Assignment Task: With the 2023 Form 1040 Federal Income Tax Return for the following taxpayer, using 2022 forms. (All of the 2023 forms have still not been released on the IRS website.) Please provide the applicable supporting forms. If there are items that are not included in the income tax return, please provide a separate list, organized by the item number, with your return. While this return focuses on the deductions in Chapters 6 and 9, there are elements from all the other chapters we have covered in this course. Please provide a calculation on a separate sheet of the capital gains tax and the tax on ordinary income. As you did in the prior problem, tie each item on your return to the item in the problem. Please use the 2023 income tax rate chart, capital gains rate chart, and standard deduction amount (if applicable). ***Note: You will need to use Form 4562 and possibly, Form 8995. This return requires you to use additional information from Chapters 10 and 11 and maybe other chapters. Please prepare the qualified business income deduction on a separate sheet and explain your deduction, based on the information in Chapter 6. Then, show your result on Form 1040. If Form 8995 is required, please provide the form. If Mary is not eligible for the QBI deduction, then please state why on a separate sheet.
1. Mary Moore lives at 4500 Patriot Lane, Boston, Massachusetts, 00345. Mary has asked you to help prepare her Form 1040. Mary is divorced and has two children whom she supports. They are John Moore and Jason Moore, ages 12 and 14. They live with her and attend school in Boston. She will be filing head of household.
2. Mary is still paying back student loans from attending an accredited law school from which she graduated several years ago. She paid $5,400 in interest on her student loans during 2023. (Although there are phase-outs for the student loan interest deduction based on income, do not apply the phase-outs for this problem.)
3. Mary was a competitive ballet dancer during high school and college. She has had several medical issues as a result of her dance career. During the year, Mary had a knee replacement which cost $4,200. She also paid $2,600 for physical therapy and $175 for a walker to assist her after the surgery. She also purchased a wheel chair for $380 when her rehabilitation did not go as expected. Prescription drugs cost her $2,280 during the year, and her doctor co-pays totaled $1,375. She paid $1,500 per month for health insurance premiums for health insurance that covers her children and her. She received a reimbursement from her insurance company of $8,500 for medical expenses in 2023.
4. Both children see an orthodontist for braces for their teeth. Mary pays the orthodontist $460 per month for the care. She also pays for dental insurance out of pocket at $150 per month.
5. Mary decided she wanted to improve her appearance so she had a plastic surgeon remove her double chin. This procedure cost $2,200. The surgeon also found several cancerous spots on her neck, so he removed them, also. The removal cost $800. She did not receive a reimbursement from the insurance company for these items. Knowing that she would not be working for some time, Mary bought a disability insurance policy with premiums of $125 a month. She received $1,400 a month in disability payments for the three months she did not work. She finally decided to take a three-week trip to Sedona, Arizona for rest and relaxation and to heal. The cost of her trip was $3,400. Mary has also decided that she would like to quit smoking and has spent $560 on various systems to help her with this effort. Her doctor prescribed and recommended these systems. Jason was treated for an alcohol addiction during the year at a cost of $6,500 that was not covered by insurance. (Insurance covered the rest of the expense.)
6. Jason went to the eye doctor for the first time which cost $110. He needed glasses and also chose to wear contact lens. The glasses cost $360, and the contact lens cost $140. The insurance company did not reimburse Mary for these expenses.
7. Mary paid the following interest charges during the year. She paid $3,875 in home mortgage interest on a home she purchased in 2012 with acquisition indebtedness of $550,000. She also bought two jet skis for her children for their birthdays. The store financed the sale, and she paid the store $400 in interest. She purchased a new boat for herself using funds she borrowed on a $40,000 line of credit secured by her home. Mary later increased the line of credit to $95,000 to completely renovate her kitchen and den during the year. She paid $890 in interest on the line of credit. She also paid a car note to GMC Financing; the interest on this note was $1,500.
8. Mary is self-employed as a lawyer. She received $350,000 in revenue during the year. She rents space in an office building downtown Boston for $2,000 a month. She also pays $250 a month for her share of the utilities. The hard - line phone for Mary's office cost Mary has a cell phone that she only uses for her business. Her cell phone bill is $80 per month. Mary spent $1,200 advertising her services on the local newspaper's website. Her city business license was $185 and her state license to practice law is $460. She also bought an ad in the local high school sports program which costs $150. Mary spent $6,500 for supplies to use in her office.
She also purchased a two new office chairs ($375 each) and a filing cabinet ($250) for her office. Mary also purchased a new desk costing $2,875 and sofa for $3,900. She elected Section 179 expense for these items. She elected out of bonus depreciation.
Mary paid a high school student $1,750 during the year to sweep and clean the office. This person received a Form 1099 from Mary. Mary's law practice also paid a paralegal $37,000 as an employee during the year. Mary paid $2,831 for Social Security and Medicare taxes for the employee. She also paid $1,500 per month for the employee's health insurance and $300 a month for parking for herself and the paralegal.
9. Mary drove 30 miles round trip from her home to her office every day, five days a week, fifty weeks out of the year. On Wednesdays, Mary takes appointments at her office until noon, then drives to nearby Lowell, MA where she works until 5:00 pm. She then goes back to the office. She does this fifty weeks a year. Her round trip is 80 miles from the office to her office in Lowell. Mary drove 300 miles during the year servicing clients at their homes and their places of business. Mary instructs you to take the standard mileage rate for her car expense. Please show your calculation for this item in your notes.
10. Mary participated in a 2 - day legal continuing education course in New York. Mary's course costs $1,600 and is on Monday and Tuesday, so she flies to New York on Friday and returns home on Wednesday. Mary spends Saturday and Sunday sightseeing in New York and visiting friends. Her plane ticket to New York is $365, her hotel is $250 per night, and she spends $150 per day on food. She spends $30 a day on cabs and subway fare. On her last night in New York, after the course concludes, she takes the instructor to dinner and a Broadway show. The dinner costs $325 and the Broadway show tickets were $250. They discussed the issues discussed in the seminar at dinner and later thoroughly enjoyed the Broadway show. Please show the deductible items on the correct form; then, address the nondeductible items, if any, in your notes.
12. Mary made a contribution to her traditional IRA in the amount of $5,000. (Do not apply income phase-out limitations, if the limits apply.)
13. Mary paid real estate taxes of $1,425, personal property tax on her car, boat, and the jet skis in the amount of $940, state income tax estimates totaling $2,350, quarterly federal income tax estimates of $1,400 each. Mary also paid $2,800 in property tax on some land she bought as an investment. She made gifts of stock to each of her children and paid $890 in federal gift tax. The city assessed Mary $595 for upgrades to the city sewer system.
14. Mary made a $400 per month contribution to her church. She also gave $150 to United Way which provides social services to needy families. One of her client's homes burned, and she gave the client kitchen pots and pans valued at $280. Mary cleaned out her children's closets and took used clothing and shoes valued at $760 to the Salvation Army. Mary was awarded a painting valued at $25,000 in her divorce. It cost $22,000 when she purchased it. She gave the painting to City Art Museum where it will be displayed in the museum's main collection.
15. Mary purchased 100 shares of ABZ, Inc. on March 3, 2023 for $15 a share and sold the stock on December 6, 2023 for $2,500. She paid $3 a share commission to accomplish the transaction.
16. Mary bought some investment property near the interstate in February 2015 in anticipation of future development. She paid $80,000 for the property, but since that time the value of the property has decreased since the road was rerouted. Mary sells the property in July 2023 for $65,000.
17. Mary made a $3,000 contribution to her self-employed pension plan.
18. Mary went to the casino for her birthday with friends. She won $2,900, but she spent $6,250.
19. Mary's doctor has recommended that she loose weight, so she joined a health club. She paid a health club membership of $350 a month during 2023 for herself and her paralegal.
20. Mary decided that she wanted a place to take clients out to eat, so she joined a country club that served great food. Her goal in joining the club was to provide a quiet place where she could visit with clients and potential clients while having a meal. The membership cost $6,000 during 2023, and Mary spent $2,800 on meals entertaining clients and attracting new clients.