Sean B. (age 42) and Michelle R. (age 48) Atwell are married and live at 5944...

  
 
 
 

Transcribed Image Text:

Sean B. (age 42) and Michelle R. (age 48) Atwell are married and live at 5944 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. 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. APPENDIX E Pactice Set Assignments-Comprehensive Ta The health plan covers Sean, Michelle, and their two dependent children. Because of the risk associated with Sean's work (G.e.. processing of chemotherapy drog), HMT provides all of its employees with 8200,.000 of group term life insurance coverage. An additional $180 of income is included in Sean's Form W-2 to report the taxable value of this insurance. 2 HMT generally reimburses Sean for expenses related to his work for the company. However, as a mater of policy, HMT does not reimburse for the following S825 Monthly dinner meetings of the Midwestem Chemists Association (MCA) Dues to professional organizations Subscriptions to professional journals MIA correspondence study course 240 180 230 Sean attended 11 MCA dinner meetings in 2016, Each dinner involved the following costs $40 (fee for speaker), $25 (price of meal), and $10 (parking). Sean goes to the meetings from work and returns home the same night. The MIA (Management Institute of America) charge was for an online home study course on ways to improve safety measures and avoid accidents in the industrial workplace. Michelle Atwell is a board-certified doctor of anesthesiology, She provides anes- thesiology services at a number of hospitals and surgical centers in the greater Kansas City area. Michelle is well respected by the surgeons with whom she works. She uses her home as her business address. She keeps her records there, dictates notes to patient files, participates in conference calls regarding upcoming Surgeries and postoperative surgical care, answers work-related phone calls, and compiles and sends patient bills. 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 $185,000, $16,000 of which was for services performed in 2018. Not included in these amounts is $17,500 she received in January 2020 for services rendered in December 2019. Michelle's professional activity code is 621111. Michelle had the following business expenses in 2019: Medical ciothing (eg. lab coats, surgical scrubs) Medical malpractice insurance State medical license fee Dues to professional organizations Subscriptions to profe $2,200 9,500 450 350 anal journals 340 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 Suburban is 9,000 miles for the year. Sean's widowed mother, Lucy, endured a number of different medical chal- lenges in late 2018. On December 30, 2018, she suffered a massive stroke and died in the hospital on January 16, 2019. Some of Lucy's medical expense were covered by Medicare, with the remainder being paid by the Atwells. Or February 18, 2019. Sean paid $39,800 to the hospital, $28,000 of which wa attributable to expenses incurred in 2018. At the same time, Sean also paid the funeral expenses of $16,000. Although Lucy lived in her own home prior to the stroke, Sean and Michelle have properly claimed her as a dependent for the pas few years As Lucy's sole heir, Sean inherited her home and its furnishings (located at 542 SW Sena Drive, Topeka, KS 66600. The costs and values involved are as follow FMV on 2/3/19 Pactioe Ser AigrumeneComperensve trum Poblen Cost Basis $30.000 250.000 S 10.000 Lot House Fumishings 10.000 $5.000 25.000 Because the bome was located in an attractive rental area, Scan decided to sell Instead, he rented the property fully furnished on May 1, 2019. The terms of the lease (executed on April 30) provide for the folowing 1-year lease $2500 per month (payable on the first of each month), last months rers pay abie in advance, and damage deposit of $1.500. In total, Sean received$20 from the tenants in 2019 for their use of the property Besides depeeciation, Ts expenses were as follows S4.800 3900 Property taes Insurance 2,100 Repairs Real estate renter's location service 400 For MACRS depreciation purposes, Sean plans to use the straight-line method with the mid-month convention to compute the deduction for the realty and the 200% declining-balance method with a halt-year convention for the personalty 6. While walking the family dogs in late July, Sean was struck by a delivery van and seriously injured Alter being hospitalized for a week, he was relensed bruised and sore-but with no permanent injuries. The driver of the van arrested and ticketed by the police for reckless operation of a vehicie and later prosecuted for drug use. To prevent advese publicity related to a bw the owner of the delivery service paid for Sean's medical expenses and sen him a check on August 16, 2019, for $90,000. The check was accompanied be a letter that stated This $90,000 is a settlement for physical injuries sustaine by Sean Arwell" Sean was represented in the negotiations with the deliver company by his brother, a practicing attorney. He did not charge the Arwells fo his services. . The Arwells had the following property transactions during 2019: a. On May 5, the City Council condemned unimproved land owned by Sean for the construction of a fire station He purchased the land (two vacant lots a 3400 and 3402 Sycamore Lane) as an investment on May 25, 2012, for $14000. In exchange for the lots, the city gave Sean a large unimproved lot at 40 Genca Street that was valued at $20,000. All in all, he was satisfied with the exchange because the Genoa Street property is in a better neighborhood and has a greater potential for appreciation b. On August 22, Sean sold a gun collection for $32,000 to an avid collector. The collection was a gift from Sean's father on December 25., 2014, when it was worth $22,000. His father bought the collection in 1997 for $14,000. Sean's sake of the collection was documented by a bill of sale, signed by both Sean an the buyer. - On September 9, the Atwells sold 3.000 shares of Dove Pharmaceuticals or $2,000. The couple purchased the stock on December 4, 2018, for $25,000. E investment was motivated by the rumor that Dove was developing a ne 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 plummeted The Arwells' broker provided them with a Form 1099-B, which reported the gross proceeds from the sale and their basis in the stock The Arwells have a long-term capital los carryover of $1.500 from 201s O In March 2019, the Atwvells were audined by the Missori Deparunent of Revenae for tax years 2016 and 2017. The audit proposed no changes for the 2016 ux return. However, the Atwells were assessed $2.250 addnional income tax for 2017 (no interest or penalties ere assessed). The Arwells agpeed with the asesme and paid the $2,250 immediately. APPENDIX E Prace SegmerComp 20 During 2019, Sean served on a jury for a civil case that was litigted at the courty courthouse As a result of the service, he was paid S700 and incumed unreim bursed parking expenses of S60. In conformance with company policy, Sean remitted the $700 of jury duty fees to HMT In adlition to the items already noted, the Atwells had the follewing receipts in 2019 Life insurance proceeds 2018 Missouri state income tax refund Proceeds from garage sale interest income: Kansas City general purpose bonds CitiBank certificate of deposit ss0.000 450 2600 S480 600 The insurance proceeds were paid to Sean as the designated beneficiary of ua's life insurance policy. At the garage sale, the Arwells sold pesonal inems leg, camper, furniture, hunting and fishing equipment) that belonged to Sean's e and mother Ge, Lucy). Sean and Michelle estimated the items they sold originally cost $7,100. The garage sale proceeds were donated to the Alheimens Research Association (EIN 23-7438025) in memory of Sean's father The Atwells had the following additional expenditures for 2019 1.080 Dental bills not covered by insurance $ 3,100 14,100 Ad valorem property taxes on personal residence Interest on home mortgage reported on Form 1098 Contributions to Metropolitan Lutheran Ministry (EIN 43-0970991) 2600 23,600 As part of a program sponsored by their church (a qualified charity), the Arwells 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 visits to an orthoxlontist for both the Atwells' children for a total of 480 miles. 13. The Atwells' household includes two dependent children: Ethan (age 15) and Bella (age 14), both of whom are full-time students in high school. Relevant Social Security numbers appear below, Social Security Number Name 123-45-6758 123-45-6768 Sean B. Atwell Michelle R. Atwell Lucy E. Atwell Ethan M. Atwell 123-45-6787 123-45-6788 123-45-6978 4. 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 es. The Atwells made quarterly income tax payments totaling $33,000 for their Federal taxes and totaling $20,000 for their state taxes. They had their Federal income tax refund of $3,000 (for 2018) applied toward their 2019 Bella A. Atwell income tax. Prepare an income tax return (with all appropriate forms and schedules) for the Atwells for 2019, using the following guidelines: The Atwells choose to file a joint income tax return. • The Atwells do not wish to contribute to the Presidential Election Campaign Fund. • The Atwells do not own any foreign bank accounts or other investments. In addi- 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. Sean B. (age 42) and Michelle R. (age 48) Atwell are married and live at 5944 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. 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. APPENDIX E Pactice Set Assignments-Comprehensive Ta The health plan covers Sean, Michelle, and their two dependent children. Because of the risk associated with Sean's work (G.e.. processing of chemotherapy drog), HMT provides all of its employees with 8200,.000 of group term life insurance coverage. An additional $180 of income is included in Sean's Form W-2 to report the taxable value of this insurance. 2 HMT generally reimburses Sean for expenses related to his work for the company. However, as a mater of policy, HMT does not reimburse for the following S825 Monthly dinner meetings of the Midwestem Chemists Association (MCA) Dues to professional organizations Subscriptions to professional journals MIA correspondence study course 240 180 230 Sean attended 11 MCA dinner meetings in 2016, Each dinner involved the following costs $40 (fee for speaker), $25 (price of meal), and $10 (parking). Sean goes to the meetings from work and returns home the same night. The MIA (Management Institute of America) charge was for an online home study course on ways to improve safety measures and avoid accidents in the industrial workplace. Michelle Atwell is a board-certified doctor of anesthesiology, She provides anes- thesiology services at a number of hospitals and surgical centers in the greater Kansas City area. Michelle is well respected by the surgeons with whom she works. She uses her home as her business address. She keeps her records there, dictates notes to patient files, participates in conference calls regarding upcoming Surgeries and postoperative surgical care, answers work-related phone calls, and compiles and sends patient bills. 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 $185,000, $16,000 of which was for services performed in 2018. Not included in these amounts is $17,500 she received in January 2020 for services rendered in December 2019. Michelle's professional activity code is 621111. Michelle had the following business expenses in 2019: Medical ciothing (eg. lab coats, surgical scrubs) Medical malpractice insurance State medical license fee Dues to professional organizations Subscriptions to profe $2,200 9,500 450 350 anal journals 340 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 Suburban is 9,000 miles for the year. Sean's widowed mother, Lucy, endured a number of different medical chal- lenges in late 2018. On December 30, 2018, she suffered a massive stroke and died in the hospital on January 16, 2019. Some of Lucy's medical expense were covered by Medicare, with the remainder being paid by the Atwells. Or February 18, 2019. Sean paid $39,800 to the hospital, $28,000 of which wa attributable to expenses incurred in 2018. At the same time, Sean also paid the funeral expenses of $16,000. Although Lucy lived in her own home prior to the stroke, Sean and Michelle have properly claimed her as a dependent for the pas few years As Lucy's sole heir, Sean inherited her home and its furnishings (located at 542 SW Sena Drive, Topeka, KS 66600. The costs and values involved are as follow FMV on 2/3/19 Pactioe Ser AigrumeneComperensve trum Poblen Cost Basis $30.000 250.000 S 10.000 Lot House Fumishings 10.000 $5.000 25.000 Because the bome was located in an attractive rental area, Scan decided to sell Instead, he rented the property fully furnished on May 1, 2019. The terms of the lease (executed on April 30) provide for the folowing 1-year lease $2500 per month (payable on the first of each month), last months rers pay abie in advance, and damage deposit of $1.500. In total, Sean received$20 from the tenants in 2019 for their use of the property Besides depeeciation, Ts expenses were as follows S4.800 3900 Property taes Insurance 2,100 Repairs Real estate renter's location service 400 For MACRS depreciation purposes, Sean plans to use the straight-line method with the mid-month convention to compute the deduction for the realty and the 200% declining-balance method with a halt-year convention for the personalty 6. While walking the family dogs in late July, Sean was struck by a delivery van and seriously injured Alter being hospitalized for a week, he was relensed bruised and sore-but with no permanent injuries. The driver of the van arrested and ticketed by the police for reckless operation of a vehicie and later prosecuted for drug use. To prevent advese publicity related to a bw the owner of the delivery service paid for Sean's medical expenses and sen him a check on August 16, 2019, for $90,000. The check was accompanied be a letter that stated This $90,000 is a settlement for physical injuries sustaine by Sean Arwell" Sean was represented in the negotiations with the deliver company by his brother, a practicing attorney. He did not charge the Arwells fo his services. . The Arwells had the following property transactions during 2019: a. On May 5, the City Council condemned unimproved land owned by Sean for the construction of a fire station He purchased the land (two vacant lots a 3400 and 3402 Sycamore Lane) as an investment on May 25, 2012, for $14000. In exchange for the lots, the city gave Sean a large unimproved lot at 40 Genca Street that was valued at $20,000. All in all, he was satisfied with the exchange because the Genoa Street property is in a better neighborhood and has a greater potential for appreciation b. On August 22, Sean sold a gun collection for $32,000 to an avid collector. The collection was a gift from Sean's father on December 25., 2014, when it was worth $22,000. His father bought the collection in 1997 for $14,000. Sean's sake of the collection was documented by a bill of sale, signed by both Sean an the buyer. - On September 9, the Atwells sold 3.000 shares of Dove Pharmaceuticals or $2,000. The couple purchased the stock on December 4, 2018, for $25,000. E investment was motivated by the rumor that Dove was developing a ne 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 plummeted The Arwells' broker provided them with a Form 1099-B, which reported the gross proceeds from the sale and their basis in the stock The Arwells have a long-term capital los carryover of $1.500 from 201s O In March 2019, the Atwvells were audined by the Missori Deparunent of Revenae for tax years 2016 and 2017. The audit proposed no changes for the 2016 ux return. However, the Atwells were assessed $2.250 addnional income tax for 2017 (no interest or penalties ere assessed). The Arwells agpeed with the asesme and paid the $2,250 immediately. APPENDIX E Prace SegmerComp 20 During 2019, Sean served on a jury for a civil case that was litigted at the courty courthouse As a result of the service, he was paid S700 and incumed unreim bursed parking expenses of S60. In conformance with company policy, Sean remitted the $700 of jury duty fees to HMT In adlition to the items already noted, the Atwells had the follewing receipts in 2019 Life insurance proceeds 2018 Missouri state income tax refund Proceeds from garage sale interest income: Kansas City general purpose bonds CitiBank certificate of deposit ss0.000 450 2600 S480 600 The insurance proceeds were paid to Sean as the designated beneficiary of ua's life insurance policy. At the garage sale, the Arwells sold pesonal inems leg, camper, furniture, hunting and fishing equipment) that belonged to Sean's e and mother Ge, Lucy). Sean and Michelle estimated the items they sold originally cost $7,100. The garage sale proceeds were donated to the Alheimens Research Association (EIN 23-7438025) in memory of Sean's father The Atwells had the following additional expenditures for 2019 1.080 Dental bills not covered by insurance $ 3,100 14,100 Ad valorem property taxes on personal residence Interest on home mortgage reported on Form 1098 Contributions to Metropolitan Lutheran Ministry (EIN 43-0970991) 2600 23,600 As part of a program sponsored by their church (a qualified charity), the Arwells 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 visits to an orthoxlontist for both the Atwells' children for a total of 480 miles. 13. The Atwells' household includes two dependent children: Ethan (age 15) and Bella (age 14), both of whom are full-time students in high school. Relevant Social Security numbers appear below, Social Security Number Name 123-45-6758 123-45-6768 Sean B. Atwell Michelle R. Atwell Lucy E. Atwell Ethan M. Atwell 123-45-6787 123-45-6788 123-45-6978 4. 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 es. The Atwells made quarterly income tax payments totaling $33,000 for their Federal taxes and totaling $20,000 for their state taxes. They had their Federal income tax refund of $3,000 (for 2018) applied toward their 2019 Bella A. Atwell income tax. Prepare an income tax return (with all appropriate forms and schedules) for the Atwells for 2019, using the following guidelines: The Atwells choose to file a joint income tax return. • The Atwells do not wish to contribute to the Presidential Election Campaign Fund. • The Atwells do not own any foreign bank accounts or other investments. In addi- 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.