Term Project: Tax Return Preparation

Jerry & Amanda Smith - 2015 Tax Return Information

Family members and Dependents: The following is a list of information for J e r r y a n d

A m a n d a S m i t h for the tax year 2015. Jerry and Amanda are married and have three

children Richard, Andrew and Susan. They live at 400 Main Street, Great Neck, NY 11425.

Jerry is an attorney and he works for a Smith, Brown & Cooper a local law firm in

New York. In addition, he has his own law practice. Amanda works a s a M a t h Te a c h e r

for the NYC Board of Education. 2015 Tax Information regarding the S m i t h s and their

dependents are as follows:

Name

Social Security

Age

Other Facts

No.

Jerry Husband

111-11-1111

54

Lawyer

Amanda - Wife

224-32-2888

48

Math Teacher.

Full-time student at SUNY Stony Brook

Univ. Richard is very smart and his gross

Richard (Son)

246-56-7788

23

income from royalties is $135,000. This

is from his science inventions and

pending research projects.

Attends the Bronx School of Science in

N.Y. He lives at home with Mom & Dad.

Andrew (son)

456-78-8956

16

In 2015, he earned $175,000 from

Royaltys from APPLE Corp., on an

invention that he patented.

Susan (daughter)

666-66-6666

24

Lorraine Smith

(Amandas mother)

777-77-7777

82

Edward James

(Jerrys Uncle)

888-88-8888

57

Samantha Gatos

999-99-9999

47

Eric James

100-00-0000

19

Susan attends Baruch Grad School.

Susan is married to Stan and is supported

by him. The Smiths occasionally

contribute to Susan & Stans support.

Retired Nurse and Amandas Mother.

She received $25,000 from her pension

in 2015. The Smiths contributed over

50% of her support. She lives in New

Jersey in her own apartment.

Jerrys Uncle. He lives in NYC by

himself. He receives 55% of his support

from Jerry & Amanda. He earned $3,500

in 2015 from a part-time job.

Jerrys ex-wife. See note below.

Jerrys cousin. He had $3,000 of income

from part-time work. He lived with the

Smiths and was supported by them for

the entire year.

Dependents: Assume that all other requirements are met by each potential dependent.

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Term Project: Tax Return Preparation

Jerrys Previous Marriage: Jerry is obligated to pay Alimony and Child Support as stated in the

divorce decree to Samantha Gatos. He is required to make monthly payments of $650 and

$500 respectively, for Child Support and Alimony. During 2015, Jerry made total payments

of $12,500 to Samantha. Jerry and Samantha both agreed that the outstanding balance will be

paid during 2015.

The Smiths W-2 information is as follows:

Gross wages

Federal Withholding Taxes

NYS Withholding Taxes

NYC Withholding Taxes

Jerry

130,000

35,000

13,000

6,500

Amanda

60,000

15,000

6,000

3,000

Interest and Dividends earned by the Smiths and reported on Form 1099s are as follows:

Types of Interest / Dividends

Interest on 3.75% 20 year US Treasury Bonds

Interest on NYS 4% General Obligation Bonds

Interest on N.J. 3.75% State Dormitory Bonds

Interest on CD Chase Bank

Interest - GE 4.65% 20 year bonds

Ordinary & Qualified Dividend Income Per Fidelity

Statement

Amount

s

10,500

8,500

5,000

4,000

6,500

15,000

Other: During 2015, Amanda received a $5,000 Debt Forgiveness decree from Master Card.

This concerned a disputed charge from Master Card which has now been forgiven.

Besides working for the Smith Brown & Cooper, Jerry also owns in his own law practice

(Smith Legal Consultancy, LLC, EIN: 55-5687541, Business code: 541110, Accounting

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Term Project: Tax Return Preparation

method: (Cash Basis), located at 245 Greenwich Street, New York, NY 10007. The Revenue and

Expenses from his law practice are as follows:

Gross Revenue

Rent

Office Salaries

Office Supplies

Advertisement

Utilities

Phone/Internet

Accounting Fees

Health Insurance Plan Employees

Office Maintenance

Office Equipment (see Note 1)

Travel (see Note 2)

Miscellaneous

Damages (see Note 3)

450,000

125,000

60,000

11,000

9,000

8,000

3,000

12,000

15,000

5,000

200,000

6,000

1,500

120,000

Note 1 The category office equipment, includes computer servers, printers, computers, fax

machines, phones, microwave, and office refrigerator. Jerry is unfamiliar with the tax

treatment and therefore requires your help. He is greatly concern with the tax benefits

available for the costs incurred for office equipment. (Hint: Should he capitalized and

depreciate the equipment cost, or is there another more beneficial tax treatment?)

Note 2 Jerry visited Miami on a conference that was specific to his business. He spent a total of

three days in Miami. However the conference was only for two days, but since Jerry loved the

beach and the warm weather, he decided to stay another day. The total travel expenses

incurred on the trip were $6,000.

Note 3 Smith Legal Consultancy, LLC, was sued by the US government, regarding a

criminal violation of the U.S. Antitrust Laws. He entered a no-contest plea and paid the

Treble Antitrust Damage Fine of 120,000 to settle the case.

Unreimbursed Job Related Expenses . Amanda attended a Mathematics Conference in

Boston, MA during 2015. Her employers practice is to reimburse their employees for these

conferences. Her total expenses incurred were 3,000. However, she was only reimbursed 1,800

as of December 31, 2015.

Jerry had no unreimbursed expenses for 2015.

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Term Project: Tax Return Preparation

Group Term Life Insurance

Smith, Brown & Cooper provided an $80,000 group term life insurance to Jerry, who is not a key

employee.

Retirement Contributions During 2015, Mr. & Mrs. Smith each contributed 6,500 to their

Traditional IRA accounts.

NYS Tax Refund

Mr. & Mrs. Smith received a 1099 for $15,000 representing a 2014 NYS Tax Refund which was

received in 2015. The Smiths itemized their deductions in 2014.

Capital Transactions

Jerry sold the following securities during 2014:

Company

Shares

IBM

T

GE

AAPL

2,000

1,000

1,000

1,000

Selling

Price

200,000

38,000

50,000

60,000

Date sold

12/01/14

06/12/14

12/08/14

11/15/14

Date

Acquired

02/15/12

02/21/87

06/15/14

02/07/14

Cost /

Tax Basis

240,000

28,000

30,000

95,000

Gain/Loss

Sale of Principal Residence (see Note 4)

Date of sale

11/01/15

Date Acquired

07/06/96

Selling Price

$1,200,000

Adj. Basis

900,000

Expenses of sale

34,000

Sales Commission

66,000

Note 4 - Sale of Residence: Mr. & Mrs. Smith lived in this house for many years. It was

acquired in 1995 at a cost of $700,000 and it was their principal residence. Over the years they

made major improvements to their home and all capital improvements are documented. Mr. &

Mrs. Smith wish to avail themselves of the $500,000 gain exclusion under IRC Sec 121.

Itemized Deductions - Medical

Medical Insurance premiums

Peloton Stationary Exercise Bike (see Note 5)

$12,000

3,000

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Term Project: Tax Return Preparation

Doctor visits to MDs, & DDS,

Prescription Drugs

Travel Expenses (see Note 6)

Vitamins & Herbs for Mr. & Mrs. Smith

Visits to local Gypsies and

Fortune-Tellers (Mrs. Smith)

Medical Insurance reimbursements in 2015.

20,000

8,000

4,500

6,500

15,200

12,500

Note 5 Medical Expense: Jerry has weak muscles in his lower back. His personal physician

prescribed a Peloton Stationary Exercise Bicycle to try to alleviate the pain in his lower back.

Note 6 Travel Expenses: Mrs. Smith took a trip to Miami after being diagnosed by her

medical doctor with extreme stress and fatigue. She hopes that the warm weather will

alleviate the stress and fatigue.

Taxes Paid

NYS & NYC Income Taxes

See W-2 information

NYS Sales Taxes on purchase of Boat & Personal Living expenses

$15,200

Real Estate Taxes

22,000

Personal Property Taxes (A NYS Personal Property Tax on Michaels Boat

based on the weight of the boat.)

10,000

Interest Expense

Interest on Home Mortgage

Points on home mortgage

Mortgage Insurance Premiums

$15,000

6,000

4,500

Charitable Contributions

Cash contributions to recognized public charities

Prior year carry forward charitable contributions

$24,000

5,000

Donations of Property:

Paintings & Sculpture: (see Note 7)

- Cost

$ 10,000

- FMV

22,000

Note 7 - Contribution of Property: The painting and sculpture were appraised by a reputable

company. Jerry believes that the estimated FMV should be $40,000 and not $22,000 as

declared by the appraisal company.

Miscellaneous Deductions

Tax Return Preparation

Legal fees Estate Planning

Safe Deposit Box at Chase used to safeguard stock certificates.

$2,500

4,000

300

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Term Project: Tax Return Preparation

Other Expenses

Gambling losses (see Note 8)

$44,000

Note 8 - Gambling Losses: Mr. Smith enjoys gambling and he considers himself to be

a Doctor of the Black Jack Table. During 2015 he won $14,000 and incurred losses of

$58,000. His net gambling losses amounted to $44,000. After his Summer 2015 winnings

streak, he has been constantly losing!

Note 9- Child & Dependent Care Expenses and Child Care Credit : The Smiths want to

claim Child & Dependent Care Expenses and the Child Care Credit. During 2015 the Smiths

spent $6,000 on an educational summer travel program for their son Andrew.

Please Comment on whether the Smiths would qualify to deduct any Child and Dependent

Care expenses or qualify for the Child Credit.

REQUIRED:

1) Prepare the following Tax Forms, Schedules,

Worksheets and Notes for Mr. & Mrs. Smith for the

Tax Year 2015:

1.

2.

3.

4.

5.

6.

7.

8.

Form 1040

Schedule A

Schedule B

Schedule C

Schedule D and Form 8949

Form SE (Use Short Form)

Tax computation worksheet for Dividends & Capital Gains

Any other worksheet or summary schedule, that may be applicable

2) As Page #1, of your solution, prepare a Summary schedule of your Tax

findings, Use the following categories and fill in your numbers on the

schedule:

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Term Project: Tax Return Preparation

- Number of Personal Exemptions claimed

- Gross Income,

- Deductions for AGI,

- Adjusted Gross Income (AGI)

- Itemized Deductions or Standard Deduction,

- Taxable Income,

- Tax Liability

- Tax Due or Amount of Refund.

3) You must provide comments on the qualification of each

dependent and on each of the nine notes in the project.

For

each item, starting with Dependents and Family Members, you must write a

short explanation as to your tax treatment, explaining why you handled it the

way you did.

Some Additional Notes:

1) Do not compute the AMT Tax or the Pease

Limitations (limitations affecting itemized deductions

or personal exemptions for high income taxpayers).

2) The project must be assembled in the correct order with

the summary page by category and amount, as Page

#1.

3) Your Notes on qualification of dependents and your

comments on the nine notes in the project, must be

typed and properly identified.

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