Assignment -
Tony and Jeannie Nelson are married and file a joint return. They have four children whose ages are: 15, 17, 19 & 23. The three youngest live at home with their parents and qualify as their dependents. The oldest Roger got married during 2017 and lives with his wife, Jane. They provide you with the following information regarding their 2017 tax return:
1. Tony Nelson is an aerospace engineer he runs an engineering firm, Nelson Engineering, as a sole-proprietorship and has very lucrative contracts with numerous aerospace companies. Tony rents an office downtown where he meets with clients and conducts business. Tony reported the following items of income and expenses from his engineering firm:
- Revenue $675,000
- Wages expense $162,000
- Rent Expense $ 60,000
- Depreciation $ 3,400
- Other Expenses $ 42,000
2. Jeannie Nelson is an artist. She is known for beautiful Arabian influenced abstracts. She also volunteers with the Girl Scouts of America and helps encourage the arts. On March and September of this past year she had an exhibition and sold several paintings at each. She estimates that the cost of each painting in canvas and supplies is about $100. The sales are as follows:
- March 17- 6 paintings for $1,200 each $ 7,200
- September 17 - 10 paintings at $1,400 $14,000
3. She paints in a studio located in a separate building on the property of their home. The expenses related to the studio allocated on the basis of square footage are as follows:
- Depreciation $2,500
- Taxes $1,600
- Utilities $1,000
4. They sold the following assets during this year:
a. 4/4/2017 sold for $21,000 stock in York Co. that was purchased for $9,300 on 12/8/2016.
b. 7/1/2017 200 shares of New Co. for $32,000 total that were purchased on 8/7/2016 for $14,000.
c. 8/5/2017 sell for $52,000 an antique necklace that was a gift from Jeannie's great-aunt on January 16, 1999 when its FMV was $2,500.
d. 10/1/2017, they sold a portion of parcel of land for $25,000 that had a basis of $14,000 and was purchased in 2002.
e. 11/15/2017 sold stock in Space Explorers Inc. for $32,000 that they had purchased a few years ago for $14,000.
5. On April 13, the couple paid their $1,400 in state taxes with their 2016 state tax return. The couple's state and local sales taxes were $5,900.
6. On October 1st they donated the portion of the parcel with a small building to the Girl Scouts of America for use as an art studio. They had purchased the building in 2002 and recently divided a portion for sale as undeveloped land (see 4d above). The portion with the building has a basis of $65,000. A professional appraiser determined the fair market value of the property was $92,000 on September 24th.
7. Tony & Jeannie both received corrective eye surgery, at a total cost of $4,200 (not reimbursed by insurance.) They also spent $2,300 for braces for the 15 year old (not reimbursed by insurance). In addition, they paid $4,500 in health insurance premiums to cover the family.
8. The Nelson's spent $ 6,200 in home mortgage interest on their original acquisition cost of $450,000.
9. During the year they paid their former tax preparer $1,200 to prepare their prior year tax return.
10. The Nelsons paid quarterly estimated tax payments of $12,000 each, based on their 2016 liability of $42,500.
Using the above information answer the following, be sure to show your work:
A. Compute the taxable income from Nelson Engineering.
B. Compute the taxable income related to Jeannie's Abstracts.
C. Complete the following chart related to the Nelson family's sale of assets:
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Item
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Proceeds
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Cost
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Short-Term Gain (Loss)
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Long-Term Gain (Loss)
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Collectible
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a
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b
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c
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d
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e
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D. Based on the results from above, compute the total gross income of the Nelson family.
E. Review the items identified in 5-9 above and compute the amount deductible for each.
F. Compute the taxable income for the Nelsons. Segregate the taxable income into the appropriate character of income.
G. Compute the total tax liability for 2017 as well as the amount of tax due (receivable).
H. Based on the results for 2017 and your knowledge of the changes for 2018, how much should the Nelson's pay as quarterly estimated payments for 2018?