Prepare a federal income tax return based on the attached scenario and the second file which contains
Question:
Prepare a federal income tax return based on the attached scenario and the second file which contains relevant tax forms provided by the client. If you struggle to read the attached forms clearly, looking at a blank copy may be helpful to read titles, etc.
Instructions:
Please complete the 2017 federal income tax return for Carlos and Maria Gomez. Ignore the requirement to attach the form(s) W-2 to the front page of the Form 1040. Ignore any impact by AMT or Passive Activity Loss rules. If required information is missing, use reasonable assumptions to fill in the gaps. Some supporting tax forms are provided in a separate document on Blackboard. ASSUME ALL TAX FORMS ARE FOR 2017 EVEN IF THEY SAY 2016.
Carlos (age 40) and Maria (age 38) Gomez live in Lubbock, Texas. The Gomezes have two children: Luis (age 14) and Amanda (age 12). Both children qualify as federal income tax dependents of Carlos and Maria. The Gomezes provided the following information:
Luis’s social security number is 589-24-8432
Amanda’s social security number is 599-74-8733
The Gomez’s current mailing address is 543 West La Patera, Lubbock, Texas 79401
Carlos is a civil engineer. For the first two months of the year, he was employed by West Texas Engineering (WTE). However, he resigned his position with WTE to start his own engineering firm called Gomez Professional Engineers (GPE). GPE is conducted as a sole proprietorship with Carlos being the sole owner. GPE started business on January 1, 2017 and is located at 1515 West Industrial Road Lubbock, Texas 79401 (EIN 20-1616167). Maria is self-employed as a part-time bookkeeper.
Carlos provided a W-2 from WTE; see attached.
Carlos reported the following information for GPE’s business activities (GPE uses the cash method of accounting):
Revenues:
Credit card receipts $352,000
Cash receipts 648,000
Total revenue $1,000,000
Expenses:
Advertising $5,450
Insurance-professional 15,750
Office building rent 62,000
Equipment leases 6,050
Travel 14,200
Meals and entertainment 2,975
Wages 498,725
Taxes and licenses 44,875
Employee health insurance 42,000
Employee benefit programs 14,500
Utilities 37,425
Office supplies 18,900
Legal and professional fees 15,550
Repairs and maintenance 10,000
Total Expenses $ 788,400
GPE purchased and placed in service the following fixed assets in 2017:
Item | Date Purchased | Amount |
Laptop computers | March 1 | $20,500 |
Printers | June 1 | $6,500 |
Office furniture | October 10 | $19,000 |
GPE does not want to claim any bonus depreciation or Section 179 expensing on any of these assets.
Carlos worked part-time on GPE business activities until he finished his employment with WTE early in the year. Carlos worked full-time on GPE business activities for the rest of the year.
GPE filed Forms 1099 for payments made to contractors when required to do so.
Carlos and Maria paid $22,000 for health insurance for his family (for the time he was working at GPE). This amount is not included in the GPE expenses listed above. Neither Carlos nor Maria had access to employer-provided health insurance during the year while they were paying the premiums for this policy. The entire Gomez family was covered by minimum essential health insurance during each month in 2017.
Maria received the following Form 1099-MISC from her bookkeeping activities for her largest client which is attached.
Maria received an additional $4,000 from clients who were not required to issue Maria a Form 1099-MISC.
During the year, Maria paid the following business-related expenses:
Paper $365
Toner $450
Meals $580
Maria purchased and placed in service the following fixed assets for her business in 2017:
Item | Date Purchased | Amount |
New laptop computers | March 1 | $1,850 |
New laser printers | March 1 | $ 840 |
New computer software | April 2 | $ 400 |
Maria would like to recover the cost of these business assets as soon as possible.
Maria owns a 2014 Acura. She started to use the Acura for her business on January 1, 2015. She drove 2,050 business miles during 2017 (she has documentation to verify). She drove the vehicle for a total of 10,000 miles during the year (7,950 personal miles). She also has access to another vehicle that she can use for personal purposes.
Maria started her bookkeeping service in 2013 and she uses the cash method of accounting. She is the only person performing services in the business. She did not make any payments that would have required her to file a Form 1099.
The Gomez family purchased (and moved into) their current residence at 543 West La Patera, Lubbock, Texas 79401 in late January of 2017. The La Patera residence is 2,000 square feet. The purchase price of the residence was $500,000 (building value was $350,000 and the lot value was $150,000). The mortgage on the purchase was $300,000. In addition to the Form 1098 from First Bank of Texas, expenses relating to the La Patera residence were as follows:
Property taxes $10,750
Utilities $3,000
Insurance $2,000
In addition to the primary mortgage on the home, the Gomezes borrowed $150,000 on a home equity line of credit (“HELOC”) against the La Patera home from Texas Bank and Trust. They received an attached Form 1098 relating to the line of credit:
They used the funds from the line of credit borrowed funds to pay off personal debts on credit cards and take a European vacation.
Maria owns a condominium in Lubbock that is valued at $160,000. Maria acquired the land as a gift from her parents on July 1, 2009. The building was valued at $120,000 and the land was valued at $40,000. The condominium is located at 990 El Mar, Unit A, Lubbock Texas 79401.
Maria first rented out the El Mar unit on October 1, 2017. The revenue and expenses from the rental unit from October through December are as follows:
Rental revenue $3,600
HOA fee expense $300
Property taxes paid $225
Utilities expense $350
No Form(s) 1099 were required to be filed for this rental.
The Gomezes also received the following interest and dividends (as originally reported on 1099’s but not included here):
Grand Junction City – Box 8, Tax Exempt Interest - $3,500
First Bank of Texas – Box 1, Interest Income - $125
Lubbock Texas School District – Box 8, Tax Exempt Interest - $400
Department of the Treasury – Box 3, Interest on U.s. Savings Bonds - $150
Rio Tinto Minerals – Box 1, Interest Income – $600
General Mills – Box 1a Total Ordinary Dividends - $400; Box 1b Qualified Dividends $400
Sysco Corporation - Box 1a Total Ordinary Dividends - $250; Box 1b Qualified Dividends $250
Tyco Integrated Security - Box 1a Total Ordinary Dividends - $350; Box 1b Qualified Dividends $350
J.M. Smucker Co. - Box 1a Total Ordinary Dividends - $525; Box 1b Qualified Dividends $525
The Gomezes sold 2000 shares of GE stock, as reported on form 1099-B attached.
The Gomezes did not own, control, or manage any foreign bank accounts, nor were they grantors or beneficiaries of a foreign trust during the tax year.
The Gomezes paid the following expenses during the year (in addition to the personal residence-related items listed above):
Dentist (unreimbursed by insurance) $ 500
Doctors (unreimbursed by insurance) $1,750
Prescriptions (unreimbursed by insurance) $ 425
Vehicle property tax based upon value $ 1,950
Contribution to qualified charities $3,500
The Gomezes did not pay any state income taxes during the year.
Other Information
The Gomezes made timely federal estimated tax payments for 2017 as follows:
April 15, 2017 $11,000
June 15, 2017 $11,000
September 15, 2017 $11,000
January 15, 2017 $11,000
The Gomezes want to contribute to the Presidential Election Campaign Fund. The Gomezes would like to receive a refund (if any) of tax they may have overpaid for the year. Their preferred method of receiving the refund is by check.
Expert Answer:
2017 Form 1040 US Individual Income Tax Return Filing Status MARRIED FILING JOINTLY Your first name and initial Last name CARLOS GOMEZ MARIA GOMEZ Social security number 589248432 599748733 Make sure ... View the full answer
Principles of Taxation for Business and Investment Planning 2016 Edition
ISBN: 9781259549250
19th edition
Authors: Sally Jones, Shelley Rhoades Catanach
