Using 2019 IRS forms and the information below, prepare the federal income tax return for William and Joyce Jones. You are welcome to use any tax return preparation software. But you must include with the completed forms statements explaining your reasoning for the treatment of your entries (1-23 below) on the return.

The taxpayers live at 4400 Massachusetts Avenue in Washington, D.C. 20016. William is 53 and Joyce is 51 as of the end of the taxable year. William is a manager for ABC Corporation, a firm that manufactures and distributes widgets. Joyce is a self-employed author of children’s books. The Jones have two children, Will, 21 and Tom, 16 and both are full time students. The children have no income. The Jones are on the cash method of accounting and their return is due April 15. They wish to minimize their tax by deferring income, accelerating deductions and taking advantage of any suggestion you offer.

• Joyce’s social security number is 471-42-5207.

• William’s social security number is 150-52-0546.

• Will Jr.’s social security number is 372-46-2611.

• Tom’s social security number is 375-49-6511.

• The taxpayers do not wish to contribute to the presidential election campaign fund.

• The family has health insurance coverage from William’s employer.

• They claimed the standard deduction in the preceding year.

1. William’s W-2 consists of the following:

Box 1 - Wages $200,000

2 - Withholding 30,000

12d - Pension contribution (401k) 20,000

2. The taxpayers received the following interest payments:

Bank of Switzerland, Geneva (Account balance $50,000) $ 100

New York State Bonds 100

New York City Bonds 200

Puerto Rico Bonds 50

Ford Motor Co. Bonds 75

3. Joyce and her brother are co-owners of a furniture-restoration business. Joyce owns 30 percent, her brother (who does all the work) owns 70 percent of the business. The business was formed as an S corporation. The basis of Joyce’s stock is $31,000. Joyce’s share of the corporation’s loss for the year is $5,000.

4. The Jones’s received a federal income tax refund of $1,200 on May 12, 2019. On May 15 they received a refund from the District of Columbia for $900.

5. Joyce is the lucky caller to a local radio station and wins a tablet. She has not received a 1099-MISC, but in announcing the prize, the radio station host said that the manufacturer’s suggested retail price for the tablet is $500. However, Joyce has a catalog from Best Buy that advertises the tablet for $400.

6. The Jones’s receive a Form W-2G for their winnings at a local casino showing gross winnings of $5,000 and $1,500 of federal withholding tax. Joyce lost $6,000 at the casino during the year.

7. On June 26, William receives a check for $17,000 (face value of $16,500 plus $500 interest) from the United Insurance Corporation, as a result of being the designated beneficiary of an insurance policy on the life of his uncle. His uncle had paid a premium on the policy of $4,000.

8. Joyce is active in the local school PTA. During the year, she receives an award (a plaque and a $100 gift certificate that were donated to the PTA by local merchants) for outstanding service to the organization. Joyce donated the gift certificate to the Salvation Army.

9. Joyce, who works out of her home, makes 4 business trips, each 3 days long, to meet with various publishers. For shorter trips that are closer to home she either drives or takes the train and returns on the same day. In December 2019, Joyce receives an advance on her next book. Under the contract, Joyce is scheduled to begin work on the book the following February, and must have it completed by November. The taxpayers have one telephone line which is partly used for her business. The information on Joyce’s business is listed below.

Royalty: West Publishing $ 1,000

Publishers Advance $ 5,000

Train Tickets $ 700

Airfare $ 2,000

Lodging $ 2,500

Meals $ 2,000

Telephone $ 800

10. In January, Joyce purchases a new car for $15,000 to use in her business. Joyce pays $5,000 in cash and finances the balance through the dealer, paying $200 of interest on the loan for the year. During the year she drives 4,000 miles for business and 6,000 for other purposes. Total expenses for operating the car for the year are: repairs and maintenance, $100, insurance, $200 and gasoline, $1,000.

11. At the beginning of the year Joyce set aside a separate room of the house which she uses exclusively for business. The room is 100 square feet of the total 5,000 square feet of the house. The taxpayers purchased the home several years ago for $70,000 with approximately 20 percent of the purchase price attributable to the land. The total household expenses for the year are as follows:

Heat $2,000

Insurance $1,000

Electricity $1,600

Cleaning $1,000

12. William began work on his MBA at American University. He enrolled in two courses and paid $4,000 in tuition.

13. William and Joyce each contribute the maximum to their respective IRA accounts for the year. The IRA account is Joyce’s only retirement vehicle. In addition, William and Joyce contributed $2,000 to a Coverdell Education Savings Account for Tom.

14. In June the taxpayers’ 2012 station wagon is totaled during a hurricane. The car was purchased for $28,700. The taxpayers received a check for $21,200 from Insurance Company that represents the fair market value of the car minus a $750 deductible and they replaced the car with a new car costing $31,400.

15. The taxpayers incurred the following medical expenses before receiving $700 reimbursement from their health insurance policy:

Medical Premiums $4,000

Doctors $1,000

Chiropractor $ 600

Dentist $1,000

Vet Fees (family dog) $ 300

Prescription Drugs $ 300

Over-the-counter drugs (aspirin, cough syrup) $ 200

16. The taxpayers pay the following property taxes:

House $10,000

Car (ad valorem) $ 500

17. The taxpayers paid the following amounts of interest.

Bank of America (4400 Mass Ave.) (Mortgage of $50,000) $5,000

Sun Trust (Home Equity Loan of $20,000) $1,000

Bank of America Mastercard $ 200

The proceeds from the home equity loan were used to pay off credit card balance.

18. The taxpayers made a cash contribution to American University of $100. They also donated property to the Salvation Army at High Street in Washington, D.C. on July 15:

PropertyFMV (self-appraised) Original Cost Date Acquired

Antique Table Dishwasher $400 $100 $225 $700 1/4/02 5/6/06 19. The taxpayers incur the following expenses: Type Prior year tax preparation fee (paid in current year) Safety deposit box Investment advice Business publication (William) Amount $840 $55 $1,120 $675 20. In January, William inherited his father’s summer home that had a fair market value of $500,000 at the date of his father’s death. His parents had purchased the house many years ago for $100,000, 20% of which was attributable to the land and made $75,000 worth of capital improvements to it. William decides to rent the property and actively participates in finding a tenant and managing the property. The property is first advertised for rent on January 1, but is not rented until June 1. William provides the following income and expense information for the property: Rent $20,000 Repairs $5,000 Property taxes $10,000 Insurance $2,000 21. The taxpayers sold the following securities during the year. The selling price listed is net of brokerage commissions and represents the amount the taxpayers receive from the sale. All information is reported on Form 1099B. Stock Date Sold Date (all sales in Sale Purchase Acquired current year) Price Price 150 shares Pfizer Corporation 5/12/90 8/15 $ 6,000 $7,500 50 shares Alcoa 6/10/07 10/23 $ 500 $2,000 25 shares Luminent 4/28/CY 9/4 $ 3,000 $1,000 60 shares Textron 9/11/CY 10/27 $10,000 $9,000 22. On July 1, Joyce purchased a computer, used exclusively for business, for $2,000. 23. On June 1, Joyce sold her old computer system for $400. She had acquired the computer in 2010, for $2,000. When the taxpayers prepared their 2010 tax return they elected to expense the computer using Section 179. The computer was used exclusively in her business.

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