The goal of this assignment for you to 1.) determine the Taxpayers AGI, taxable income, tax liability and tax due/refund and 2.) to identify where the income and expense items are reported on an individual tax return. It is important for you to understand how all the pieces we have discussed this semester fit together

Client Info:

Steven and Lucy Gonzales Filing status = Married filing jointly

Qualifying children = Sam (age 4) and Charlie (age 6) 2019

Tax Information: a.) Steven is a pilot and is employed by Flyby Airlines. His W-2 provided the following information: Line 1 Wages, tips & other compensation $163,000 Line 2 Federal income tax withheld $ 25,000

b.) Lucy is self-employed and runs a bookkeeping business. The statement is attached.

c.) Steven won $8,000 at the casino in Ruidoso.

d.) Interest income - $250 from savings account at First Lubbock Bank; $300 from State of Texas Bond; $130 from US Treasury Bond; $1,800 from CD however CD was cashed out early and a 10% penalty of $180 was assessed

e.) Dividend income - $2,750 ordinary dividends from TXT Co of which $2,500 was qualified

f.) Steven and Lucy own a rental property in Port Aransas, TX. They received $9,000 in rental revenue and incurred the following expenses: Property taxes - $5,400 Repairs & Maintenance - $3,200 Utilities - $2,400 Depreciation - $1,600

g.) Lucy received stock in Under the Bus Corp. when her grandmother died in February. Her grandmother had purchased the stock in 1992 for $5,000. The FMV of the stock was $22,000 on the date of her death. Lucy sold the sold in December for $27,000. (This transaction is not included in the table provided at p.

h.) Steven received $25,000 cash from his great-uncle has a gift. Acct 3307 002 & 003 Spring 2020

i.) Steven paid $10,000 in alimony to a former spouse and $24,000 in child support. (Stevens children from his first marriage are claimed as dependents on their mothers tax return. The kids from his first marriage are different than those in the opening sentence. Steven has four total children, but only two qualify as his dependents.) The divorce was finalized in 2011.

j.) The taxpayers sold their boat (personal-use) that they had owned for three years at a loss of ($6,000).

k.) Steven and Lucy won a free trip to Mexico after completing a survey outside the grocery store. They were told the trip was worth $7,800.

l.) In 2018 the taxpayers were required to file a state tax return in New Mexico due to some investment property. In 2019 they received a state tax refund of $550. The taxpayers itemized on their 2018 federal income tax return. Their total itemized deductions in 2018 exceeded the standard deduction by $3,500.

m.) In 2015 the taxpayers won $100,000 in the McDonalds Monopoly game. The winnings are paying out over five years ($20,000 per year). This year the couple received $20,900.

n.) Lucy is a limited partner (passive) in two different partnerships X and Z. Partnership X reported her share of the current year income/loss to be ($17,000) and her basis prior to the current year loss was $14,000. Partnership Z reported her share of the current year income/loss to be $12,500 and his basis prior to the current year income was $7,000.

o.) In January Lucys father passed away. Lucy was the recipient of one of his life insurance policies. The policy had a face value of $500,000. Lucy elected to have the policy pay out over 20 years. Lucy received a check for $26,000 in December.

p.) Additionally, the couple sold the following assets during the year:

Asset Purchased Sold Cost Basis Sales Price Gain/(Loss)

ABC Stock 1/1/2019 7/1/2019 $18,000 $25,000 $7,000

DEF Stock 1/1/2008 11/20/2019 $15,000 $10,000 ($5,000)

Painting (collectible) 1/1/2005 7/15/2019 $5,000 $50,000 $45,000

GHI Stock 1/1/2010 9/1/2019 $18,000 $30,000 $12,000

Rental Property* 1/1/2005 1/1/2019 $75,000 $130,000 $55,000

JKL Stock 1/1/2015 10/1/2019 $10,000 $15,000 $5,000

*Unrecaptured Sec. 1250 gain = $27,000 (The $27,000 is included in the $55,000)

q.) Paid the following out-of-pocket expenses during the year:

Medical expenses (unreimbursed):

Doctor/hospital/dentist $9,500

Prescription drugs $800

Over-the-counter drugs $200

Wheelchair $150

Veterinarians fees (non-service animal) $700

Cosmetic surgery (elective) $12,000

Teeth whitening $2,500

Lasik eye surgery $6,000

Braces (orthodontics) $5,000

Steven was injured in an automobile accident and became wheel-chair bound during the year. The taxpayers spent $10,000 making their home more accessible by adding ramps and widening doorways. The changes did not increase the homes FMV. Additionally the couple put a pool in the backyard so Josh could do his physical therapy. The cost of the pool was $50,000. A local realtor determined the pool increase the homes FMV by $42,000.

Taxes:

Social security tax withheld from wages $8,500

State general sales tax (per IRS table) $2,200

Real estate tax (investment property) $2,500

Estimated tax payments (federal) $6,000

Real estate tax (primary residence) $5,800

Interest:

Credit card (personal) $400

Home mortgage (personal) $7,500 (Note = $350,000)

Auto loan (personal) $1,500

Points paid on acquisition loan $800 (20-year note)

Charitable donations:

Cash paid directly to family in need $500

Cash to TTU for scholarships $7,500

Cash to political campaign $500

Household items (clothes, furniture), which are ordinary income property, given to American Red Cross - FMV = $300; Original Cost = $1,200

Painting (capital gain property) given to museum; Museum hung painting. FMV = $5,000; Original cost = $1,000

Steven serves lunch every Thursday at a soup kitchen. Total mileage driven to and from soup kitchen was 357 miles. (SMR = $0.14 per mile) Stevens estimated his time to be valued at $75 per hour. Total hours for the year were 52 hours.

The couple bid (silent auction) on a fishing trip package at the American Cancer Society gala. The couple paid $10,000 for the trip which had a fair market value of $8,800.

Other unreimbursed expenses:

Gambling losses - $5,000

r.) Additional expenses:

Daycare cost for Charlie - $8,250

Funeral expenses for Lucys father - $6,200

s.) Additional expenses related to the house:

Utilities - $7,200

Insurance - $4,500

General repairs & maintenance - $2,300

t.) Lucy is attending Texas Tech University to earn her masters degree in accounting. She is in her fifth year of higher education. Her tuition and required course expenses totaled $8,000. Additionally she spend $575 on books. She received a scholarship from the School of Accounting for $1,500. She did not have to perform any services in order to receive the scholarship.

Scarlet & Black Bookkeeping

Income Statement

For the Year Ended December 31,2019

Revenue $120,000

Expenses:

Professional Insurance $1,200

Training Seminar $275

Travel to clients

Lodging $3,125

Meals $1,250

Airfare $1,800

New Computer $1,400

New office chair $850

Wages paid to employee $38,000

Payroll taxes $2,907

Owner Distribution $60,000

Attorney fees (Prof Expense) $1,300

Office supplies $775

Late filing penalty $225

Charitable contributions $800

Contribution to political candidate $350

Total Expenses 114,257.00

Net Income $5,743

Additional Information:

Drove 1,200 miles to go to clients' offices

Works from home. Home office = 300 sq ft, House = 3,000 sq ft