Question 4
FORM 1040 ? U.S. INDIVIDUAL INCOME TAX RETURN Assume that the taxpayers, George A. Green (social security number 333-33-3330) and Mary S. Green (social security number 444-44-4440) file a joint return. Both are 50 years old, have good eyesight, and live with their three children, Edward, John and Ruth, at 789 N. Code Drive, Chicago, Illinois 60699, (312) 679-9999. Mr. Green wants to contribute $3 of his income tax to the Presidential Election Campaign Fund. Mrs. Green elects not to contribute. The Green? son, Edward, is a junior in college and he is 20 years old. He worked during the summer and earned $4,000. Their other son, John, is a 17-year old high school student. He earned $3,600 during the summer and worked part-time during the remainder of the year. Neither son had any additional income. Their daughter, Ruth, is eight years old and an elementary school student. She had no earned or unearned income during the year. In August, the Greens paid $4,000 in tuition for their son, Edward, for the academic period that started in September. Edward?s social security number is 300-11- 0001, John?s social security number is 300-22-0002, and Ruth?s social security number is 300-33-0003. The Greens claim Mrs. Green?s mother, Grace D. Taylor, as a dependent under a multiple-support agreement. The total support of Mrs. Taylor is $6,000, received from the following three sources: (1) $3,000 from Mary Green, (2) $1,000 from another daughter, Thelma Taylor, and (3) $2,000 in social security benefits. Mrs. Grace D. Taylor lived with the Greens during all of 2010. Her social security number is 400-44-0004. Thelma Taylor provides the Green?s with a written, signed statement, that she will not claim her mother as a dependent in 2010. Thelma Taylor lives at 1425 S. 62nd Street, Chicago, IL 60699, and her social security number is 500-55- 0005. The Greens use Trish Ford, a professional tax preparer, to prepare their income tax return. Trish Ford?s PTIN is P98765432, and she works for E&Z Tax Preparation (EIN #36-0987654), which is located in a nearby suburb of Middle America (telephone number 1-312-555-1040). However, the Greens do not authorize her to discuss their return with the IRS. INCOME AND EXPENSES GENERALLY During 2010, Mrs. Green was employed as a salesperson by a publishing company. Her Form W-2 for 2010 reports the following: Box 1. Wages, tips and other compensation $75,000 Box 2. Federal income tax withheld $4,950 Box 4. Social security tax withheld $4,650 Box 6. Medicare tax withheld $1,088 Box 17. State income tax $2,250 Mrs. Green is not covered by her employer?s retirement plan. In addition, Mr. Green is a self-employed individual who does not maintain a Keogh or a SEP plan. Mrs. Green made a $1,500 contribution to a traditional IRA and a $2,000 contribution to a Roth IRA in 2010. Mr. Green decided against making a contribution to a traditional IRA. The Greens received a $30 state income tax refund. They itemized in the prior year and elected to take the state income tax as a deduction. The Greens also received a $20 federal income tax refund. Form 1040, Schedule A The Green s made federal estimated tax payments of $2,000 for 2010. The Greens incurred the following medical expenses during 2010: ? prescription drugs, $1,000; ? doctor bills, $3,550; ? hospital bills, $1,750; ? transportation, $100; and ? eyeglasses, $500. In addition, Mr. Green, who is self-employed, paid $3,750 in premiums for health insurance coverage for himself and his family. The Greens paid their 2009 real estate taxes of $1,810 due on July 1, 2010. In addition, they sold their residence on September 13, 2010. They allowed the buyer a credit equal to 70% of the estimated real estate taxes of $2,000 for 2010. The real estate taxes on the new property they purchased on May 1, 2010, are not payable until 2011. There was no taxable gain on the sale of their prior residence. Mr. and Mrs. Green paid $3,878 in deductible home mortgage interest to a bank. They also paid $3,000 in points when they purchased their new home. They paid the following personal interest in 2010: ? $600 to finance Mrs. Green?s car, and ? $400 in credit card interest. The Greens gave $1,500 in cash to various recognized charities; no individual gift was $250 or more; all charities sent an acknowledgment of the contribution. Form 2106 Mrs. Green incurred employee business expenses in connection with her occupation as salesperson for the publishing company. On January 3, 2010, she purchased a new car that was used primarily for business reasons. The car cost $19,500, and she paid $500 in sales tax. During 2010, the car was driven a total of 20,000 miles by Mrs. Green. Of those miles, 16,600 were business related. Mrs. Green drove 1,250 miles while commuting (five-mile daily roundtrip commute), and 2,150 miles for personal purposes. Mrs. Green depreciates the car using a five-year MACRS recovery period, the 200% declining-balance method, and the half-year convention. However, it should be noted that depreciation on the car is limited because of the ?listed property? rules. Mrs. Green?s gasoline, oil and insurance expenses on the car amounted to $4,750. She paid $600 in interest on the installment loan incurred to purchase the car. She also paid $50 for business parking fees and $75 for a car rental while away from home. Mrs. Green elects to claim the actual automobile-related expenses. Assume the answers for Form 2106, Lines 18, 19, 20 and 21 are ?Yes.? Mrs. Green elected not to claim any Code Sec. 179 deduction or additional bonus depreciation on the car in 2010. Mrs. Green incurred the following other business expenses: ? meals and entertainment, $1,500; ? airfare, $233; ? gifts to customers, $150; and ? business seminar, $60. Mrs. Green received $5,000 as a car expense reimbursement from her employer under a plan that required her to account for the expenses. The $5,000 was not reported on her Form W-2. Mrs. Green was not reimbursed for her other business expenses. The Green s paid $500 for the preparation of their 2009 tax return (including $200 for the preparation of Schedule C, Profit or Loss from Business for George Green?s furniture business), $50 for the rental of a safe deposit box where they stored their securities, and $350 for investment publications. Form 1040, Schedule B During 2010, the Green received $500 in interest from the Heartland National Bank and $150 as nominees from the Third National Savings and Loan. They received $200 in interest from tax-exempt bonds issued by the state of Illinois. The Green?s received the following qualified dividends: $400 from E&Z Tax Preparation, Inc., $300 from Secure Money Market Fund, and $250 from Rapid Growth Mutual Fund. They also received a $100 capital gain distribution from Rapid Growth. In addition, the Green?s received $700 in nonqualified foreign corporation dividends from Consolidated Tapioca, and paid foreign taxes of $10 to various countries in connection with this investment. The responses to the questions on Part III of Schedule B are ?No.? Form 1040, Schedule D During 2010, the Greens sold the following capital assets: (1) On February 2, 100 shares of Ahab Inc. were sold for $1,000. They had been purchased on November 12, 2008 for $2,500. (2) On November 5, 200 shares of Pequod Inc. were sold for $5,000. They had been purchased on January 5, 2009 for $2,000. (3) On December 4, 100 shares of Squall Inc. were sold for $10,000. They had been purchased on January 4, 1999 for $4,000. (4) On December 10, 200 shares of Kismet Inc. were sold for $5,000. They had been purchased on September 5, 2003 for $2,000. (5) On December 15, a number of gold coins were sold for $2,000. The coins had been purchased on October 15, 2002 for $3,000. Form 1040, Schedule E Mr. and Mrs. Green own and rent a brick two-flat apartment building located at 12 West 5th Ave., Chicago, Illinois 60626. The apartment building is not used for personal purposes by either the Greens or members of their family. Mr. Green actively participates in the operation of the building. The Greens received rents of $12,000 in 2010. Their expenses are as follows: cleaning and maintenance, $2,500; mortgage interest, $4,000; repairs, $750; advertising, $500; insurance, $1,000 and real estate taxes, $1,250. The current depreciation figure, taken from the Green s? work papers (not reproduced) is $3,000. Form 2441 During 2010, the Green s? daughter, Ruth, attended two child care centers. They were: Happy Day Care, 4210 W. Maple, Chicago, Illinois 60699, whose identification number is 36-0987654; and Greenfields Day Care, 901 N. Ash, Chicago, Illinois 60699, whose identification number is 36-1234567. The Greens paid $3,720 to Happy Day Care and $1,860 to Greenfields Day Care. The Greens did not receive employer-provided dependent care benefits. BUSINESS INCOME Form 1040, Schedule C Mr. Green operated Interiors Unlimited, selling home furnishings at retail, as a sole proprietor during the entire year. The business address is 45 Boswell Blvd., Villa Park, Illinois 60181. His employer identification number is 36-3456789. The business code is 442200. In order to clearly show business income, Mr. Green maintains an inventory at cost and he uses the accrual method of accounting for his sales and purchases. Total gross receipts of the business were $127,247 and returns and allowances amounted to $1,500. The business books showed the following information: Inventory at beginning of year (valued at cost) . . . . . . $35,000 Merchandise purchased . . . . . . . . . . . . . . . . . . . . . . . . 70,000 Inventory at end of year . . . . . . . . . . . . . . . . . . . . . . . . 22,000 Truck expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550 Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 Rent (property) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,800 Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,541 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,450 Utilities and telephone . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200 Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,240 Legal and accounting (includes $200 of tax preparation fees) . . . . . . . . . . . . 400 Office expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,858 Travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 Meals and entertainment . . . . . . . . . . . . . . . . . . . . . . . . 1,040 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330 FARM INCOME AND EXPENSES Form 1040, Schedule F Mr. Green owned and operated a farm in Illinois. The Principal Agricultural Activity Code for this farm is 112111, and the principal product raised is beef cattle. Mr. Green utilizes the cash basis to report farm income and expenses. His books and records show the following information: Farm income Amount Livestock sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,500 Cooperative distributions ($30 nontaxable) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 Farm expenses Amount Livestock purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 Depreciation . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 1,000 Feed purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750 Freight and trucking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 400 Labor hired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? 3,000 Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Pasture rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450 Veterinary fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 Assume that Mr. Green?s basis in the livestock sold during 2010 was $19,500. Required: Prepare the Greens? 2010 Form 1040 Joint Individual Tax Return, including Schedules A, B, C, D, E, and F and Forms 2106, 2120, and 2441.
