was used only for personal use, and had a market value of $25,000

($12,000) before (after) the accident and an adjusted basis of $16,000. He received $4,000 from

GEICO related to the accident.

S12. Poor Charlie suffered from serious illness and paid medical bills of $20,000.

S13. Federal income tax withheld from Form W-2 = $10,845. Assume that there are no other tax

credits to be claimed (despite the fact that Julie also has estimated federal income tax paid).

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Required:

Based on the information given above, determine the amount of 2017 tax due (or tax refund).

You are required to submit the following documents:

1. Form 1040 (U.S. Individual Income Tax Return)

2. Form 1040 Schedule A (Itemized Deductions)

3. Form 1040 Schedule C (Profit or Loss from Business)

4. Form 1040 Schedule D (Capital Gains and Losses)

5. Form 4562 (Depreciation and Amortization)

6. Form 4684 (Casualties and Thefts)

7. Form 8949 (Sales and Other Dispositions of Capital Assets)

8. Separate formula sheet explaining how you derived the number in:

(1) Form 1040 Schedule C, part V (Other Expenses)

(2) Form 1040 Schedule C, line 6 (Other Income)

(3) Form 4562, line 11 (Business Income Limitation)

(4) Form 4562, line 19b column c (Basis) and column g (Depreciation Deduction)

(5) Form 1040, line 40 (Itemized Deductions or Standard Deduction)

(6) Form 1040, line 42 (Exemptions)

(7) Form 1040, line 44 (Tax Liability)