Your clients are James and Pasty McGier. James is 43 years old and employed by Geyiver Company. Pasty brings you his Form W-2 that shows gross wages of $60,000 and federal income tax withholding of $12,000. There is no other information on the W-2 that is relevant to this exercise. James's social security number is 459-45-1997. He lives at 100 Main Street, Anytown, TX 89652. James is married to Pasty McGier and they will file a joint return. She is also 43 years of age. Her social security number is 459-89-1975. Pasty is, and has been for several years, the sole proprietor of a Beauty Salon known as Pasty's Hair Salon. It is located at 2200 Main Street, Suite 10, Anytown, TX 89652. Patty uses the cash method of accounting. She materially participates in the business. She uses contract beauticians to help her and in 2017 she provided each of them timely filed Forms 1099 showing the amount she paid each of them during the year. Patty bring you an Excel spreadsheet of her income and expenses for the year for the Salon. You have done the McGier's federal income tax returns for several years and you have confidence that her spreadsheet is accurate and reliable, even if somewhat jumbled. Pasty does not sell any products, therefore she has no beginning or ending inventory. 2 11/19/2018 6:27 PM Her spreadsheet reports the following: Accounting fees $ 200 Laundry and cleaning 1,500 Uniforms for her beauticians 600 Rent 5,400 Gross income 32,000 Supplies 5,000 Advertising 150 Utilities 250 Contract labor 17,500 In addition to this spreadsheet, Pasty bring you receipts for the purchase on June 16, 2017 of 5 beauty chairs at a cost of $2,000 each. They know that this type of fixtures have a 5-year depreciable life. You discuss various depreciation and expensing options with Pasty. She agrees that an election to use section 179 expensing for the chairs rather than capitalizing and depreciating them over the 5-year period would be more advantageous for her. James and Pasty have two children: John McGier was born on November 8, 1995. His social security number is 458-94-1548. John is a first-year full-time student at Texas Tech University. John received a Form 1098-T from the University showing tuition paid in 2017 in the amount of $6,000. In addition, the family paid $500 for John's book and supplies. John has no income of his own. Other than the time he was at school, John lived with his family. You point out to Pasty that they may be able to deduct these costs as educational expenses, or they may be able to take an American Opportunity Tax Credit for them. You will do which of these that produces the best benefit for the family. Sara McGier was born on October 18, 2008. Her social security number is 456- 94-7891. Sara is a high-school student and has no income of her own. She lived with her family the entire year. James and Pasty are frugal taxpayers. They have a saving account at Ace Bank. They received Form 1099-INT from the bank reporting $1,749 in interest earned on the account during 2017. They also have some corporate investments. They received a Form 1099-DIV from Dell Corporation reporting $600 in qualifying dividends paid to them during the year. 3 11/19/2018 6:27 PM James did, however, bail out of a loosing investment during the year. He purchased 100 shares of stock in Hardware Online on January 3, 2016 for a total investment of $1,650. Turned out, Hardware Online was not the Amazon John expected it to be. Online hardware purchases just couldn't compete with Lowe's, Home Depot and Amazon itself. James dumped the stock on December 29, 2017 for a sales price of $1,000. James and Pasty own their own home. During 2017. They received a Form 1098 from their mortgage company reporting $3,550 in real estate taxes and $7,600 in home mortgage interest paid from their escrow account during 2017. (They would also have been eligible to for a general sales tax deduction for the year. For purposes of this exercise, please disregard that computation.) The family had no deductible medical expenses during the year because they were fully covered by qualifying medical insurance. The family made $4,500 in cash contributions to the church they attend weekly. Patty presented to you a confirming letter from the church reporting that amount and certifying that the family received no goods and services in exchange for their contributions. With this information, please prepare the Bloomington's 2017 Form 1040 with all the additional necessary forms and schedules.