Brian and Corrine Lee are married taxpayers filing jointly. They live in the home they own, located
Question:
Brian and Corrine Lee are married taxpayers filing jointly. They live in the home they own, located at 3301 Pacific Coast Hwy., Laguna Beach, CA 92651. Brian is an optometrist who owns his business; Corrine is a social worker for Orange County. They have two sons, Brady and Hank. During their trip to China last year, they fell in love with a beautiful 1-year-old girl from an orphanage near Shanghai and are in the process of adopting her. The social security numbers of the four current members of their household are 412-34-5670 for Brian, 412-34-5671 for Corrine, 412-34-5672 for Brady, and 412-34-5673 for Hank. Their birth dates are as follows: Brian, 5/20/1975; Corrine, 7/23/1975; Brady, 9/1/2005; and Hank, 9/11/2008. The following are Brian’s income and expense information from his business and Corrine’s W-2 from Orange County.
Lee’s optometrist office income and expenses for the current year:
| Gross income | $ | 265,000 |
| Cost of goods sold | 88,000 | |
| (Beginning inventory $45,000; Purchases $63,000; Ending inventory $20,000) | ||
| Advertising | 5,000 | |
| Wages | 32,000 | |
| Office rent | 9,600 | |
| Other | 2,100 | |
The Lees also made $40,000 in federal estimated tax payments during the year.
The Form W-2 Corrine received from Orange County contained this information:
| Wages (box 1) | = | $ | 76,925.04 |
| Federal W/H (box 2) | = | $ | 13,085.90 |
| Social security wages (box 3) | = | $ | 76,925.04 |
| Social security W/H (box 4) | = | $ | 4,769.35 |
| Medicare wages (box 5) | = | $ | 76,925.04 |
| Medicare W/H (box 6) | = | $ | 1,115.41 |
| State income taxes (box 17) | = | $ | 2,944.89 |
In addition, the Lees had the following income and expenses during the year:
| Income | ||
| Interest from CDs at Pacific Coast Bank | $ | 5,000 |
| Expenses | ||
| Mortgage interest paid to PC Bank for their home | $ | 29,500 |
| Property taxes paid on their residence | 7,000 | |
| Adoption expenses (fees, court costs, and attorney’s fees) | 8,850 | |
| Child care costs at LB Parks and Recreations after-school program for Hank | 3,500 | |
Brian and Corrine had qualifying health care coverage at all times during the tax year.
Prepare the Lees’ federal tax return. Use Form 1040, Schedule A, Schedule B, Schedule C, and any additional appropriate schedules or forms they may need for credits. Do not complete Form 4562 (with Schedule C). (Assume no AMT although it may apply; Form 6251 or the AMT calculation is not required.) For any missing information, make reasonable assumptions. Assume that Brian follows cash basis of accounting. (List the names of the taxpayers in the order in which they appear in the problem. Input all the values as positive numbers. Instructions can be found on certain cells within the forms. Round your final answers to the nearest whole dollar amount.).
Expert Answer:
Please note we have Assume Federal Estimate tax payment of Lees made in 1st Quarter ie 04... View the full answer
