David R. and Sheri N. Johnson (ages 45 and 46) are married and live at 641...

 

 
 

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David R. and Sheri N. Johnson (ages 45 and 46) are married and live at 641 Cody Way. Casper, WY 82609. David is a consulting engineer, while Sheri is a paralegal, They file a joint retum and use the cash hasis for tax purposes. TA 1. Trained as a mining engineer, David has developed considerable cxpertise in the treatment and disposition of waste material. He is also well versed in the Federal and state requirements for land reclamation projects. David maintains a consulting practice through which he advises clients on these malters. David's business activity code is 541990. Most of his clients are small and medium-size mine owner/ operators located in Wyoming and contiguous states (e g, Montana, Idaho, Utalu. Usually, David is retained hy a clicnt on a contract fee basis and is reimbursed for all out-of-pocket expenses. In performing his services, David usually visits the job site and Later submits his recommendations in a written report along with a state- ment for his services and expenses. David received the following amounts from his consulting business in 2015: Fees for services rendered $ 92,800 Expense reimbursements: Airfare S8,200 Meals 6,100 Lodging Transportation (taxis, airport limos, car rentals) 5,200 920 Subtotal for expense reimbursement 20.420 Total received $113.220 2. The following fees for rendered services are not included in the receipts listed in item 1 above: Echo Mining: Payment received January 2016: work done December 2015 Sesa Mining: Payment received January 2015; work done December 2014 $5,100 4,400 Comorant Mining: No payment received: work done March 2015 3,700 David did not incur travel expenses in any of these engagements (ie., the work was done in his office). As Comonant Mining is in bankruptcy, David does not expect to collect any of this fee. 3. Other expenses paid by David in 2015 relating to his practice are listed below. Contribution to H.R. 10 (Keogh) retirement plan Premiums on medical insurance (covering seif, spouse, and dependents) $9,000 3,800 Landscape models purchased from topographer for reclamation projects Advertising in trade journals Office supplies (including drafting materials) 3,200 2,400 1,200 Business phone and Internet service 860 State occupation license Subscriptions to trade journals 300 240 Membership dues ta trade associations 180 4. David operates his consulting business out of an office in his home. Twenty percent of the 3,000-square-foot living area is devoted to the office. David inherited the home on Cody Way from his father, who died on June 6, 2006, when it had a fair market value of $400,000 (S10,000 of which was allocated to the land). The Johnsons moved into the home in 2006, and David began using his home office in the same year. The home's current fair market value is $500,000 (S50.000 alloxated to the land). County land records reflect that David's father bought the land in 1969 for $6,000 and built the house in 1973 at a cust of $60,000. David depreciates the business use of his home using MACRS, treating the home as 39-ycar nonresidential reality. Additional information regarding the property for 2015 follows: Utilities $4,800 Repairs and maintenance 2,900 Property/casualty insurance 2,300 The property taxes and mongage interest paid in 2015 on the home are listed in ilerm 15 below. In acklition to the repairs and maintenance noted above, David had the office repainted at a cost of $1,200, The furninure in the office, including busi- ness equipment (eg. computer, fax machine, copier), was properly expensed in the year bought and has a zero basis. However, on March 5, 2015, David purchased a heavy-duty, fire-resistant file cabinet with security-vault features for $4,800. IHe made the acquisiticon to safeguard and maintain the privacy of client data. If possi- ble, David prefers to avoid capitalizing and depreciating the cabinet. 5. On February 4, 2014, David paid $41,000 (including sales tax) for a used Infiniti cross- over SUIV (gross weight under 6,000 pounds), which he uses 906 of the time for busi- 5. On February 4, 2014, David paid $41,000 (including sales tax) for a used Infiniti cruss- over SUIV (gross weight under 6,000 pounds), which he uses 90% of the time for busi- ness. No trade-in was involved, and he did not claim any $ 179 expensing of the cost. Last year, David clected to use the actual operating cost method to compute deduct- ible expenses for his business use of the Infiniti. Under this method, he depreciates the SUV using MACRS (half-year convention). (Hint See Table 3 in the Instructions to Form 4562.) His operating expenses for the Infiniti for 2015 are as follows: Gasoline $3,300 Auto insurance 1,600 Repairs 240 Auto club dues 180 Oil changes and lubrication 120 License and registration 60 During business use, David received three moving traffic violations (total fines of $680) and incurred tolls and parking charges of $440, The Infiniti was driven a total of 14,500 miles during 2015 (mileage was incurred evenly during the year). Copsride 201 Cengar Leaming. All Righ Rosenat Mer et be cepest, snet, r açlitet, wtede or in pat. De to slectieir tigtes, seme thand pety contestinay be sppred m te iok tig lákid vi las dud that any d oostat do et tmally siliet he ll lami oqui Ca la v le nla o temttmal ntant al y taif mdnapen ngta APPENDIX E Practice Set Assignments-Comprehensive Tax feturn Probiems 6. Sheri is a licensed paralegal and is employed on a part-time basis by several local attormeys. She commuted to work using the family Suburban for a total of 813 miles and paid parking fees of $310. Her earnings and job-related expenses are summar- ized below. Salary (from four employers) Laptop computer $38,000 1,200 Subscriptions and dues to professional organizations Continuing education correspondence course Occupational license fee 180 120 80 Sheri purchased the lantop Computer cin March 12 and uIses it 80% of the time for business. The correspondence course is required continuing education so she can retain her license, Sheri is considering going to law school, so she attended a series of LSAT prepara- Lion sessions at a cost of $350. Because Sheri is a pant-time employee, she is not cov- ered by any of her employers' medical or retirement plans. Sheri is covered under David's insurance, and during 2015, she contributed $5,000 to a traditional IRA that she established several years ago. The Johnsons use the automatic mileage method to calculate any tax deductions that they are entitled to for use of the Suburhan. 7. With funds received from the settlement of his father's estate, David purchased rental property at 4620 Cottonwood Lane, Casper, WY 82609. Of the $250,000 pur- chase price, $30,000 was allocated to the land. After an $80,000 renovation to the house (eg, new Nooring, roof, heating unit), the propenty was rented beginning February 1, 2009. In 2013, the Johnsons decided that their investment would be more marketable if the house was rented as fumished. Consequently, in May of that year, they spent $38,000 on new furniture (including drapes, carpeting, and appli- ances). Under the current lease agreettent, the property rents for $2.200 a month (payable at the heginning of cach month) with utilitics not inchuded. Information regarding the property for 2015 appears below. Rent received S78,600 Property/casualty insurance premiums paid Property taxes paid 3,100 2400 Yard maintenance paid Repairs 1,200 B00 The rent received includes $2,200 for January 2016. The tenants prepaid the rent in mid-December because they went on vacation during the Christmas/New Yecar hol- iklays. In addition to the property taxes listed above, David paid a special tax assess- ment of $2,100 to the city of Casper for repaving the street in front of the property. The Johnsons use MACRS to depreciate the rental home and the furnishings within it (assume half-year convention for the personalty). 8. The Johinsons acquired 1,000 shares of common stock in Cormorant Mining on March 7, 2014, 10 hold for investment purposes, David performed services for the company in late 2013, submitting a bill for $3.900. Because Cormorant was experi- encing cash-flow problems at the time, David accepted the stock as payment for his services. Unfortunately, Comorant is currently in bankruptcy (see item 2 above), and expectations are that the sharehoklers will not recover anything on their stock investments. The stock is not publicly traded. 9. On March 10, 1997, David's father gave the Johnsons a plot of land located in Teton 9. On March 10, 1997, David's father gave the Johnsons a plot of land kxated in Teton County as an anniversary present. It had a value of $150,000 at the time of the gift (no gift tax was due on the transfer). The land had been purchased by David's father on June 1, 1987, for $50,000. In December 2014, a real estate developer contacted the Johnsons and offered $800,000 for the property. After considerable negotiation, the following transaction took place on March 4, 2015: the Johnsons transferred the Teton plot in return for $8,000 in cash and four city lots in *201T Cenpat Leaning. Aa Raes Roservad. Me t be cepad, scael, or dgiatel, i wiade or in pet De to dloctronse rigles, sene tant perty coentent ay be soprsed tm te eBook andendnis m wins dt that any pdomtnt dous t malaly slliut e vanil i opuriene Ca Lamy va ilu rgte ran aitnal ntnt at y ta if mdni nylts munc ap APPENDIX E Practice Set Assignments- Comprehensive Tax Return Problems Laramie (WY) worth $792,000, The Johnsons considered the city lots to be a good investment because they are located near the state university. All closing costs and legal fees were absorbed by the real estate developer. 10. David inherited an antique gun collection from his father when he died-mainly large caliber rifles used for buffalo hunting Although David has no idea what his father's cost hasis was in these guns, the collection had a date-of-death value of $22,000. Concerned about the maintenance and security of the collection, David sold it to a dealer for $29,000 on July 10, 2015. 11. On July 12, 2001, using $50,000 of funds she had received from an aunt's life insur- ance policy, Sheri purchased grazing land in Converse County (WY). On August 2, 2014, she sold the land to a local rancher for $75,000. Under the tems of the sale, Sheri received a down payment of $15,0000 and 10 annual notes of $6,000 each. Sheri is also to receive simple interest of 8% on the outstanding principle balance cach year. On AugusM 4, 2015, Sheri collected $10,800 (S6,000 on the note and inter- est of $4,800) on the maturity of the first note. 12. Although the Johnsons had several Schedule D transactions during 2014, they ended up with a net short-lerm capital loss of $7,000. Of this koss, $3,000 was deducted in 2014, and $4,000 carried over to 2015. 13. For several years, Sheri's widowed mother, Vivian Olson, has lived with the Johnsons and has been claimed by them as a dependent. On December 30, 2014, Vivian suf- fered a heart attack. After six davs in the ICU of a local hospital. Vivian dlied. In earlv Fchnuary 2015, the Johnsons paid the following expenses related to Vivian: Burial expenses Medical expenses incurred in 2014 $4,400 4,200 Medical expenses incurred in 2015 3,100 Remainder of church pledge for 2015 600 Fortunately, the balance of Vivian's medical expenses ($11,900) was covered by in surance. Besides personal and houschold effects, Vivian's major asset was life insur- ance. As the designatesd beneficiary of the policy, Sheri receivecd $20,000 of death benefits on March 13. 2015. 14. Besides the items already mentioned, the Johnsons had the following reccipts curing 2015: Interest income: City of Cheyenne general purpose bonds $1,900 CD at Wells Fargo Bank 1,100 Money market account at Bank of America Yard (garage) sale 400 950 Qualified dividends on Meadowlark Corporation common stock 700 Jury duty fees 420 The yard sale involved used fumiture, appliances, books, toys, and oxher household goods having an estimated original cost value of $1.800. In connection with her jury duty assignment in June, Sheri drove the Suburban 40 miles and incurred expenses of $30 for parking and $45 for meals. 15. In addition to the items already noted, the Johnsons had the following expenditures for 2015: Interest on home equity loan used to finance the purchase of personal items (e.g., camper) Charitable contributions (not including Vivian's pledge) $4,400 3,200 Ad valorem property taxes on personal residence Medical and dental bills lincluding prescription drugs of $400) other than those relating to Vivian (see item 13) 3,100 4,800 The Johnsons drove the Suburban 420 miles to various medical and dental appoint- ments. Wyoming has no state or local income tax but does impose a general sales tax The county in which they live imposes an additional local sales tax of 1% Although they do not keep track of their sakes taxes, they purchased a camper for S40,000 in May 2015. The sales tax on this purchase was $1,600. 16, Besides Vivian (see item 13), the Johnsons houschold includes two daughters, Meredith Gage 19) and Kirby (age 18), and one son, Toby Cage 17). Kirby and Toby are full-time students in high school. Meredith graduated a year ago and earned $9.000 working part time during 2015. She deposited these eamings in a savings account, hoping someday to attend college. 17. For tax year 2014,. the Johnsons had an overpayment of $150, which they applied toward their 2015 income tax. Sheri's income tax withholdings for the year are $5.100, and the Johnsons made Federal quarterly tax payments totaling $16.000 (S4.000 each instaliment). David R. and Sheri N. Johnson (ages 45 and 46) are married and live at 641 Cody Way. Casper, WY 82609. David is a consulting engineer, while Sheri is a paralegal, They file a joint retum and use the cash hasis for tax purposes. TA 1. Trained as a mining engineer, David has developed considerable cxpertise in the treatment and disposition of waste material. He is also well versed in the Federal and state requirements for land reclamation projects. David maintains a consulting practice through which he advises clients on these malters. David's business activity code is 541990. Most of his clients are small and medium-size mine owner/ operators located in Wyoming and contiguous states (e g, Montana, Idaho, Utalu. Usually, David is retained hy a clicnt on a contract fee basis and is reimbursed for all out-of-pocket expenses. In performing his services, David usually visits the job site and Later submits his recommendations in a written report along with a state- ment for his services and expenses. David received the following amounts from his consulting business in 2015: Fees for services rendered $ 92,800 Expense reimbursements: Airfare S8,200 Meals 6,100 Lodging Transportation (taxis, airport limos, car rentals) 5,200 920 Subtotal for expense reimbursement 20.420 Total received $113.220 2. The following fees for rendered services are not included in the receipts listed in item 1 above: Echo Mining: Payment received January 2016: work done December 2015 Sesa Mining: Payment received January 2015; work done December 2014 $5,100 4,400 Comorant Mining: No payment received: work done March 2015 3,700 David did not incur travel expenses in any of these engagements (ie., the work was done in his office). As Comonant Mining is in bankruptcy, David does not expect to collect any of this fee. 3. Other expenses paid by David in 2015 relating to his practice are listed below. Contribution to H.R. 10 (Keogh) retirement plan Premiums on medical insurance (covering seif, spouse, and dependents) $9,000 3,800 Landscape models purchased from topographer for reclamation projects Advertising in trade journals Office supplies (including drafting materials) 3,200 2,400 1,200 Business phone and Internet service 860 State occupation license Subscriptions to trade journals 300 240 Membership dues ta trade associations 180 4. David operates his consulting business out of an office in his home. Twenty percent of the 3,000-square-foot living area is devoted to the office. David inherited the home on Cody Way from his father, who died on June 6, 2006, when it had a fair market value of $400,000 (S10,000 of which was allocated to the land). The Johnsons moved into the home in 2006, and David began using his home office in the same year. The home's current fair market value is $500,000 (S50.000 alloxated to the land). County land records reflect that David's father bought the land in 1969 for $6,000 and built the house in 1973 at a cust of $60,000. David depreciates the business use of his home using MACRS, treating the home as 39-ycar nonresidential reality. Additional information regarding the property for 2015 follows: Utilities $4,800 Repairs and maintenance 2,900 Property/casualty insurance 2,300 The property taxes and mongage interest paid in 2015 on the home are listed in ilerm 15 below. In acklition to the repairs and maintenance noted above, David had the office repainted at a cost of $1,200, The furninure in the office, including busi- ness equipment (eg. computer, fax machine, copier), was properly expensed in the year bought and has a zero basis. However, on March 5, 2015, David purchased a heavy-duty, fire-resistant file cabinet with security-vault features for $4,800. IHe made the acquisiticon to safeguard and maintain the privacy of client data. If possi- ble, David prefers to avoid capitalizing and depreciating the cabinet. 5. On February 4, 2014, David paid $41,000 (including sales tax) for a used Infiniti cross- over SUIV (gross weight under 6,000 pounds), which he uses 906 of the time for busi- 5. On February 4, 2014, David paid $41,000 (including sales tax) for a used Infiniti cruss- over SUIV (gross weight under 6,000 pounds), which he uses 90% of the time for busi- ness. No trade-in was involved, and he did not claim any $ 179 expensing of the cost. Last year, David clected to use the actual operating cost method to compute deduct- ible expenses for his business use of the Infiniti. Under this method, he depreciates the SUV using MACRS (half-year convention). (Hint See Table 3 in the Instructions to Form 4562.) His operating expenses for the Infiniti for 2015 are as follows: Gasoline $3,300 Auto insurance 1,600 Repairs 240 Auto club dues 180 Oil changes and lubrication 120 License and registration 60 During business use, David received three moving traffic violations (total fines of $680) and incurred tolls and parking charges of $440, The Infiniti was driven a total of 14,500 miles during 2015 (mileage was incurred evenly during the year). Copsride 201 Cengar Leaming. All Righ Rosenat Mer et be cepest, snet, r açlitet, wtede or in pat. De to slectieir tigtes, seme thand pety contestinay be sppred m te iok tig lákid vi las dud that any d oostat do et tmally siliet he ll lami oqui Ca la v le nla o temttmal ntant al y taif mdnapen ngta APPENDIX E Practice Set Assignments-Comprehensive Tax feturn Probiems 6. Sheri is a licensed paralegal and is employed on a part-time basis by several local attormeys. She commuted to work using the family Suburban for a total of 813 miles and paid parking fees of $310. Her earnings and job-related expenses are summar- ized below. Salary (from four employers) Laptop computer $38,000 1,200 Subscriptions and dues to professional organizations Continuing education correspondence course Occupational license fee 180 120 80 Sheri purchased the lantop Computer cin March 12 and uIses it 80% of the time for business. The correspondence course is required continuing education so she can retain her license, Sheri is considering going to law school, so she attended a series of LSAT prepara- Lion sessions at a cost of $350. Because Sheri is a pant-time employee, she is not cov- ered by any of her employers' medical or retirement plans. Sheri is covered under David's insurance, and during 2015, she contributed $5,000 to a traditional IRA that she established several years ago. The Johnsons use the automatic mileage method to calculate any tax deductions that they are entitled to for use of the Suburhan. 7. With funds received from the settlement of his father's estate, David purchased rental property at 4620 Cottonwood Lane, Casper, WY 82609. Of the $250,000 pur- chase price, $30,000 was allocated to the land. After an $80,000 renovation to the house (eg, new Nooring, roof, heating unit), the propenty was rented beginning February 1, 2009. In 2013, the Johnsons decided that their investment would be more marketable if the house was rented as fumished. Consequently, in May of that year, they spent $38,000 on new furniture (including drapes, carpeting, and appli- ances). Under the current lease agreettent, the property rents for $2.200 a month (payable at the heginning of cach month) with utilitics not inchuded. Information regarding the property for 2015 appears below. Rent received S78,600 Property/casualty insurance premiums paid Property taxes paid 3,100 2400 Yard maintenance paid Repairs 1,200 B00 The rent received includes $2,200 for January 2016. The tenants prepaid the rent in mid-December because they went on vacation during the Christmas/New Yecar hol- iklays. In addition to the property taxes listed above, David paid a special tax assess- ment of $2,100 to the city of Casper for repaving the street in front of the property. The Johnsons use MACRS to depreciate the rental home and the furnishings within it (assume half-year convention for the personalty). 8. The Johinsons acquired 1,000 shares of common stock in Cormorant Mining on March 7, 2014, 10 hold for investment purposes, David performed services for the company in late 2013, submitting a bill for $3.900. Because Cormorant was experi- encing cash-flow problems at the time, David accepted the stock as payment for his services. Unfortunately, Comorant is currently in bankruptcy (see item 2 above), and expectations are that the sharehoklers will not recover anything on their stock investments. The stock is not publicly traded. 9. On March 10, 1997, David's father gave the Johnsons a plot of land located in Teton 9. On March 10, 1997, David's father gave the Johnsons a plot of land kxated in Teton County as an anniversary present. It had a value of $150,000 at the time of the gift (no gift tax was due on the transfer). The land had been purchased by David's father on June 1, 1987, for $50,000. In December 2014, a real estate developer contacted the Johnsons and offered $800,000 for the property. After considerable negotiation, the following transaction took place on March 4, 2015: the Johnsons transferred the Teton plot in return for $8,000 in cash and four city lots in *201T Cenpat Leaning. Aa Raes Roservad. Me t be cepad, scael, or dgiatel, i wiade or in pet De to dloctronse rigles, sene tant perty coentent ay be soprsed tm te eBook andendnis m wins dt that any pdomtnt dous t malaly slliut e vanil i opuriene Ca Lamy va ilu rgte ran aitnal ntnt at y ta if mdni nylts munc ap APPENDIX E Practice Set Assignments- Comprehensive Tax Return Problems Laramie (WY) worth $792,000, The Johnsons considered the city lots to be a good investment because they are located near the state university. All closing costs and legal fees were absorbed by the real estate developer. 10. David inherited an antique gun collection from his father when he died-mainly large caliber rifles used for buffalo hunting Although David has no idea what his father's cost hasis was in these guns, the collection had a date-of-death value of $22,000. Concerned about the maintenance and security of the collection, David sold it to a dealer for $29,000 on July 10, 2015. 11. On July 12, 2001, using $50,000 of funds she had received from an aunt's life insur- ance policy, Sheri purchased grazing land in Converse County (WY). On August 2, 2014, she sold the land to a local rancher for $75,000. Under the tems of the sale, Sheri received a down payment of $15,0000 and 10 annual notes of $6,000 each. Sheri is also to receive simple interest of 8% on the outstanding principle balance cach year. On AugusM 4, 2015, Sheri collected $10,800 (S6,000 on the note and inter- est of $4,800) on the maturity of the first note. 12. Although the Johnsons had several Schedule D transactions during 2014, they ended up with a net short-lerm capital loss of $7,000. Of this koss, $3,000 was deducted in 2014, and $4,000 carried over to 2015. 13. For several years, Sheri's widowed mother, Vivian Olson, has lived with the Johnsons and has been claimed by them as a dependent. On December 30, 2014, Vivian suf- fered a heart attack. After six davs in the ICU of a local hospital. Vivian dlied. In earlv Fchnuary 2015, the Johnsons paid the following expenses related to Vivian: Burial expenses Medical expenses incurred in 2014 $4,400 4,200 Medical expenses incurred in 2015 3,100 Remainder of church pledge for 2015 600 Fortunately, the balance of Vivian's medical expenses ($11,900) was covered by in surance. Besides personal and houschold effects, Vivian's major asset was life insur- ance. As the designatesd beneficiary of the policy, Sheri receivecd $20,000 of death benefits on March 13. 2015. 14. Besides the items already mentioned, the Johnsons had the following reccipts curing 2015: Interest income: City of Cheyenne general purpose bonds $1,900 CD at Wells Fargo Bank 1,100 Money market account at Bank of America Yard (garage) sale 400 950 Qualified dividends on Meadowlark Corporation common stock 700 Jury duty fees 420 The yard sale involved used fumiture, appliances, books, toys, and oxher household goods having an estimated original cost value of $1.800. In connection with her jury duty assignment in June, Sheri drove the Suburban 40 miles and incurred expenses of $30 for parking and $45 for meals. 15. In addition to the items already noted, the Johnsons had the following expenditures for 2015: Interest on home equity loan used to finance the purchase of personal items (e.g., camper) Charitable contributions (not including Vivian's pledge) $4,400 3,200 Ad valorem property taxes on personal residence Medical and dental bills lincluding prescription drugs of $400) other than those relating to Vivian (see item 13) 3,100 4,800 The Johnsons drove the Suburban 420 miles to various medical and dental appoint- ments. Wyoming has no state or local income tax but does impose a general sales tax The county in which they live imposes an additional local sales tax of 1% Although they do not keep track of their sakes taxes, they purchased a camper for S40,000 in May 2015. The sales tax on this purchase was $1,600. 16, Besides Vivian (see item 13), the Johnsons houschold includes two daughters, Meredith Gage 19) and Kirby (age 18), and one son, Toby Cage 17). Kirby and Toby are full-time students in high school. Meredith graduated a year ago and earned $9.000 working part time during 2015. She deposited these eamings in a savings account, hoping someday to attend college. 17. For tax year 2014,. the Johnsons had an overpayment of $150, which they applied toward their 2015 income tax. Sheri's income tax withholdings for the year are $5.100, and the Johnsons made Federal quarterly tax payments totaling $16.000 (S4.000 each instaliment).