Question

Brian and Corrine Lee are married taxpayers filing jointly. They live in the home they own, located at 3301 Pacific Coast Hwy., Laguna Beach, CA 92651. Brian is an optometrist who owns his business; Corrine is a social worker for Orange County. They have two sons, Brady and Hank. During their trip to China last year, they fell in love with a beautiful 1-year-old girl from an orphanage near Shanghai and are in the process of adopting her. The social security numbers of the four current members of their household are 412-34-5670 for Brian, 412-34-5671 for Corrine, 412-34-5672 for Brady, and 412-34-5673 for Hank. Their birth dates are as follows: Brian, 5/20/1975; Corrine, 7/23/1975; Brady, 9/1/2005; and Hank, 9/11/2008. The following are Brian’s income and expense information from his business and Corrine’s W-2 from Orange County.

Lee’s optometrist office income and expenses for the current year:

Gross income	$	265,000
Cost of goods sold		88,000
(Beginning inventory $45,000; Purchases $63,000; Ending inventory $20,000)
Advertising		5,000
Wages		32,000
Office rent		9,600
Other		2,100

The Lees also made $40,000 in federal estimated tax payments during the year.

The Form W-2 Corrine received from Orange County contained this information:

Wages (box 1)	=	$	76,925.04
Federal W/H (box 2)	=	$	13,085.90
Social security wages (box 3)	=	$	76,925.04
Social security W/H (box 4)	=	$	4,769.35
Medicare wages (box 5)	=	$	76,925.04
Medicare W/H (box 6)	=	$	1,115.41
State income taxes (box 17)	=	$	2,944.89

In addition, the Lees had the following income and expenses during the year:

Income
Interest from CDs at Pacific Coast Bank	$	5,000
Expenses
Mortgage interest paid to PC Bank for their home	$	29,500
Property taxes paid on their residence		7,000
Adoption expenses (fees, court costs, and attorney’s fees)		8,850
Child care costs at LB Parks and Recreations after-school program for Hank		3,500

Brian and Corrine had qualifying health care coverage at all times during the tax year.

Prepare the Lees’ federal tax return. Use Form 1040, Schedule A, Schedule B, Schedule C, and any additional appropriate schedules or forms they may need for credits. Do not complete Form 4562 (with Schedule C). (Assume no AMT although it may apply; Form 6251 or the AMT calculation is not required.) For any missing information, make reasonable assumptions. Assume that Brian follows cash basis of accounting. (List the names of the taxpayers in the order in which they appear in the problem. Input all the values as positive numbers. Instructions can be found on certain cells within the forms. Round your final answers to the nearest whole dollar amount.).

Answer 1

Please note we have Assume Federal Estimate tax payment of Lees made in 1st Quarter i.e 04/18/17

Timing Rules for what tax year you claim the credit of child Adoption Form 8839.

• When the expenses are paid;
• Whether it's a domestic adoption or a Foreign adoption; and
• When, if ever, the adoption was finalized

A foreign adoption is the adoption of an eligible child who isn't yet a citizen or resident of the U.S or its possessions before the adoption effort begins.Qualified adoption expenses paid before and during the year are allowable as a credit for the year when it becomes final.

In our case Adoption is in process and we don't have detail of Adopting child so we have not taken credit of Adoption expenses.

FORM 1040

Schedule A

Please note we don't have 2017 Schedule B form so i have made calculation on form 2018 but all information and working are of 2017 so please note.

Schedule B

Schedule C

FORM 2441