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Prepare in good form a 2014 tax return on the cash basis and all needed supporting schedules and forms for the taxpayer described below. Assume the...
Prepare in good form a 2014 tax return on the cash basis and all needed supporting schedules and forms for the taxpayer described below.
Jack Spratt SS # 123-45-6789 lives at 1234 Eagles Court, Reno, NV 89557. Jack lives with his 6 year-old son Benny, SS# 234-56-7890. Benny spends ten months each year with Jack and two months each year with Susan Spratt, SS# 890-23-4514, his mother, and Jack’s ex-wife. Jack is a CPA and has a job with the State of Nevada Tax Department and earned $90,000 in wages for 2014. $17,000 of federal tax was withheld from his pay. Jack’s mom, Leona Spratt SS# 345-67-8901, and his former mother-in-law, Shari Jones SS# 567-89-0122, share an apartment in Reno that Jack pays for. He provides more than 50% of the support for the two elderly women. Jack also pays more than 50% of the support for Leona’s father Ephraim Luce, SS# 876-54-3210, who lives in a nursing home. Ephraim has a part-time job at Wal-Mart an earned $5,500 in 2014.
Jack also runs his own tax preparation business on the side at 12 Main St., Virginia City NV 89406, as a single member LLC. His cash receipts from the business totaled $43,000 for 2014. He also is owed $1,700 from a client that refused to pay for his services. His expenses were as follows: rent $7,800, utilities $3,950, part-time contract labor $6,000, entertainment of clients at his country club $2,000, travel to conferences $1,570, insurance $1,000, and office supplies of $500. He also purchased tax software for $1,500 and a new computer for $1,800 during 2014. He paid $10,000 in estimated 2014 federal income taxes during the year at the regular quarterly payment dates. Jack also took a graduate course at UNR in taxation during the fall 2014 semester and paid $600 in tuition and $120 for the course textbook. Jack’s client Pete was being audited by the IRS. Jack paid the IRS agent $1,000 in cash to “take care of” Pete’s problem. Since Jack’s office needed painting and a painter Jack knows needed his taxes done, Jack bought the paint for $200 and then traded his tax prep services for the painter’s services. The fair value of the services exchanged was $750. Jack sold some business office furniture he acquired in 2011 for $5,000 for $1,500 on 11/10/14. He used MACRS 7 yr. half-year convention to depreciate the furniture.
Jack likes to trade stock and bonds and had the following trades during 2014. He sold 400 shares of GE for $50 per share on 10/17/14. He had purchased the GE as part of a 600 share lot on 6/10/01 for $39.40 per share. He purchased 1,000 shares of Disney on 12/15/14 for $91.10 per share. He also sold on 12/2/14 two acres of land in Reno for $126,000, acquired from his Dad when his father died on 5/15/11. His Dad had paid $30,000 for the land on 4/10/79. The land was appraised for $100,000 in May of 2011. Jack also received a gift from his Aunt Minnie on 3/16/12 of an antique watch that was purchased in 1949 for $100. The watch fetched $1,700 on 1/2/14 when he sold it on eBay.
Jack earned the following in investment income for 2014: Interest from Wells Fargo Bank $1,500, interest on State of Nevada Bonds $3,000, interest from a NV Energy corporate bond of $2,500, qualified dividends from GE of $1,300, and a long-term capital gains distribution of $1,500 from Fidelity Fund, $50 of interest from a loan to Bill Allen, a personal friend.
Jack owns his home on Eagle Court and it is his primary residence. He paid mortgage interest of $11,000 during the year. He paid $4,900 of real estate taxes, $1,000 of sales taxes, and $550 of deductible personal property taxes during the year. He had $14,500 of medical expenses as follows: Jack $2,700, Benny $1,250, Leona $5,000 and Shari $5,550. He made charitable contributions of $3,500 to UNR, $250 to the Girl Scouts and $500 to the American Red Cross. He likes Girl Scout cookies and bought 3 boxes for $20 in front of his local Piggly-Wiggkly Market.
The final divorce decree between Jack and Susan requires Jack to pay alimony of $500 per month until the earlier of June 2015 or when Susan dies or remarries. He is also obligated to pay Susan $400 child support for each month that Benny is staying with Susan each year.
On August 12,2014 there was a windstorm in Reno that blew down a big tree onto the roof of Jack’s Eagle Court house. The roof of the house was damaged and cost $10,750 to repair. The removal of the tree was $400 and the planting of another tree was $710. The new tree was nothing near as big as the tree that was lost. In fact, the landscaper told Jack it would cost $8,500 to replace the tree that was destroyed by the storm. Jack collected $6,300 from the insurance company for this loss.
Jack also owns a rental property at 150 W. 10th Street in Reno that he rents to students. For 2014, he received $14,000 in rent during 2014 and had the following expenses: Insurance $1,570, maintenance $950, repairs $2,100, real estate taxes $2,400, mortgage interest $3,300 and depreciation of $1,500.
