Use the following information to complete Luke and Lisa Lane’s 2014 federal income tax return, including the following forms and schedules: Form 1040, Schedules A, B, C, D, E, SE, Forms 2106, 4562 (for dental practice), 8582, 8863, 8949, 1040-V. If information is missing, use reasonable assumptions to fill in the gaps.
FACTS:
1. Luke O. and Lisa I. Lane are married and file a joint return. Luke is a self-employed dentist and Lisa is a college professor. Luke and Lisa have three children. The oldest is Luther who lives at home. Luther is a part-time law student at South Texas College of Law (1303 San Jacinto, Houston, TX 77002, Tax ID 74-1554976) and worked part-time during the year, earning $1,800, which he spent for his own support. Luke and Lisa provided $7,000 toward Luther’s support (including $4,500 per Form 1098-T for Luther’s fall 2014 tuition). They also provided over half the support of their daughter Laura who is a full-time student at the University of St. Thomas. Laura worked part-time as an independent contractor during the year, earning $3,400. Laura lived at home until she was married December 1, 2014. She filed a joint return with her husband Lawrence who earned $40,000 during the year. Lyndon is the youngest and lived in the Lane’s home the entire year. The Lanes provide the following additional information:
Luke and Lisa would like to take advantage on their return of any educational expenses paid for their children.
The Lanes do not want to contribute to the Presidential election campaign.
The Lanes live at 300 Drew Street, Houston, TX 77006.
Daytime phone number: Enter your cell phone number.
Luke’s birthday is 3/6/1960 and his social security number is 461-45-7777.
Lisa’s birthday is 4/8/1962 and her social security number is 463-85-8888.
Luther’s birthday is 11/15/1991 and his social security number is 465-11-2222.
Laura’s birthday is 2/28/1995 and her social security number is 466-66-5555.
Lyndon’s birthday is 12/15/2002 and his social security number is 467-69-1111.
The Lanes do not have any foreign bank accounts or trusts.
Everyone had minimum essential health insurance coverage for all of 2014, provided by Lisa’s employer.
2. Lisa is a lecturer at the University of Houston, 4800 Calhoun, Houston, TX 77204, employer ID number 74-6001399. She earned $36,000 in 2014. The university withheld federal income tax of $3,575, social security tax of $2,232, and Medicare tax of $522.
3. The Lanes received $900 of interest from Wells Fargo Bank on a joint account. They received interest of $1,200 on city of Dallas bonds they bought in January with the proceeds of a loan from Green Bank. They paid interest of $900 on the loan. Luke received a dividend of $550 on IBM stock he owns. Lisa received a dividend of $380 on Microsoft Corporation stock she owns. Luke and Lisa received a dividend of $895 on jointly owned stock in Coca Cola Corporation. All of the dividends are qualified dividends.
4. Luke practices under the name “Luke O. Lane, DDS.” His business is located at 2700 Bagby Street, Houston, TX 77006 and his employer ID number is 76-0244109. Luke’s gross receipts during the year were $120,000. He uses the cash method of accounting for his business. He has filed timely all required Forms 1099. His business expenses are as follows:
Advertising $1,300
Professional dues 480
Professional journals 385
Contributions to employee benefit plans $2,000
Malpractice insurance 3,300
Fine for over-billing state of Texas for work performed on welfare patient 5,000
Insurance on office contents 720
Interest on money borrowed to refurbish office 600
Accounting services 2,100
Office expenses 388
Office rent 12,000
Dental supplies (used/consumed during year) 7,872
Utilities 3,376
Wages 30,000
Payroll taxes 2,295
In June 2014, Luke decided to refurbish his office. This project was completed and the assets placed in service on July 1. Luke’s expenditures included $8,000 for new office furniture, $6,000 for new office machinery/equipment, and $2,000 for a new computer. Luke elected to compute his cost recovery using MACRS double-declining balance depreciation. He did not elect to use Section 179 immediate expensing and he chose not to claim any bonus depreciation.
5. The Lanes purchased a single-family house as rental property for $155,000 on January 1, 2010, and immediately placed it into service. The house is located at 702 Cavalcade Street, Houston, TX 77009. The Lanes allocated $140,000 to the house and $15,000 to the land. They hold the property as rental property and manage it themselves. From January 1, 2010, they have rented the house to the same tenant. They depreciate the house using MACRS depreciation rules and conventions applicable to residential realty. The Lanes collected total rent of $12,000 in 2014. They had the following expenses related to the rent house in 2014:
Property insurance $1,100
Property taxes 1,600
Maintenance 950
Depreciation (to be computed) ???
6. The Lanes sold 200 shares of Tapp Corporation stock on October 3, 2014, for $42 a share, minus a $50 commission on the sale. The Lanes had purchased the stock for $10 a share on January 15, 2011. The broker reported the sale on Form 1099-B and included the correct basis and holding period to be reported to IRS.
7. Lisa is required by the University of Houston to visit several high schools in the Houston area to evaluate UH students who are doing their practice teaching. However, she is not reimbursed for the expenses she incurs in doing this. During the spring semester (January through April 2014), she drove her 2012 Honda Civic 6,855 miles in fulfilling this obligation. Lisa drove an additional 6,718 personal miles during 2014. She has been using the car since June 30, 2013. Lisa uses the standard mileage rate to calculate her car expenses. She has kept a mileage log that supports the mileage in 2014. Her Honda is available for personal use and she also has access to her husband’s car for personal use.
8. Luke and Lisa have given you a file containing the following receipts for expenditures during the year:
Prescription medicines and drugs (net of insurance reimbursement) $ 398
Doctor and hospital bills paid (net of insurance reimbursement) 2,785
Sales taxes paid per actual receipts 3,766
Real estate taxes on personal home 4,862
Interest on home mortgage per Form 1098 (paid to JPMorgan Chase Bank) 8,893
Interest on personal credit cards (consumer purchases) 564
Cash contribution to Holy Rosary Church 3,500
Payroll deductions for Lisa’s contributions to the United Way 200
Professional dues (Lisa) 400
Professional subscriptions (Lisa) 450
Fee for 2013 tax return preparation paid April 15, 2014 (deduct all on Schedule A) 600
9. The Lanes made timely estimated federal income tax payments of $1,800 each quarter on the following dates: 4/15/2014, 6/15/2014, 9/15/2014 and 12/31/2014. They would like to receive a refund for any overpayment; they do not want direct deposit. They will mail a check if they have a balance due. They will file their return by printing and mailing it to IRS.