Facts:
George (age 40) and Elaine (age 37) are married taxpayers and they file jointly.
Both have excellent vision. They live at 14 Main Street, Newark, DE 19324 George's social security number is 777--88--9898 and Elaine's social security number is 222-- 33--3222. Neither George nor Elaine wishes for $3 to go to the presidential election campaign fund.
George and Elaine provide all of the support for their dependent children listed below:
|
Melissa
|
daughter
|
social security number 111--11--1111
|
age: 5
|
|
Molly
|
daughter
|
social security number 222--22--2222
|
age: 3
|
|
George Jr.
|
son
|
social security number 333--33--3333
|
age: 1
|
George and Elaine also provide all the support of George's cousin, Joe, who lived with them for all of 2016 and earned $2,100 from a part--time job in 2016. Joe is 25 years old and his social security number is 444--44--4444. George and Elaine also provide 40% of the support of her mother, Jan, who had no earnings for 2016 and lived in a nursing home.
George and Elaine provide you with the following information about their income for 2016:
- George works for Lehigh Brothers. Last year, he earned taxable wages of $168,000. His W--2 also shows the following withholdings for the year: $22,000 of federal income tax, $10,700 of state income tax,
$7,347 of social security taxes, and $2,436 of medicare taxes.
- George also worked a second job with Part--time Plumbers. Last year, he earned taxable wages of $25,000 and his W--2 shows the following withholdings: $4,500 of federal income tax, $1,000 state income tax,
$1,550 of social security taxes, and $363 of medicare taxes.
- Elaine works part--time as a lawyer with Dewey, Cheatem & Howe. Last year, she earned taxable wages of $92,000 and her W--2 shows the following withholdings: $12,000 of federal income tax, $8,000 of state income tax, $5,704 of social security taxes, and $1,334 of medicare taxes.
- Both George and Elaine are eligible for and participate in a qualified retirement plan through their employers.
- Elaine also consults part--time and operates as a one member LLC under the business name Legal Solutions. Her business information is as follows:
o Consulting revenues $41,000
o Professional malpractice insurance $8,000
o Advertising expenses $1,000
o Supplies expenses $5,000
o Meals and entertainment (client meetings) $6,000
o Travel expenses $ 4,000
o Professional licensing fees (paid to PA) $ 1,200
o Parking fines (paid to PA) $ 750
o Office expenses $3,700
o Computer (placed in service 6/15/16) $4,800
She would like to take the maximum depreciation allowable on this asset in 2016
o Cell phone (placed in service 11/12/16) $ 390
Business use percentage: 80%
She does not want to take Section 179 or bonus depreciation on this asset
o SUV weighing 4,800 pounds $44,000
Placed in service 8/10/16
Business use percentage: 100%
She does not want to take Section 179 or bonus depreciation on this asset
- George and Elaine also own a rental property and provide the following information to you:
- In addition to the above information, George and Elaine provide you with the following information:
o Paid home mortgage interest on home residence $18,700 ($400,000 loan principal)
o Paid interest on a home equity loan used to pay for a family vacation to Europe ($100,000 equity loan taken out when FMV of home was $600,000) $5,200
o Paid real estate taxes on home residence $8,500
o Paid medical insurance premiums and co--pays $6,100
o Cash donations to church $10,200
o Clothing donations to Goodwill ($10,000 purchase price and $ 2,100 thrift value)
o Donation of Disney Stock to St. Jude's (a qualified charity) - the stock's FMV at date of donation is $7,000 and it was purchased on 3/1/12 for $3,000
o Cash donation to school auction (received tickets to a Broadway play in return valued at $400) $750
o Received a state income tax refund of $615 from their 2015 tax return and applied it to their 2016 tax liability
o Paid $16,500 per child for child and dependent care expenses during the year to The Children's Center, 3000 Oak Street, Philadelphia, PA 19004; EIN #22--1111111
Required:
Prepare George and Elaine's Form 1040 for 2016 by hand. (You will have to use 2015 tax forms since the 2016 forms are not yet available, but prepare the return from the reference point of 2016.) Please do not use any tax software for this assignment...If you have numbers that are derived from tax software, you will receive a zero (0) on this case.
Finally, please make note of any tax issues and/or recommendations that you have for George and Elaine. There are several potential items in this case that should cause you to further consult with the clients and potentially provide them with additional advice for their future tax planning, etc. Please list and describe these issues and, if applicable, how you would suggest the client resolve these for the future.
What to turn in (be sure to follow the proper order of attachment in the top right hand corner of each IRS Form):
Form 1040 Schedules A, C, E, SE
And the following forms (these are listed numerically and not in the order of attachment):
Form 2441
Form 4562
Form 6251
Form 8283
Form 8959
Form 8960
Bulleted list of all issues (concerns) and/or recommendations that you have for George and Elaine on a word document attached to the back of the return.