Problem: Your supervisor asks you how much you want to charge Joe and Betty for their tax return. What is your response?
The family had a complicated return so how much should i charge to complete their return. Please explain.
Your first client is the Green family. Using the following information, complete their tax return.
Your answer will include the following items to be submitted:
• 1040
• Schedule A, B, D, E, F, SE
• Forms 4562, 4797, 8812, 8582
Below you will find the Green Family iformation
Information for 2004:
The Green family consists of the following:
Joe M. Green, age 46, SSN 111-11-1111, Investor
Betty J. Green, age 44, SSN 222-22-2222, Customer Service Rep
Jill Green, age 20, SSN 333-33-3333, daughter and full-time student
Max Green, age 19, SSN 555-55-5555, son living at home
Jim Green, age 13, SSN 444-44-4444, son in the eighth grade
They live at 110 Pleasant Valley Lane, Aurora, Illinois 60823.
They do not want to contribute any money to the presidential election campaign.
The Greens will be filing as married filing jointly.
Dependents:
Jill Green
Jill is a 20-year-old full-time student at an Arizona university. Joe & Betty pay all her expenses. As a sophomore, Joe and Betty pay $4,600 for her tuition.
Max Green
Max is 19 years old and lives at home. Joe and Betty pay all his expenses while he takes a small break before staring community college in the spring.
Jim Green
At 13 years old, Jim lives at home all year. Joe & Betty pay all his expenses.
Income:
Betty had the following earnings on her W-2:
• wages $36,916 and federal income tax withheld $4,593
• Social Security wages $37,990 and Social Security tax withheld $2,355
• Medicare wages $37,990 and Medicare tax withheld $551
• $1046 was deducted for state income tax
Betty is covered by a 401K plan, and she contributed $1,074 to her 401K.
Their $400 interest income was from Aurora Bank and $1,772 from Uptown Bank. The $1,772 was composed of $286 from U.S. Government investments and $1,486 from a CD that was cashed early incurring an early withdrawal penalty of $100. There is also $4,085 of dividends from Sam’s Brokerage Company with $542 as qualified dividends. During the year, Joe sold 200 shares of Goodfellow’s stock that he purchased on 6/1/02 for $2,000 and sold on 8/1/2004 for $54.
Joe received a 1099-R for a total distribution from a pension plan he had with a previous employer. The amount received was $2,600. The taxable amount was $2,600, and no federal tax was withheld.
Assets:
Farm
Joe owns a farm that he hires a professional farmer to operate. Joe receives 30% of the proceeds, which for 2004 was $11,700 from the sale of corn and $1,000 of agricultural program payments. On 6/1/02, Joe purchased a 2002 Ford Pickup to use in his farm activities. Total miles driven in the pickup for 2004 was 11,000 with 2,000 miles for personal use and 9,000 miles for farm related activity. There were no commuting miles as he lives next to the farm.
Other farm expenses for which Joe has receipts are as follows:
• chemicals $73
• fertilizers and lime $110
• gas and oil $874
• insurance $286
• labor hired $502
• equipment rental $250
• other rental $1005
• repairs and maintenance $1,009
• seeds and plants purchased $1,086
• storage $210
• supplies $204
• taxes $840
• utilities $791
• miscellaneous $940
On 1/1/2004, Joe sold a corn picker that he purchased on 6/1/1999. The purchase price was $12,000, and the depreciation allowed was $8,010. He sold the corn picker for $6,700. This is section 1245 property.
Investment Properties:
Joe owns investment property in Aurora, Illinois, and Hilo, Hawaii. The property in Aurora is a single family home that he rents. He has an active role in the rental of the property. Joe has the following information:
• rental income $16,200
• advertising $100
• cleaning & maintenance $288
• insurance $865
• legal $125
• mortgage interest $3,955
• repairs $2,010
• supplies $335
• taxes $2,004
Joe purchased the property on 6/1/1995. The cost of the home was $111,000, and prior depreciation is $14,000. On 6/1/2000, he had a new roof added for $14,000, and prior depreciation is $3,500. From previous years, there was a $1,000 unallowed loss.
On 6/1/2000, Joe purchased a condo in Hilo, Hawaii, for $210,000. Joe does not materially participate in the rental of the condo and has a management company oversee the condo operation.
• rental income $18,000
• advertising $200
• travel $2,050
• cleaning and maintenance $300
• insurance $655
• legal fees $200
• management fees $1,800
• mortgage interest $4444
• supplies $200
• taxes $3,008
Depreciation taken on the condo in prior years was $18,010. From 2003, there was a $2,000 unallowed loss.
K-1
Joe’s other investments are reported to him on a K-1. He is a partner in Green Graphics Inc., which had active income of $2,005 and section 179 expense of $500. He is also a shareholder in Creative Corn Company, which is an S corporation. He had passive income of $555.
401K
Joe made a contribution of $2,500 to his IRA even though Betty had an employer retirement plan.
Other Data:
Joe had gambling winnings of $5,500 and Betty had $1,600. Their combined losses were $4,750.
Real estate taxes on Joe and Betty’s residence were $3,806 and mortgage interest was $11,018.
Cash gifts to church were $1,470, and they contributed clothing and furniture to the Salvation Army with a cost of $4,500 and a fair market value of $1,200.
Joe and Betty carried over a $300 federal tax refund from 2003 and made an estimated payment of $600 on 2/15/05 for the year 2004.
Joe and Betty don’t want to e-file, but they do want to direct deposit. The bank routing number is 070334499, and their checking account number is 443020020.
Healthcare expenses are as follows: $3,144 for self-employed health insurance for Joe, Betty, Jill, and Jim; $1866 for payments to doctors; $1,300 for payments to dentists; and $425 for medical aids.