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All work sheets and supporting documents and calculations must be prepared using a SPREADSHEET and must be included with your final return. Submit...
All work sheets and supporting documents and calculations must be prepared using a SPREADSHEET and must be included with your final return. Submit the workpapers as a separate file.
Problem: Phil and Jannie Davis (attached)
Forms needed: 1040, Sch A & B, Sch C, Sch D, Sch E, 2106, 2441, 4562, [Any others? You decide!]
PHILLIP AND JANNIE DAVIS
PHILLIP H.. (age 41) and JANNIE M. (age 39) DAVIS are married and have two children, Fred J. (age 12) and Gretchen W. (age 22). All parties reside at 2100 Laredo Dr., Greeley, CO 80321. Relevant Social Security numbers are listed below:
Phil 512-78-1234; Jannie 489-89-4567; Fred 789-47-7890; Gretchen 790-56-4321.
Phil and Jannie provide over one-half the support for each of the two children, and the children live with the parents.
Jannie's father, Mario A. Martino (Social Security number 373-67-4321), is age 68. He lives in a nursing home located in nearby Columbia, CO. Mario's only sources of income are his Social Security benefits of $13,500, and a pension of $18,600, all of which is spent on nursing home and living costs. Jannie and Phil pay $32,900 of his nursing home and other living costs.
Phil is the manager of a pool supply store. His Form W-2 for 2017:
Wages: $106,503 Federal Tax Withheld: $11,626 State Income Tax Withheld $5,600
Social Security Wages: $111,056 Social Security Tax Withheld: $5775
Medicare Wages: $111,056 Medicare Tax Withheld: $2721
Phil was a participant in an employer sponsored retirement plan. No other "boxes" or codes apply to Phil's W-2.
Jannie owns and operates a cash basis painting service under the business name of "Live With Color." Employer identification number is 25-0767432. The business address is 1700 Martin Luther King Blvd, Greeley, CO 80315.
The results of "Live With Color" for 2017 are as follows: (Jannie does not maintain any inventories.)
Sales Revenue $187,680
Salaries (to employees) 58,840
Payroll Taxes 12,368
Software 2,430
Office Supplies 1,512
Business phone 648
Advertising 2,592
Occupation Tax 136
Property Insurance 864
Shop rent 12,960
Utilities 1,787
On August 1, 2017, Jannie acquired office furniture and fixtures to set up a model display at a total cost of $25,920 (she did not expense any amount under any provision). On June 15, 2017, Jannie purchased an $21,600 state-of-the-art computer workstation to use 100% in her business. She would like to deduct as much of its cost as possible in the current tax year.
On March 1, 2016, Jannie purchased a new automobile. During 2017, the auto was used as shown below:
Miles Driven Actual Costs
Business 12,560 Gasoline $3,056
Commuting (15 miles round-trip) 3,800 Oil Changes 105
Charitable 776 Tires 567
Personal 7,912 Insurance 932
Registration 54
Other Repair/maint. 473
Jannie maintains a log which reflects this mileage. She has used both the actual cost and standard mileage methods in the past, and qualifies to use either one this year.
To buy the automobile, Jannie took out a home equity loan of $34,960 on their personal residence. At the time of the loan, the residence's fair market value was $193,200 and the principal on the first mortgage was $124,000. The interest expense incurred by Jannie in 2017 is reported on a form 1098.
Gretchen is a full-time student at the local state university and works part-time (2017 wages equal $4,752). Gretchen began her senior year in the Fall semester of 2017. Phil and Jannie paid the following amounts with respect to Gretchen's college education:
Spring Semester 2017 (paid Jannie. 10, 2017)
Tuition $4,350 Books $505 Room & board $4,000
Fall Semester 2017 (paid August 15, 2017)
Tuition $4,600 Books $594 Room & Board $4,500
The Davis' received interest, dividend, and capital gain income as reported on 1099s.
Phil and Jannie would both like to contribute the maximum amount to their Traditional IRAs. Phil is covered by a qualified pension plan at SharkCity Pool; Jannie has no other pension plans.
Fees Jannie received for serving on a Federal grand jury - $310. Expenses incurred by Jannie (parking, meals) in connection with jury duty -- $120.
In order to be gainfully employed, Phil and Jannie pay Kristin Tubs $3,024 to care for Fred during after school hours. Kristin (Social Security number 327-37-3737) is a nearby neighbor who is retired and has no children of her own. Kristin's address is 100 Laredo Dr., Greeley, CO 80321.
In 2017, the Davis' received a refund of 2016 state income taxes in the amount of $486. The Davis' have itemized the last several years and such deductions have exceeded their standard deduction by at least $1,890 in every year.
On June 20, 2017, the Davis' sold their Klor Inc. stock for $8,980. Phil and Jannie had received this stock as a gift from Jannie's dad on November 25, 2010 when its fair market value was $7,776 (no gift tax was paid). Jannie's Dad had purchased the stock on January 14, 1993 for $8,640.
On 9/10/16, Jannie purchased 2000 shares of Weasel Corp. stock for $2,600. The company had declared bankruptcy in 2016, and didn't make it; they officially went out of business on 8/15/17.
Jannie also sold 1000 shares of Techno Inc. stock on 12/01/17 for $520. Jannie had purchased the stock on 10/18/06 for $5,680. Techno qualifies as a §1244 corporation.
Phil purchased 800 shares of Zagnut Corp. on November 7, 208 for $14,000; he received an additional 80 shares as a nontaxable 10% stock dividend on February 12, 2016 (when the market price was $27 per share), and sold those 80 shares on February 13, 2017 for $1,900; he also sold 200 of the original 800 shares on Nov. 12, 2017 for $6,000.
Phil also inherited 10 acres of land in Eastern Pennsylvania from his parents. They had acquired the land on 5/16/97 for $6,300. The land's fair market value on 5/14/2002 (date of inheritance) was $25,200. Phil sold the 10 acres on 1/15/17 for $28,460.
Because Phil's employer only provides health insurance coverage for himself and the children, Jannie paid $6,240 in 2017 for her own health insurance coverage.
Jannie paid $7,760 of alimony to her previous husband, Tom Dobbs, from whom she divorced several years ago. There are no children from this marriage. Tom's Social Security number is 242-26-8078.
During the year, Phil attended a four-day conference sponsored by the National Swimming Pool Association in Washington, D.C. to learn more about new pool designs and developments. Because he had never visited the nation's capital, Phil took two days of his vacation time to tour that city's sites. In addition to air fare of $316, his expenses for the six-day trip were as follows:
Seminar Fee $520
Hotel 880 (Phil's employer reimbursed him $1,000 for his expenses.)
Meals 509
Taxi fares, tips 96
Guided tours 72
Other job related expenses include:
Gifts to clients (each under $25) $172
Business lunches involving clients 312
Gift to secretary 29 All of these expenses are properly
Birthday gift to the service center substantiated and supported by receipts.
manager (i.e., Phil's boss) 140
Renewal dues for licensing 542
Parking at work 630
Dues to professional associations 168
Other expenses incurred by the Davis' in 2017 are summarized below:
Doctors, clinics, hospitals $7,724
Medical insurance (Phil's pre-tax
contribution to his employer's plan) 2,512
Charitable contributions
(documentation received) 3,188
Property taxes on personal
residence 4,456
With respect to the 2017 medical expenses, the Davis' received a total of $948 of insurance reimbursements in 2017.
In addition to the cash contribution above, on June 10, 2017, the Davis' donated used furniture and clothing to Goodwill, 40 E. 5th St., Greeley, CO 80315. They estimate the original cost of this property was $4,456. The value they would have receive if they sold it at a yard sale was $972.
They also donated common stock in International Paper Corporation to St. Anne's Catholic Church, 230 Elm Street, Greeley, CO. The stock was purchased on February 3, 2000, for $20,000 and was worth $36,000 on November 10, 2017 (the day of the donation). The donation was to cover the Davis's 2016 general pledge ($9,000), the 2017 general pledge ($9,000) and the 2017 rectory renovation capital fund drive ($18,000).
Phil inherited a river cottage from his parents when they died (May14, 2002) which he rents out during the year. Phil actively manages the rental. The cottage had cost his parents $10,000 ($1,000 land) in 1981; the FMV on May 14, 2002 was $95,000 ($10,000 land). The house has always been a rental property, and Phil and Jannie normally used it for two weeks for their vacation. In 2017 however, they used it for 30 days since they both took extended vacations. It was actually rented out for 207 days during 2017. It is located at 212 Mohawk Way, Albany, NY 13600. For 2017, Phil had the following income and expenses with respect to the rental property:
Rentals collected $30,710
Advertising 4,378
Cleaning and maintenance 819
Insurance 914
Repairs 504
Taxes 2,709
Miscellaneous 76
During 2017, he purchased new appliances for the home on May 6 costing $1,900; and installed a new roof on July 20 costing $12,500.
On August 30, 2017 the Davis' discovered that someone had broken into their home while they were away on vacation. Jewelry and cash were stolen. The cost (and FMV in paren.) of the stolen property was: jewelry - $7,300 ($11,100), and $1,500 in cash. Homeowner's insurance reimbursed them $3,500 for the jewelry and nothing for the cash (they did not have FMV replacement insurance and their policy capped losses at $3,500 for each category).
Timely estimated federal income tax payments of $2,160 were paid each quarter. In addition, an overpayment of $864 from 2008 was applied to 2017. Timely estimated STATE income tax payments of $500 were paid each quarter. In addition, a payment of $150 was made each quarter for LOCAL income taxes as applied to 2017. The same amounts were paid each quarter for the 2016 tax year.
Complete the Davis's 2017 tax return. Both want $3 to go to the Presidential Election Campaign Fund.
