Case Study $1$ Client Information: Bill $($age $69)$ and Melinda $($age $67)$ Grant are married and live at $96$ Carefree Circle, in Flagstaff, Arizona. The Grants have two adopted children: Jared, age $16,$ and Alexa, age $12.$ The following information relates to the Grants$$ current tax year: $$ Bill$$s Social Security number is $987-45-1234$ Melinda$$s Social Security number is $494-37-4893$ Jared$$s Social Security number is $412-32-5690$ Alexa$$s Social Security number is $412-32-6940$ Jared and Alexa are tax dependents for federal tax purposes Bill Grant$$s Forms W$-2$ provided the following wages and withholding for the year: Employer Gross Wages Federal Income Tax Withholding State Income Tax Withholding National Storage $$84,200$ $$4,700$ $$2,450$ Williams Little League $$4,52000$ Melinda Grant$$s Form W$-2$ provided the following wages and withholding for the year: Employer Gross Wages Federal Income Tax Withholding State Income Tax Withholding Peaks Photography $$136,000$ $$6,650$ $$800$ All applicable and appropriate payroll $($FICA$)$ taxes were withheld by the Grants$$ respective employers. Health insurance for the entire Grant Family was provided by Bill$$s primary employer, National Storage. The Grants also received the following during the year: Interest income from Bank of America $$370$ Interest income from City of Phoenix, AZ Bond $$345$ Interest income from U$.$S$.$ Treasury Bond $$565$ Interest income from AZ State School Board Bond $$190$ Qualified Dividend income from General Mills $$450$ Qualified Dividend income from Sysco Corporation $$810$ Qualified Dividend income from Tyco Security $$800$ Qualified Dividend income from J$.$M$.$ Smucker, Inc. $$185$ Workers$$ compensation payments to Bill $$6,000$ Life insurance proceeds on the death of Bill$$s mother $$22,500$ Cash gift from Bill$$s father $$12,500$ Disability payments received by Bill due to injury $$5,6005$ National Storage paid $100\%$ of the premiums on the policy and included the premium payments in Bill$$s taxable wages Melinda received the following payments due to a lawsuit she filed for damages sustained in a car accident: $$ Medical Expenses for physical injuries $$7,500$ Emotional Distress $($from having been physically injured$)$ $$12,000$ Punitive Damages $$15,000$ Bill also received income from his sole proprietorship, Grant LLP$,$ a legal firm founded in $2015,$ of $$225,000.$ The firm uses the cash method of accounting. The firm did not make any payments to independent contractors that would require the filing of Form $1099.$ Expenses for the business were as follows: o Advertising $$16,000$ o Insurance $$4,600$ o Salaries $$37,500$ o Supplies $$4,900$ Eight years ago, Melinda purchased an annuity contract for $$100,000.$ She received her first annuity payment on January $1,2020.$ The annuity will pay Melinda $$15,000$ per year for ten years. On January $3,2023,$ the Grant$$s sold their prior principal residence located at $96$ Main Street in Tempe, AZ$.$ They purchased the residence in $2003$ and had lived there full$-$time until they sold it this year. They originally purchased the home for $$390,000.$ The Grant family never claimed any tax depreciation $($nor were they allowed to$)$ on the home. The sales price of the home was $$925,000.$ Melinda entered a contest sponsored by a radio station and won $10$ tickets to see a show on Broadway. The value of the tickets was $$300$ each. Melinda took her friends from work to the production. The Grants took two trips to Cliff Castle Casino. While on the first trip they lost $$2,075$ gambling, but on the second trip they won $$1,950.$ The Grants received a Form $1099-$B relating to their investments. The document included form $8949$ with Boxes A and D checked, and reported the following transactions: $$ Sold $2,500$ shares of Apple stock on $1/17/2023$ for $$65,000.$ The shares were purchased on $10/17/2012$ for $$45,000.$ Sold $100$ shares of IBM stock on $7/10/2023$ for $$10,000.$ The shares were purchased on $2/3/2023$ for $$12,500.$ Sold $75$ shares of Honeywell stock on $10/21/2023$ for $$12,750.$ The shares were purchased on $6/30/2023$ for $$15,000.$ Purchased $75$ shares of Honeywell stock on $10/30/2023$ for $$12,500.$ Sold $1$ Bitcoin for $$10,000.$ The currency was purchased on $5/6/2021$ for $$5,000.6$ The Grants paid or incurred the following expenses during the year: Dentist$/$Orthodontist $($unreimbursed by insurance$)$ $$8,500$ Doctor fees $($unreimbursed by insurance$)$ $$2,100$ Prescriptions $($unreimbursed by insurance$)$ $$400$ AZ state tax payment made on $4/15/23$ for $2022$ tax return liability $$1,750$ Property taxes on residence $$5,750$ Vehicle registration fee based upon age of vehicle $$350$ Mortgage interest on principal residence reported on Form $1098($purchased in $2023$ with acquisition debt of $$800,000)$ $$22,500$ Interest paid on borrowed money to purchase the City of Prescott, AZ municipal bonds $$375$ Interest paid on borrowed money to purchase U$.$S$.$ Treasury bonds $$575$ Melinda$$s student loan interest $$5,200$ Contribution to the Red Cross $$1,850$