Question

INDIVIDUAL TAX RETURN PROBLEM 5 Required: ∙

Use the following information to complete Armando and Lourdes Gonzales’s 2018 federal income tax return. If any information is missing, use reasonable assumptions to fill in the gaps. ∙ You may need the following forms and schedules to complete the project: Form 1040, Schedule A, Schedule B, Schedule C, Schedule D, Schedule E, Schedule SE, Form 4562 (for the dental practice), Form 4562 (for the rental property), Form 4797, Form 8863, and Form 8949. The forms, schedules, and instructions can be found at the IRS website (www.irs.gov). The instructions can be helpful in completing the forms.

Facts:

1. Armando Z. and Lourdes K. Gonzales are married and file a joint return. Armando is self-employed as a dentist, and Lourdes is a college professor. Armando and Lourdes have three children. The oldest is Ricardo, who lives at home. Ricardo is a law student at the University of Cincinnati and worked part time during the year, earning $1,500, which he spent for his own support. Armando and Lourdes provided $6,000 toward Ricardo’s support (including $4,000 for Ricardo’s fall tuition). They also provided over half the support of their daughter, Selena, who is a full-time student at Edgecliff College in Cincinnati. Selena worked part time as an independent contractor during the year, earning $3,200. Selena lived at home until she was married in December 2018. She filed a joint return with her husband, Tony, who earned $20,000 during the year. Felipe is the youngest and lived in the Gonzales’s home for the entire year. The Gonzaleses provide you with the following additional information:

Armando and Lourdes would like to take advantage on their return of any educational expenses paid for their children.

>The Gonzaleses do not want to contribute to the presidential election campaign.

>∙ The Gonzaleses live at 621 Franklin Avenue, Cincinnati, Ohio 45211.

>∙ Armando’s birthday is 3/5/1960 and his Social Security number is 333-45-6666.

>∙ Lourdes’s birthday is 4/24/1963 and her Social Security number is 566-77-8888.

>Ricardo’s birthday is 11/6/1995 and his Social Security number is 576-18-7928.

>∙ Selena’s birthday is 2/1/1999 and her Social Security number is 575-92-4321.

>∙ Felipe’s birthday is 12/12/2006 and his Social Security number is 613-97-8465.

>∙ The Gonzaleses do not have any foreign bank accounts or trusts.

2. Lourdes is a lecturer at Xavier University in Cincinnati, where she earned $30,000. The university withheld federal income tax of $3,375, state income tax of $900, Cincinnati city income tax of $375, $1,860 of Social Security tax, and $435 of Medicare tax. She also worked part of the year for Delta Airlines. Delta paid her $10,000 in salary, and withheld federal income tax of $1,125, state income tax of $300, Cincinnati city income tax of $125, Social Security tax of $620, and Medicare tax of $145.

3.The Gonzaleses received $800 of interest from State Savings Bank on a joint account. They received interest of $1,000 on City of Cincinnati bonds they bought in January with the proceeds of a loan from Third National Bank of Cincinnati. They paid interest of $1,100 on the loan. Armando received a dividend of $540 on General Bicycle Corporation stock he owns. Lourdes received a dividend of $390 on Acme Clothing Corporation stock she owns. Armando and Lourdes received a dividend of $865 on jointly owned stock in Maple Company. All of the dividends received in 2018 are qualified dividends.

4.Armando practices under the name “Armando Z. Gonzales, DDS.” His business is located at 645 West Avenue, Cincinnati, Ohio 45211, and his employer identification number is 01-2222222. Armando’s gross receipts during the year were $111,000. Armando uses the cash method of accounting for his business. Armando’s business expenses are as follows:

Advertising $ 1,200

Professional dues          490

Professional journals           360

Contributions to employee benefit plans 2,000

Malpractice insurance        3,200

Fine for overbilling State of Ohio for work 5,000

performed on welfare patient Insurance on office contents        720

Interest on money borrowed to refurbish office 600

Accounting services        2,100

Miscellaneous office expense 388

Office rent 12,000

Dental supplies            7,672

Utilities and telephone         3,360

Wages     30,000

Payroll taxes        2,400

In June, Armando decided to refurbish his office. This project was completed and the assets placed in service on July 1. Armando’s expenditures included $8,000 for new office furniture, $6,000 for new dental equipment (seven-year recovery period), and $2,000 for a new computer. Armando elected to compute his cost recovery allowance using MACRS. He did not elect to use §179 immediate expensing, and he chose to not claim any bonus depreciation.

5. Lourdes’s mother, Maria, died on July 2, 2012, leaving Lourdes her entire estate. Included in the estate was Maria’s residence (325 Oak Street, Cincinnati, Ohio 45211). Maria’s basis in the residence was $30,000. The fair market value of the residence on July 2, 2012, was $155,000. The property was distributed to Lourdes on January 1, 2013. The Gonzaleses have held the property as rental property and have managed it themselves. From 2013 until June 30, 2018, they rented the house to the same tenant. The tenant was transferred to a branch office in California and moved out at the end of June. Since they did not want to bother finding a new tenant, Armando and Lourdes sold the house on June 30, 2018. They received $140,000 for the house and land ($15,000 for the land and $125,000 for the house), less a 6 percent commission charged by the broker. They had depreciated the house using the MACRS rules and conventions applicable to residential real estate. To compute depreciation on the house, the Gonzaleses had allocated $15,000 of the property’s basis to the land on which the house is located. The Gonzaleses collected rent of $1,000 a month during the six months the house was occupied during the year. They incurred the following related expenses during this period:

Property insurance $ 500

Property taxes 800

Maintenance 465

Depreciation (to be computed) ?

6. The Gonzaleses sold 200 shares of Capp Corporation stock on September 3, 2018, for $42 a share (minus a $50 commission). The Gonzaleses received the stock from Armando’s father on June 25, 1982, as a wedding present. Armando’s father originally purchased the stock for $10 per share on January 1, 1969. The stock was valued at $14.50 per share on the date of the gift. No gift tax was paid on the gift.

7. Armando and Lourdes have given you a file containing the following receipts for expenditures during the year:

Prescription medicine and drugs (net of insurance reimbursement) $   376

Doctor and hospital bills (net of insurance reimbursement) 2,468

Penalty for underpayment of last year’s state income tax 15

Real estate taxes on personal residence 4,762

Interest on home mortgage (paid to Home State Savings & Loan ) 8,250

Interest on credit cards (consumer purchases) 595

Cash contribution to St. Matthew’s church 3,080

Payroll deductions for Lourdes’s contributions to the United Way 150

8. The Gonzaleses filed their 2017 federal, state, and local returns on April 12, 2018. They paid the following additional 2017 taxes with their returns: federal income taxes of $630, state income taxes of $250, and city income taxes of $75.

9. The Gonzaleses made timely estimated federal income tax payments of $1,500 each quarter during 2018. They also made estimated state income tax payments of $300 each quarter and estimated city income tax payments of $160 each quarter. The Gonzaleses made all fourth-quarter payments on December 31, 2018. They would like to receive a refund for any overpayments.

10. Armando and Lourdes have qualifying insurance for purposes of the Affordable Care Act (ACA).

Answer 1

Answer:-

1040,   United State the Individual Income Tax Return

1st name -----Armando Z.    The Last name-----Gonzales---SSN--33-45-6666.

spouse’s 1st name ---Lourdes------Last name -----Gonzales----SSN--566-77-8888

address of home -----621 Franklin Avenue,

City:Cincinnati state----Ohio ---ZIP code= 45211

Lourdes K. Gonzales and Armando Z

Status of filling

2)Married recording together.

6c)Exemptions:

1st name------ Ricardo Z:::The Last name-------Gonzales----SSN--576-18-7928 ---- Relationship:Son

1st name----Selena Z------Last name-----Gonzales----SSN--575-92-4321-- Relationship: Daughter

1st name------Felipe Z---- Last name----Gonzales---SSN--613-97-8465----- Relationship :Son

6d)Total number of exclusions claimed-------(2)

Pay

7) Wages----------$40,000(30,000 + 10,000)

8a) Taxable interest--------$800

b) Tax-excluded intrigue ------$1,000

9 an) Ordinary dividends------N/A

9b) Qualified profits -------$1795($540 + $390 + $865=1795)

12) Business salary -----------45800 see SCHEDULE c

13)Capital gain or (setback). Associate Schedule D - $107,050

17) Rental authentic home - $$3,144see SCHEDULE e

22) Combine the totals in the extraordinary right segment for lines 7 through 21.

This is your aggregate income--------------$$199,589

Note: Armando not to ensure educational cost charges in light of the way that their compensation outperformed $160,000

37) Subtract line 36 from line 22. This is your fair gross income::$199,589

38)Amount from line

37 (balanced gross pay - $$199,589

40)( Itemized reasonings - $17,570

41) Subtract line 40 from line 38 - $182019

42)Exemptions - - $$941

43 )Taxable pay. Subtract line 42 from line 41.:$182019 - $941=$181,078

SCHEDULE B   Interest and Ordinary Dividend

Part I   Interest ------------- List   name of payer

1)State Savings Bank on a joint account--------------$800

2) Add the amounts on line 1--------------$800

SCHEDULE C

The loss or profit From Business

Proprietor Name --------Armando Z. Gonzales Social security no------------333-45-6666.

A) Principal profession-----------Dentist

C) The name of business------------: Gonzales Armando Z.

D) The ID of employment------------01-2222222

E) Address of business---------------645 West Avenue, Cincinnati, Ohio 45211

F) Method of accounting------ cash method.

serial.number	PARTICULARS	The total Amount
1)	Gross receipts	$111,000
7	Gross income.	$111,000
	Costs
8)	Advertising	$1,200
13	Depreciation	$2,400	$8,000 *14.29/100= 1143:::6000*14.29/100=857:::::2,000 *20/100=$400
14	Employee advantage programs	2,000
15	Protection	$720
16	Interest	$600
17	Lawful and proficient administration	$2,460	2100+360=2460
18	office expense	388
20	Rent	12,000
22	Dental supplies	7,672
23	Payroll taxes	2,400
25	Utilities and phone	3,360
26	wages	30,000
28	Total costs	$65,200
29	Speculative benefit	45800

Calendar A

AItemized

Deductions Taxes Paid

6) Real estate taxes-----------$ 4,762

Interest Paid

10) Home mortgage interest ---------$8,250

16)Gifts to Charity ---------------$3,080

Job Expenses and Certain Miscellaneous Deductions

21) Unreimbursed employee expenses:

Professional dues (Lourdes)-------------325

Proficient memberships (Lourdes)- - 245

Professional dues(Armando)- - $ 49

Travel (Lourdes)-------------6800 * 57.5 cents =$3910.00

22)Fee for preparation of 2014 -------$500

24) Add lines 21 through 23-------$5470

25) Enter sum from Form 1040, line 38 - $$199,589

26) Multiply line 25 by 2% - - $$199,589 *2/100=$3992

27) Subtract line 26 from line 24 - $5470 - $$3992 =$1478

29)Total Itemized Deductions----------------$17,570

Include lines 6 t016 at that point include line 27

Calendar D:

Stock name -----Sale price --------------price of cost---------------Gain

Stock Capp Corporation ::8350--------------$2,900----------------$5450

Mother ofLourdes's, Maria:$131,60-------------$30,000----------$101,600

Total ---------------------$107,050

price of sales = 200* $42 = $8400-50=8350

Cost price= 200 * $14.50=$2,900

price of sales ----House =$140,000 -6%=$8,400=$131,600

price of cost =$$30,000

Gain = $131,600 - $30,000=$101,600

Calander E

Supplemental Income and Loss

Income or Loss From Rental Real Estate:

1a) Physical address of each property------------325 Oak Street, Cincinnati, Ohio 45211

1b) Type of Property--------------1 Single Family Residence

3) Rents received--------------------$1000*6=$6,000

7) maintenance & cleaning--------------------465

9) Insurance----------------------$500

16) Taxes--------------$800

18) Depreciation expense----------------------$30,000 /27.5=$1091

20) Total expenses------------$2,896

21)
Subtract line 20 from line 3 ------------$6,000 - $2,896==$3,144

26) real estate total rental -----------$$3,144.

6d) Exemptions: estimations...….

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