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TAXATION PROBLEM - Tax Return / Form 1040

sect Sean B. (age 42) and Michelle R. (age 48) Atwell are married and live at 59 14 Overhill Road, Mission Hills, MO 66208 (a suburb of Kansas City). Sean is employed as a chemist by HMT Pharmaceuticals, Inc., and Michelle is a self-employed doctor of anesthesiology PROBLEM 2-INDIVIDUALS (FORM 1040) They are calendar year, cash basis taxpayers. 1. HMT Pharmaceuticals develops and produces injectable medicines used in chem otherapy treatments for cancer patients. Sean manages the Kansas City facility for an annual salary of $95.000. HMT makes contributions to a qualified defined contribution pension plan for all of its full-time employees. Although Sean also has the opportunity to make contributions to the plan, he chose not to do so in 2019. Sean participates in his employer's group health insurance plan to which he contributed $4,000 in 2019 for medical coverage. These contributions are made with pretax dollars, so his taxable salary is reduced to $91,000 for W-2 reporting The health plan covers Sean Michelle and two depende HMT provides all of Vis employees with me of the risk associated with Sean's work they CONTA An additional $190 of Income Tape the table value of this 2 HMT generally reimburses Scan for expressed to the 5 As Lucy's sole heir, Sean inherited her home and is funded 522 SW Sena Drive, Topeka, KS 60600 The costs and values in die company. However, water of policy. IMT do the APPENDIXER following Monthly dinner meetings of Midwesten CON Does to professional organisation Subscriptions to professional Journals MA correspondence study course Sean attended 11 MCA dinnet meeting in 2016 Tachimede following costs $40 (fee for speaker), 825 (price of meal und 10 (paling Sean goes to the meetings from work and returns home the night. The MA (Management Institute of America) care was for an online head course on ways to improve safety measures and void accidents in the end workplace 3 Michelle Atwell is a board-certified doctor of anesthesiologs. She processes thesiology services at a number of hospitals and surgical centers in the gener Kansas City area Michelle is well respected by the surgeons with whom she works. She uses her home as her business address. She keeps bet records there dictates notes to patient files, participates in conference calls regarding upcoming surgeries and postoperative surgical care, answers worked phone calls and compiles and sends patient hills. Because Michelle does not maintain a specific area for exclusive business use, she does not claim a tax deduction for a home office. Michelle's receipts from her practice during 2019 were $155.000 56.000 of which was for services performed in 2018. Not included in these amous $17.500 she received in January 2020 for services rendered in December 2010 Michelle's professional activity code is 621111. Michelle had the following business expenses in 2019, 12200 Medical clothing leg. lab coats surgical scrubs 9.500 Medical malpractice Insurance State medical license fee Dues to professional organizations Subscriptions to professional journals miles for the year In addition, she drove the family Suburban purchased on March 2, 2018) 2.900 miles in connection with her work. She uses the standard mileage method for computing deductible vehicle costs. Total mileage for the suburan 9.000 Sean's widowed mother. Lucy, endured a number of ditierent medical chal- Jenges in late 2018. On December 30, 2018, she suffered a massive scrole and died in the hospital on January 16, 2019 Some of Lucy's medical expenses Were covered by Medicare, with the remainder being paid by the Arweile on atributable to expenses incurred in 2018 At the same time, Scan also pand the funeral expenses of $16,000. Although Lucy lived in her own lovete pesce to the stroke, Sean and Michelle have properly claimed her as a dependent for the pas few years Costa $10.00 110.000 35.000 hoe Instead he rented the property fully furnished on May 1 2012 Them Because the home was located in an attractive rentalaren. Se det $2.500 per month payable on the first of cach month, la month of the lease executed on April 30) provide for the following a able in chance, and damage deposit of $1,500. In total, can received 5240 from the tenants in 2019 for their use of the property Besides depelle For MACRS depreciation purposes. Sean plans to use the sun method with the mid-month convention to compute the deduction for the c. On September 9, the Atwells sold 3,000 shares of Dove Pharmaceuticals for $2,000. The couple purchased the stock on December 4, 2018 for $25.000 TL investment was motivated by the rumor that Dove was developing a new for infertility. On September 7, the FDA announced that it would not app the drug due to adverse side effects, and the Dove stock price phone The Atwells' broker provided them with a Form 1099-B, which reported FMV on 2/2/19 $ 30.000 250.000 20.000 S4.800 3.900 2,100 400 expenses were as follows Property taxes Insurance Repair Real estate renters location service and the 20% declining-balance method with a half-year convention for personally 6 while walking the family dogs in late July, Sean was struck by a delivery and seriously injured. After being hospitalized for a week, he was released bruised and sore-but with no permanent injuries. The driver of the van arrested and ticketed by the police for reckless operation of a vehicle and a later prosecuted for drug use. To prevent adverse publicity related to a low the owner of the delivery service paid for Sean's medical expenses and me him a check on August 16, 2019 for 590,000. The check was accompanied by a letter that stated This $20,000 is a settlement for physical injuries sustained by Sean Arwell Sean was represented in the negotiations with the delivery company by his brother, a practicing attorney. He did not charge the Atwelle for his services 7. The Arwells had the following property transactions during 2019, a. On May 5, the City Council condemned unimproved land owned by Sean it the construction of a fire station. He purchased the land two vacant lots in 300 and 3102 Sycamore Lane) as an investment on May 25, 2012. for $14.00 In exchange for the lots, the city gave Sean a large unimproved for Genoa Street that was valued at $20,000. All in all, he was satisfied with exchange because the Gerica Street property is in a better neighborhood ed has a greater potential for appreciation b. On August 22, Sean sold a gun collection for $32,000 to an avid collectoe le collection was a gift from Sean's father on December 25, 2014, when it worth $22,000. His father bought the collection in 1997 for $14.000 seaniak of the collection was documented by a bill of sale, signed by both Sean und the buyer gross proceeds from the sale and their basis in the stock $ The Arwells lve a long-term capital city of 1.500 from 2010 9. In March 2019. die Arella were waited by the Moon Department of een for ux year 2016 and 2017 The audit proposed to changes for 2016 return. However, the Arwells were need $2,250 additional income tax to 2017 (no interest of penalties were assessed). The Atwellereed with them and paid the $2.250 immediately 10. During 2019. Sean served on a jury for a civil case that was litigated at the code courthouse. As a result of the service, he was pad $700 and incurred mm bused parking expenses of $60. In conformance with company policy. Sean remined the $700 of jury duty fees to HMT 11 In addition to the items already noted, the Atwells lud the following recipes in 2019 Life insurance proceeds 2018 Missourf state income tax refund 550,000 459 Proceeds from garage sale Interest income Kansas City general purpose bonds Citibank certificate of deposit 600 1030 The insurance proceeds were paid to Sean as the designated beneficiary of Lucy's life insurance policy At the garage sale, the Atwells sold personal items leg,camper, furniture, hunting and fishing equipment that belonged to Sean's Father and mother Ge.. Lucy). Sean and Michelle estimated the items they sold originally cost $7.100. The garage sale proceeds were donated to the Alzheimers Research Association (EIN 29-7438025) in memory of Sean's father 12 The Atwells had the following additional expenditures for 2019 Dental bills not covered by insurance $ 3.100 Ad valorem property taxes on personal residence 14,100 2.600 Interest on home mortgage reported on Form 1098 Contributions to Metropolitan Lutheran Ministry (EN 43-0970991) 23.600 As part of a program sponsored by their church Ca qualified charity), the Atwells used the family Suburban to transport senior citizens to religious ser vices for a total of 900 miles during 2019. The Suburban also was used for numerous visit to an orthodontist for both the Atwells' children for a total of 4180 miles 13. The Arwells household includes two dependent children: Ethan (age 15) and Bella Cage 14), both of whom are full-tune students in high school. Relevant Social Security numbers appear below. Name Social Security Number 123-45-6758 Sean B. Atwell 123-45-6768 Michelle R.Atwell 123-45-6787 Lucy E. Atwell 123-45-6788 Ethan M. Atwell 123-45-6978 Bella A. Atwell 14. Sean's Form W-2 from HMT Pharmaceuticals reflects income tax withholding of $6,500 for Federal income taxes and $4,000 for state of Missouri income taxes. The Arwells made quarterly income tax payments totaling $33.000 for their Federal taxes and totaling $20,000 for their state taxes. They lud their Federal income tax refund of $3,000 (for 2018) applied toward their 2019 income tax The Atwells do not own any foreign bank accounts or other investments. In addi ractice Set Assignments--Comprehensive Tax Return Problems Requirements Prepare an income tax return (with all appropriate forms and schedules) for the Atwells The Atwells do not wish to contribute to the Presidential Election Campaign Fund. for 2019, using the following guidelines: The Atwells choose to file a joint income tax return. tion, the Atwells do not have any financial interests in virtual currencies The Atwells prefer to receive a refund of any overpaid taxes. The taxpayers are preparing their own return (i.e., no preparer is involved). For the past several years, the Atwells have itemized their deductions from AGI instead of using the standard deduction. In addition, the Atwells have deducted state income taxes (not sales taxes) for the past several years. The taxpayers have the necessary substantiation (e.g., records, receipts) to support all transactions reported on their tax return. Make necessary assumptions for information not given in the problem but needed to complete the return sect Sean B. (age 42) and Michelle R. (age 48) Atwell are married and live at 59 14 Overhill Road, Mission Hills, MO 66208 (a suburb of Kansas City). Sean is employed as a chemist by HMT Pharmaceuticals, Inc., and Michelle is a self-employed doctor of anesthesiology PROBLEM 2-INDIVIDUALS (FORM 1040) They are calendar year, cash basis taxpayers. 1. HMT Pharmaceuticals develops and produces injectable medicines used in chem otherapy treatments for cancer patients. Sean manages the Kansas City facility for an annual salary of $95.000. HMT makes contributions to a qualified defined contribution pension plan for all of its full-time employees. Although Sean also has the opportunity to make contributions to the plan, he chose not to do so in 2019. Sean participates in his employer's group health insurance plan to which he contributed $4,000 in 2019 for medical coverage. These contributions are made with pretax dollars, so his taxable salary is reduced to $91,000 for W-2 reporting The health plan covers Sean Michelle and two depende HMT provides all of Vis employees with me of the risk associated with Sean's work they CONTA An additional $190 of Income Tape the table value of this 2 HMT generally reimburses Scan for expressed to the 5 As Lucy's sole heir, Sean inherited her home and is funded 522 SW Sena Drive, Topeka, KS 60600 The costs and values in die company. However, water of policy. IMT do the APPENDIXER following Monthly dinner meetings of Midwesten CON Does to professional organisation Subscriptions to professional Journals MA correspondence study course Sean attended 11 MCA dinnet meeting in 2016 Tachimede following costs $40 (fee for speaker), 825 (price of meal und 10 (paling Sean goes to the meetings from work and returns home the night. The MA (Management Institute of America) care was for an online head course on ways to improve safety measures and void accidents in the end workplace 3 Michelle Atwell is a board-certified doctor of anesthesiologs. She processes thesiology services at a number of hospitals and surgical centers in the gener Kansas City area Michelle is well respected by the surgeons with whom she works. She uses her home as her business address. She keeps bet records there dictates notes to patient files, participates in conference calls regarding upcoming surgeries and postoperative surgical care, answers worked phone calls and compiles and sends patient hills. Because Michelle does not maintain a specific area for exclusive business use, she does not claim a tax deduction for a home office. Michelle's receipts from her practice during 2019 were $155.000 56.000 of which was for services performed in 2018. Not included in these amous $17.500 she received in January 2020 for services rendered in December 2010 Michelle's professional activity code is 621111. Michelle had the following business expenses in 2019, 12200 Medical clothing leg. lab coats surgical scrubs 9.500 Medical malpractice Insurance State medical license fee Dues to professional organizations Subscriptions to professional journals miles for the year In addition, she drove the family Suburban purchased on March 2, 2018) 2.900 miles in connection with her work. She uses the standard mileage method for computing deductible vehicle costs. Total mileage for the suburan 9.000 Sean's widowed mother. Lucy, endured a number of ditierent medical chal- Jenges in late 2018. On December 30, 2018, she suffered a massive scrole and died in the hospital on January 16, 2019 Some of Lucy's medical expenses Were covered by Medicare, with the remainder being paid by the Arweile on atributable to expenses incurred in 2018 At the same time, Scan also pand the funeral expenses of $16,000. Although Lucy lived in her own lovete pesce to the stroke, Sean and Michelle have properly claimed her as a dependent for the pas few years Costa $10.00 110.000 35.000 hoe Instead he rented the property fully furnished on May 1 2012 Them Because the home was located in an attractive rentalaren. Se det $2.500 per month payable on the first of cach month, la month of the lease executed on April 30) provide for the following a able in chance, and damage deposit of $1,500. In total, can received 5240 from the tenants in 2019 for their use of the property Besides depelle For MACRS depreciation purposes. Sean plans to use the sun method with the mid-month convention to compute the deduction for the c. On September 9, the Atwells sold 3,000 shares of Dove Pharmaceuticals for $2,000. The couple purchased the stock on December 4, 2018 for $25.000 TL investment was motivated by the rumor that Dove was developing a new for infertility. On September 7, the FDA announced that it would not app the drug due to adverse side effects, and the Dove stock price phone The Atwells' broker provided them with a Form 1099-B, which reported FMV on 2/2/19 $ 30.000 250.000 20.000 S4.800 3.900 2,100 400 expenses were as follows Property taxes Insurance Repair Real estate renters location service and the 20% declining-balance method with a half-year convention for personally 6 while walking the family dogs in late July, Sean was struck by a delivery and seriously injured. After being hospitalized for a week, he was released bruised and sore-but with no permanent injuries. The driver of the van arrested and ticketed by the police for reckless operation of a vehicle and a later prosecuted for drug use. To prevent adverse publicity related to a low the owner of the delivery service paid for Sean's medical expenses and me him a check on August 16, 2019 for 590,000. The check was accompanied by a letter that stated This $20,000 is a settlement for physical injuries sustained by Sean Arwell Sean was represented in the negotiations with the delivery company by his brother, a practicing attorney. He did not charge the Atwelle for his services 7. The Arwells had the following property transactions during 2019, a. On May 5, the City Council condemned unimproved land owned by Sean it the construction of a fire station. He purchased the land two vacant lots in 300 and 3102 Sycamore Lane) as an investment on May 25, 2012. for $14.00 In exchange for the lots, the city gave Sean a large unimproved for Genoa Street that was valued at $20,000. All in all, he was satisfied with exchange because the Gerica Street property is in a better neighborhood ed has a greater potential for appreciation b. On August 22, Sean sold a gun collection for $32,000 to an avid collectoe le collection was a gift from Sean's father on December 25, 2014, when it worth $22,000. His father bought the collection in 1997 for $14.000 seaniak of the collection was documented by a bill of sale, signed by both Sean und the buyer gross proceeds from the sale and their basis in the stock $ The Arwells lve a long-term capital city of 1.500 from 2010 9. In March 2019. die Arella were waited by the Moon Department of een for ux year 2016 and 2017 The audit proposed to changes for 2016 return. However, the Arwells were need $2,250 additional income tax to 2017 (no interest of penalties were assessed). The Atwellereed with them and paid the $2.250 immediately 10. During 2019. Sean served on a jury for a civil case that was litigated at the code courthouse. As a result of the service, he was pad $700 and incurred mm bused parking expenses of $60. In conformance with company policy. Sean remined the $700 of jury duty fees to HMT 11 In addition to the items already noted, the Atwells lud the following recipes in 2019 Life insurance proceeds 2018 Missourf state income tax refund 550,000 459 Proceeds from garage sale Interest income Kansas City general purpose bonds Citibank certificate of deposit 600 1030 The insurance proceeds were paid to Sean as the designated beneficiary of Lucy's life insurance policy At the garage sale, the Atwells sold personal items leg,camper, furniture, hunting and fishing equipment that belonged to Sean's Father and mother Ge.. Lucy). Sean and Michelle estimated the items they sold originally cost $7.100. The garage sale proceeds were donated to the Alzheimers Research Association (EIN 29-7438025) in memory of Sean's father 12 The Atwells had the following additional expenditures for 2019 Dental bills not covered by insurance $ 3.100 Ad valorem property taxes on personal residence 14,100 2.600 Interest on home mortgage reported on Form 1098 Contributions to Metropolitan Lutheran Ministry (EN 43-0970991) 23.600 As part of a program sponsored by their church Ca qualified charity), the Atwells used the family Suburban to transport senior citizens to religious ser vices for a total of 900 miles during 2019. The Suburban also was used for numerous visit to an orthodontist for both the Atwells' children for a total of 4180 miles 13. The Arwells household includes two dependent children: Ethan (age 15) and Bella Cage 14), both of whom are full-tune students in high school. Relevant Social Security numbers appear below. Name Social Security Number 123-45-6758 Sean B. Atwell 123-45-6768 Michelle R.Atwell 123-45-6787 Lucy E. Atwell 123-45-6788 Ethan M. Atwell 123-45-6978 Bella A. Atwell 14. Sean's Form W-2 from HMT Pharmaceuticals reflects income tax withholding of $6,500 for Federal income taxes and $4,000 for state of Missouri income taxes. The Arwells made quarterly income tax payments totaling $33.000 for their Federal taxes and totaling $20,000 for their state taxes. They lud their Federal income tax refund of $3,000 (for 2018) applied toward their 2019 income tax The Atwells do not own any foreign bank accounts or other investments. In addi ractice Set Assignments--Comprehensive Tax Return Problems Requirements Prepare an income tax return (with all appropriate forms and schedules) for the Atwells The Atwells do not wish to contribute to the Presidential Election Campaign Fund. for 2019, using the following guidelines: The Atwells choose to file a joint income tax return. tion, the Atwells do not have any financial interests in virtual currencies The Atwells prefer to receive a refund of any overpaid taxes. The taxpayers are preparing their own return (i.e., no preparer is involved). For the past several years, the Atwells have itemized their deductions from AGI instead of using the standard deduction. In addition, the Atwells have deducted state income taxes (not sales taxes) for the past several years. The taxpayers have the necessary substantiation (e.g., records, receipts) to support all transactions reported on their tax return. Make necessary assumptions for information not given in the problem but needed to complete the return