INDIVIDUAL TAX RETURN PROJECT

INDIVIDUAL TAX RETURN PROJECT

SALLY JENKS INDIVIDUAL FEDERAL

Sally A. (age 47), SSN 111-22-1111, is a widow of Robert Jenks, SSN 123-45-6787, who passed away on March 19, 2012. Sally resides at 23 Ottawa Street, Portland, ME 04112. Sally works part -time as a Bookkeeper at a local CPA Firm (John Smith CPA) and is also self-employed. She owns her own Bookkeeping business that she operates in town.

 

The following filing information relates to Sally:

 

• Sally is not sure what filing status she should be in 2015 since her husband passed away in 2012.

 

• Sally elects to contribute to the Presidential Election Campaign Fund.

 

• Sally is a calendar year taxpayer.

 

• Sally follows the cash basis method.

 

• Sally prefer that any tax overpayment to be refunded to her.

 

• Round all cents to the nearest dollar (Round up .50 Round down .49) No cents on the return.

 

 

1. Sally’s annual salaries from John Smith CPA is included on the attached W-2’s. John Smith CPA does not provide any retirement benefits. Sally has a retirement account that she contributes to through her business.

 

2. Sally is a bookkeeper who owns a bookkeeping business called “Add-it-Up”. Sally rents office space in the Old Port, on 45 Commercial Street, Portland, ME 04112. She also makes deliveries of monthly accounting records to her clients. She uses her personal car to make the deliveries. Her professional activity code is 541219 and her employer identification number is 04-9876543. Her clients consist of small to medium size local businesses. Sally collected $101,874 in revenues during 2015. This total includes a $1,750 payment for work she performed in 2014 and does not include $5,000 she billed in December for work performed in late 2015. In addition, Sally has an unpaid bill from a client for $3,200 for work she performed in 2013. This client has not been heard from since December 2013. Sally has tried to locate this individual to no avail. Sally feels certain that she will never collect the $3,200 she is owed.

 

Her business expenses for 2015 are as follows:
Wages	$37,875
Entertainment (on perspective clients)	2,200
Office Expense	11,700
Advertising	1,987
Legal Fees	975
Utilities	2,125
Speeding Ticket	275
Rent	7,000
Health Insurance (this policy covers the whole family)	5,200
Business portion of Repairs, Gas and Oil on Toyota	1,750

 

In addition, Sally drove her 2013 Toyota (purchased on June 1, 2013) 1,925 miles to deliver accounting records to her clients. Sally does not know if she can take the standard mileage, actual cost allocated to the car or both. Sally drove the car a total of 10,500 miles in 2015.

 

Sally utilized the following assets in her bookkeeping business:

 

Description	Date Placed	Adjusted Basis when	Business
of Property:	into Service:	Placed into Service:	Use:
Computer	7/1/13	$2,110	100%
Printer	7 /7/14	3,250	100%
Filing Cabinets 1/21/14		2,950	100%
Laptop	2/9/15	2 ,510	100%
Monitor	8/28/15	1,875	100%

 

All of the assets listed above were purchased new by Sally on the date they were placed into service. For Assets placed in service in 2015, Sally elected the cost recovery method that yielded the highest possible cost recovery deduction method for that year.

 

 

For assets purchased prior to 2015, all of these assets were depreciated under the MACRS method (None were depreciated under Section 179). For each year of acquisition, the highest possible deduction under MACRS was elected. Accordingly the expense method of §179 was not elected.

 

No additional first year depreciation was taken in any year.

 

3. In November 2013 Sally was hit by a car while walking her dog. The driver of the car was at fault and Sally sued the driver for various damages. Sally spent some time in the hospital to recover from her injuries. The court case didn’t start until September 2014 and in early 2015 Sally won the case. The driver of the car was determined to be at fault and Sally was award damages totaling $215,000. The damages awarded were $200,000 for personal injury, $5,000 for punitive damages against the driver and $10,000 for loss of income because her injuries prevented her from working for some time.

 

4. Sally sold stock that was reported on Form 1099-B (attached to the back of this packet)

 

1. Sally also sold the following capital assets which are not reported on and Form 1099-B:

 

• 600 shares of KitKat Corp. The shares were purchased by Sally for $2,150 on the New York Stock Exchange on January 15. They were sold on the New York Stock Exchange for $2,750 on November 5.

 

• 1,820 shares of 5 Cent Bank. These shares were distributed to Sally from the estate of Robert on July 28, 2010. The shares were worth $19,850 as of the date of Robert’s death but were worth $18,900 on the date of distribution to Sally. Sally, acting as the executrix of Robert’s estate did elect the alternate valuation method. Robert bought the shares for $12,888 on October 12, 1992. Sally sold the shares to an unrelated party on May 15 for $17,630.

 

• 400 shares of Hershey Corporation. These shares were received by Sally as a gift from her sister on August 17, 2005. Her sister’s basis in the stock at the time of the gift was $5,980. The fair market value of the stock at the time of the gift was $8,800. No gift tax was paid on the transfer. The shares were sold to an unrelated party on September 9 for $7,400.

 

• 9,700 shares of Boston Bay. The shares were purchased by Sally on January 12, 2010 for $3,100. During 2015, Boston Bay declared bankruptcy and liquidated. No assets were transferred to the shareholders during the liquidation.

 

• Sally has a long-term capital loss carryover of $2,500 from 2014

 

All of the capital assets listed above were held by the Sally for investment purposes.

 

 

5. In early 2015, Sally learned that her cousin, Billy, who borrowed money to open a new business passed away. Sally loaned Billy $2,000 to help with the new business. Sally had him sign a note due in one year. Shortly after Sally loaned the money to Billy, he passed away. As of December 2015, Sally has been told that there will be no payment on the note and it is completely worthless.

 

6. Besides the items previously noted, the Sally had the following receipts for 2015:

 

Interest income:
City of Portland bonds	$1,400
Apple Corporate bonds	475
5 Cent Bank	440	$ 2,315
Cash gifts from Sally’s parents	15,000
Federal income tax refund (2014 return)	1,280
Gambling Winnings	3,250

 

Sally was the beneficiary of a life insurance policy that his uncle purchased on his own life. Sally’s uncle passed away on April 2. Sally collected $60,000 from the life insurance policy on November 1.

 

7. In addition to the items already noted, the Sally had the following expenditures for 2015:

 

Sally’s contribution to her Keogh Plan/SEP Plan	$5,000
Gambling loss	4,500
Life insurance premiums	2,400
Medical and dental expenses for Sally	7,500
Medical expenses paid by Sally for Melissa	4,025
Taxes:
Taxes on Real Estate	$3,525
Ad valorem taxes on personal property	820
State and local sales taxes	3,100	7,445
Interest paid on VISA credit card during the year	2,005
Interest paid on Sally’s car	1,750
Principle payments on Sally’s car loan	2,450
Cash Contributions:
Salvation Army (Maine branch)	3,000
Charity located in Canada	500
Cash given to a local family	300
Wyoming governor’s election campaign fund	350	4,150

 

The life insurance premiums relate to the universal life insurance policies that Sally owns. The first beneficiary on both policies is Sally’s daughter. Sally contributed to the governor’s campaign fund because she thinks his influence is key in getting business.

 

8. Sally house was burglarized on March 5 and her diamond necklace was stolen. Sally’s necklace was worth $33,000. Sally bought the necklace on November 9, 2010 for $15,500. The necklace was never recovered. Insurance recovery was limited to $5,000.

 

9. Relevant Social Security numbers are as follows:

 

Name and Social Security Number

 

• Jake Ray Jenks, SSN 123-45-6783, son of Sally. Born December 3, 1992. Full-time student at the University of Maine before graduating in May of 2015. Jake lives with Sally and Sally provided 60% of his support. His income consisted of wages of $19,000.
• Ronald Jenks, SSN 123-45-6784, son of Sally. Born August 2, 1993. Ronald works full time in a restaurant. Sally provides 40% of his support while Ronald provides 30% and the balance came from other sources. Ronald lives with Sally. His income consisted of wages of $27,000.

• Roberta Jenks, SSN 123-45-6785, daughter of Sally. Born November 1, 1994. Full-time student at UVM before graduating in May of 2015. Continued her education full time at the UMass Medical School as a medical student. Sally provided 70 percent of her support. Her income consisted solely of $10,000 earned from a part-time job in the medical field. She did live with Sally for the year.

 

• Melissa Jenks, SSN 123-45-6786, daughter of Sally. Born May 12, 1996. Full-time student at the University of New Hampshire. Sally provided 100 percent of her support. She earned no income. She lived with Sally for the year.

 

Sally also supported the following person:

 

• Lillian Mainville, mother of Sally, SSN 123-45-6787. Widow. Born September 12, 1936. Resided in Clearwater, Florida. Sally provided 85 percent of her total support. Her sole income consisted of $4,775 of pension income and $8,000 of Social Security benefits.

• Bernard Ray, cousin of Sally, SSN 123-45-6788. Widower. Born April 21, 1961. Lived with Sally all year long. Sally provided 65 percent of his total support. His sole income consisted of $9,100 of Social Security benefits

 

10. Sally made the following deposits with the United States Treasury for their

 

Federal income tax liability from their own personal checking account on the dates indicated:

 

•	April 17, 2015	$500
•	June 15,2015	500
•	September 17, 2015	500
•	December 15,2015	500

 

11. All source documents for wages, dividends, stock sales and interest paid are at the end. These items are not reported in any of the information above. Ignore the year on the source documents and assume that they are all for the tax year 2015.

REQUIREMENT

Prepare the Federal income tax return with all supporting schedules and attachments for Sally and Sally Frost for 2015. Specifically, submit the following completed forms with required schedules:

• Form 1040: U.S. Individual Income Tax Return

• Form 1040 Schedule A: Itemized Deductions

• Form 1040 Schedule B: Interest and Ordinary Dividends

• Form 1040 Schedule C: Profit and Loss from Business

• Form 1040 Schedule D: Capital Gains and Losses

• Form 1040 Schedule SE: Self-Employment Tax

• Form 4562: Depreciation and Amortization (For Schedule C)

• Form 4684: Casualties and Thefts

• Form 8949: Sales and Other Dispositions of Capital Assets

Use all opportunities to minimize tax liability. In this regard, assume that the Sally always prefer to forego potential future tax savings in favor of current year tax savings.