Tax Preparation Problem Use the following information to complete Phillip and Claire Dunphy’s 2016 federal income...

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Tax Preparation Problem Use the following information to complete Phillip and Claire Dunphy’s 2016 federal income...

Tax Preparation Problem

Use the following information to complete Phillip and Claire Dunphy’s

2016 federal income tax return. If information is missing, use reasonable assumptions to fill in the gaps. Ignore the alternative minimum tax for this problem.

Any required forms, schedules, and instructions can be found at the IRS website (www.irs.gov). The instructions can be helpful in completing the forms.

Facts:

Phillip and Claire are married and file a joint return. Phillip is self-employed as a real estate agent, and Claire is a flight attendant. Phillip and Claire have three dependent children. All three children live at home with Phillip and Claire for the entire year.

The Dunphys provide you with the following additional information:

The Dunphys do not want to contribute to the presidential election campaign.

The Dunphys live at 3701 Brighton Avenue, Los Angeles, California 90018.

Phillip’s birthday is 11/5/1970 and his Social Security number is 321-44-5766.

Claire’s birthday is 5/12/1973 and her Social Security number is 567-77-1258.

Haley’s birthday is 11/6/2004 and her Social Security number is 621-18-7592.

Alex’s birthday is 2/1/2006 and her Social Security number is 621-92-8751.

Luke’s birthday is 12/12/2010 and his Social Security number is 621-99-9926.

The Dunphys do not have any foreign bank accounts or trusts.

Claire is a flight attendant for Western American Airlines (WAA), where she earned $57,000 in salary. WAA withheld federal income tax of $6,375, state income tax of $1,800, Los Angeles city income tax of $675, Social Security tax of $3,600, and Medicare tax of $825.

Phillip and Claire received $300 of interest from State Savings Bank on a joint account. They also received a qualified dividend of $395 on jointly owned stock in Xila Corporation.

Page C-6Phillip’s full-time real estate business is named “Phillip Dunphy Realty.” His business is located at 645 Grove Street, Los Angeles, California 90018, and his employer identification number is 93-3488888. Phillip’s gross receipts during the year were $730,000. Phillip uses the cash method of accounting for his business. Phillip’s business expenses are as follows:

Advertising	$ 5,000
Professional dues	800
Professional journals	200
Employee wages	48,000
Insurance on office contents	1,120
Accounting services	2,100
Miscellaneous office expense	500
Utilities and telephone	3,360
Payroll taxes	3,600
Depreciation	To be calculated

On March 20, Phillip moved his business out of the old offices at 1103 Allium Lane into a newly constructed and equipped office on Grove Street. Phillip sold the old office building and all its furnishings. Phillip’s expenditures for the new office building are as follows:

Date Acquired	Asset	Cost
3/20	Land	$ 300,000
3/20	Office building	2,500,000
3/20	Furniture	200,000
4/1	Computer system	350,000
6/1	Artwork	150,000

Phillip computes his cost recovery allowance using MACRS. He would like to use the §179 immediate expensing, but he has elected to not claim any bonus depreciation. Phillip has never claimed §179 or bonus depreciation before. The assets Phillip sold on March 20 are as follows:

Date Acquired	Asset		Sales Price	Original Cost	Accumulated Depreciation as of Beginning of the Year
5/1/10	Office building		$940,000	$900,000	$129,825
5/1/10	Land		200,000	100,000	0
7/1/10	Furniture		50,000	239,000	206,998
8/13/12	Furniture		10,000	324,000	222,782
4/12/13	Office equipment		100,000	120,000	67,524
5/13/15	Computers	30,000	50,000	10,000

Phillip has never sold any assets relating to his business before this transaction.

The Dunphys sold 60 shares of Fizbo Corporation common stock on September 3 for $65 a share (minus a $50 total commission). The Dunphys purchased the stock on November 8, 2015, for $90 a share. They also sold a painting for $13,000 on March 1. Claire purchased the painting for $20,050 on September 1, 2009, as an investment.

The Dunphys filed their 2015 federal, state, and local returns on April 13, 2016. They paid the following additional 2015 taxes with their returns: federal income taxes of $630, state income taxes of $250, and city income taxes of $75.

The Dunphys made timely estimated federal income tax payments of $20,000 each quarter during 2016. They also made estimated state income tax payments of $1,000 each quarter and estimated city income tax payments of $300 each quarter. Page C-7The Dunphys made all fourth-quarter payments on December 31, 2016. They would like to receive a refund for any overpayments.

Phillip and Clair have qualifying insurance for purposes of the Affordable Care Act (ACA).

You do not have to compute depreciation for the items sold as I am giving you you what you will use as accumulated depreciation for the date of the items sold. From there you can determine the amount of depreciation taken on those items for the current year,

Land cost $100000

Furniture cost $239000 accumulated depreciation on sale date $217669

Office Building Cost $900000 Accumulated Depreciation on sale date $134633

Office equipment Cost $120000 Accumulated depreciation on sale date $75016

Furniture Cost $324000 Accumulated Depreciation on date of sale $237249

Computers Cost Cost $50000 Accumulated depreciation on sale date $18000

The difference between the accumulated depreciation for the beginning of the year on these assets and to the time of sale is the current depreciation on these assets. You will in addition need to compute the allowable depreciation for the current assets purchased in 2017. Remember all transactions are for our purposes is in the tax year 2017.

Business Accounting

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Answer 1

Answer #1

The following information to complete Phillip and Claire Dunphy’s

2016 federal income tax return. If information is missing, use reasonable assumptions to fill in the gaps. Ignore the alternative minimum tax for this problem.

Any required forms, schedules, and instructions can be found at the IRS website (www.irs.gov). The instructions can be helpful in completing the forms.

The solution is in taxation of individual and business entities Individual tax return problem

According to the IRS individual return problem will by solved by form and schedules form 1040, form 4562 form 4797, form 8949, form 8960

Form 1040 Department of the Treasury—Internal Revenue Service (99) U.S. Individual Income Tax Return 2017 OMB No. 1545-0074 IRS Use Only—Do not write or staple in this space. For the year Jan. 1–Dec. 31, 2017, or other tax year beginning , 2017, ending , 20 See separate instructions. Your first name and initial Last name Your social security number If a joint return, spouse’s first name and initial Last name Spouse’s social security number ? Make sure the SSN(s) above and on line 6c are correct. Home address (number and street). If you have a P.O. box, see instructions. Apt. no. City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below (see instructions). Foreign country name Foreign province/state/county Foreign postal code Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 to go to this fund. Checking a box below will not change your tax or refund. You Spouse Filing Status Check only one box. 1 Single 2 Married filing jointly (even if only one had income) 3 Married filing separately. Enter spouse’s SSN above and full name here. ? 4 Head of household (with qualifying person). (See instructions.) If the qualifying person is a child but not your dependent, enter this child’s name here. ? 5 Qualifying widow(er) (see instructions) Exemptions 6a Yourself. If someone can claim you as a dependent, do not check box 6a . . . . . b Spouse . . . . . . . . . . . . . . . . . . . . . . . . } c Dependents: (1) First name Last name (2) Dependent’s social security number (3) Dependent’s relationship to you (4) ? if child under age 17 qualifying for child tax credit (see instructions) If more than four dependents, see instructions and check here ? d Total number of exemptions claimed . . . . . . . . . . . . . . . . . Boxes checked on 6a and 6b No. of children on 6c who: • lived with you • did not live with you due to divorce or separation (see instructions) Dependents on 6c not entered above Add numbers on lines above ? Income Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld. If you did not get a W-2, see instructions. 7 Wages, salaries, tips, etc. Attach Form(s) W-2 . . . . . . . . . . . . 7 8a Taxable interest. Attach Schedule B if required . . . . . . . . . . . . 8a b Tax-exempt interest. Do not include on line 8a . . . 8b 9 a Ordinary dividends. Attach Schedule B if required . . . . . . . . . . . 9a b Qualified dividends . . . . . . . . . . . 9b 10 Taxable refunds, credits, or offsets of state and local income taxes . . . . . . 10 11 Alimony received . . . . . . . . . . . . . . . . . . . . . 11 12 Business income or (loss). Attach Schedule C or C-EZ . . . . . . . . . . 12 13 Capital gain or (loss). Attach Schedule D if required. If not required, check here ? 13 14 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . 14 15 a IRA distributions . 15a b Taxable amount . . . 15b 16 a Pensions and annuities 16a b Taxable amount . . . 16b 17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17 18 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . 18 19 Unemployment compensation . . . . . . . . . . . . . . . . . 19 20 a Social security benefits 20a b Taxable amount . . . 20b 21 Other income. List type and amount 21 22 Combine the amounts in the far right column for lines 7 through 21. This is your total income ? 22 Adjusted Gross Income 23 Educator expenses . . . . . . . . . . . 23 24 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 or 2106-EZ 24 25 Health savings account deduction. Attach Form 8889 . 25 26 Moving expenses. Attach Form 3903 . . . . . . 26 27 Deductible part of self-employment tax. Attach Schedule SE . 27 28 Self-employed SEP, SIMPLE, and qualified plans . . 28 29 Self-employed health insurance deduction . . . . 29 30 Penalty on early withdrawal of savings . . . . . . 30 31a Alimony paid b Recipient’s SSN ? 31a 32 IRA deduction . . . . . . . . . . . . . 32 33 Student loan interest deduction . . . . . . . . 33 34 Tuition and fees. Attach Form 8917 . . . . . . 34 35 Domestic production activities deduction. Attach Form 8903 35 36 Add lines 23 through 35 . . . . . . . . . . . . . . . . . . . 36 37 Subtract line 36 from line 22. This is your adjusted gross income . . . . . ? 37 For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11320B Form 1040 (2017) Form 1040 (2017) Page 2 Tax and Credits 38 Amount from line 37 (adjusted gross income) . . . . . . . . . . . . . . 38 39a Check if: { You were born before January 2, 1953, Blind. Spouse was born before January 2, 1953, Blind.} Total boxes checked ? 39a b If your spouse itemizes on a separate return or you were a dual-status alien, check here ? 39b Standard Deduction for— • People who check any box on line 39a or 39b or who can be claimed as a dependent, see instructions. • All others: Single or Married filing separately, $6,350 Married filing jointly or Qualifying widow(er), $12,700 Head of household, $9,350 40 Itemized deductions (from Schedule A) or your standard deduction (see left margin) . . 40 41 Subtract line 40 from line 38 . . . . . . . . . . . . . . . . . . . 41 42 Exemptions. If line 38 is $156,900 or less, multiply $4,050 by the number on line 6d. Otherwise, see instructions 42 43 Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter -0- . . 43 44 Tax (see instructions). Check if any from: a Form(s) 8814 b Form 4972 c 44 45 Alternative minimum tax (see instructions). Attach Form 6251 . . . . . . . . . 45 46 Excess advance premium tax credit repayment. Attach Form 8962 . . . . . . . . 46 47 Add lines 44, 45, and 46 . . . . . . . . . . . . . . . . . . . ? 47 48 Foreign tax credit. Attach Form 1116 if required . . . . 48 49 Credit for child and dependent care expenses. Attach Form 2441 49 50 Education credits from Form 8863, line 19 . . . . . 50 51 Retirement savings contributions credit. Attach Form 8880 51 52 Child tax credit. Attach Schedule 8812, if required . . . 52 53 Residential energy credits. Attach Form 5695 . . . . 53 54 Other credits from Form: a 3800 b 8801 c 54 55 Add lines 48 through 54. These are your total credits . . . . . . . . . . . . 55 56 Subtract line 55 from line 47. If line 55 is more than line 47, enter -0- . . . . . . ? 56 Other Taxes 57 Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . 57 58 Unreported social security and Medicare tax from Form: a 4137 b 8919 . . 58 59 Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required . . 59 60 a Household employment taxes from Schedule H . . . . . . . . . . . . . . 60a b First-time homebuyer credit repayment. Attach Form 5405 if required . . . . . . . . 60b 61 Health care: individual responsibility (see instructions) Full-year coverage . . . . . 61 62 Taxes from: a Form 8959 b Form 8960 c Instructions; enter code(s) 62 63 Add lines 56 through 62. This is your total tax . . . . . . . . . . . . . ? 63 Payments 64 Federal income tax withheld from Forms W-2 and 1099 . . 64 65 2017 estimated tax payments and amount applied from 2016 return 65 If you have a qualifying child, attach Schedule EIC. 66a Earned income credit (EIC) . . . . . . . . . . 66a b Nontaxable combat pay election 66b 67 Additional child tax credit. Attach Schedule 8812 . . . . . 67 68 American opportunity credit from Form 8863, line 8 . . . 68 69 Net premium tax credit. Attach Form 8962 . . . . . . 69 70 Amount paid with request for extension to file . . . . . 70 71 Excess social security and tier 1 RRTA tax withheld . . . . 71 72 Credit for federal tax on fuels. Attach Form 4136 . . . . 72 73 Credits from Form: a 2439 b Reserved c 8885 d 73 74 Add lines 64, 65, 66a, and 67 through 73. These are your total payments . . . . . ? 74 Refund Direct deposit? See instructions. 75 If line 74 is more than line 63, subtract line 63 from line 74. This is the amount you overpaid 75 76a Amount of line 75 you want refunded to you. If Form 8888 is attached, check here . ? 76a ? ? b Routing number ? c Type: Checking Savings d Account number 77 Amount of line 75 you want applied to your 2018 estimated tax ? 77 Amount You Owe 78 Amount you owe. Subtract line 74 from line 63. For details on how to pay, see instructions ? 78 79 Estimated tax penalty (see instructions) . . . . . . . 79 Third Party Designee Do you want to allow another person to discuss this return with the IRS (see instructions)? Yes. Complete below. No Designee’s name ? Phone no. ? Personal identification number (PIN) ? Sign Here Joint return? See instructions. Keep a copy for your records. Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. Your signature Date Your occupation Daytime phone number Spouse’s signature. If a joint return, both must sign. Date ? Spouse’s occupation If the IRS sent you an Identity Protection PIN, enter it here (see inst.) Paid Preparer Use Only Print/Type preparer’s name Preparer’s signature Date Check if self-employed PTIN Firm’s name ? Firm’s address ? Firm’s EIN ? Phone no. Go to www.irs.gov/Form1040 for instructions and the latest information. Form 1040 (2017)