1 PART ONE Douglas [last name of student completing assignment] and his wife Donna [last name of student completing assignment] are married and file a joint return for 2015. Douglas’s Social Security number is [choose a social security number] and he is 48 years old. Donna’s Social Security number is [choose a social security number] and she is 45 years old. They live at [choose a street address], Spokane, WA 99206. Douglas is a dentist and he took six months off work to attend a cosmetic dentistry-training program in 2015. His 2015 Form W-2 from his job at BDC, Inc., showed the following: • Wages $65,000 • Withholding (federal income tax) 12,000 Douglas and Donna have a 17-year-old son, Derrick [last name of student completing assignment], who is enrolled in the eleventh grade at Perpetual School. Derrick’s Social Security number is [choose a social security number]. Douglas and Donna also have an 18-year-old daughter, Debbie Ross, who is a part-time freshman Student at a Community College, SMCC. Debbie’s Social Security number is [choose a social security number]. Debbie is married to Boss Ross [choose a social security number], who is 19 years old and a part-time student at SMCC. Boss and Debbie have a 1-year-old child, Sauce Ross [choose a social security number]. Boss, Debbie, and Sauce all live in an apartment up the street from Douglas and Donna during the entire current calendar year. Boss and Debbie both work for Boss’s wealthy grandfather as apprentices in his business. Their wages for the year were a combined $50,000, which allowed them to pay all the personal expenses for themselves and their son. Douglas and Donna have savings account interest income of $380 from PNB. Douglas and Donna have the following investment income: • Dividends (qualified) on Big Bank stock $900 • Dividends (qualified) on Big Gas Company stock $490 • Dividends (nonqualified) from Mango Mutual Fund $145 • Interest on Washington State Municipal Bonds $700 • Interest on Big Electric Company Bonds $675 Douglas went to a local Indian casino and won $5,900 playing Poker. Douglas had no other gambling income or loss for the year. In February, Donna received $50,000 in life insurance proceeds from the death of her friend Linda. In July, Douglas’s Uncle Larry died and left him real estate (undeveloped land) worth $72,000. Five years ago, Douglas and Donna were divorced. Douglas married Mary Molark, but that marriage did not work out and they were divorced a year later. Under their divorce decree, Douglas pays Mary $12,600 per year alimony. All payments were made on time during 2015. Mary’s Social Security number is [choose a social security number]. Three years ago, Douglas and Donna were remarried. BDC pays Douglas’s dental license fees and membership dues to dental organizations. During 2015, General Dental paid $1,240 for such dues and fees for Douglas. Donna was laid off from her job on 2 January 2, 2015. For 2015, she received $3,850 in unemployment benefits. Douglas and his family are covered by an employer-sponsored health insurance plan at work. BDC pays $700 per month premiums for Douglas and his family. During the year, Donna was in the hospital for a few days to have her appendix removed. The bill for the surgery was $5,100 of which the health insurance plan reimbursed Douglas the full $5,100. PART TWO On September 1, Donna opened a retail store that specializes in sports car accessories. The name of the business and store is PTC. The store is located at [choose a street address], Spokane, WA 99206. The store uses the cash method of accounting. Her income and expenses for the year are as follows: • Sales of merchandise $63,400 • Inventory, September 1 (purchased in August) $40,100 • Inventory, December 31 $38,100 • Purchases during the year $37,800 • Sales returns and allowances $600 • Store rental $7,550 • Office expense $1,380 • Insurance $800 • Advertising $3,100 • Employee wages $3,350 • Payroll and other business taxes $505 • Interest on bank loan to open store $2,760 • Accounting fees $310 • Utilities $992 • Telephone $800 • Maintenance $427 • Miscellaneous $65 In addition to the above items, Donna incurred travel expenses to attend a seminar on sports car accessories. She spent $300 on airfare, $400 on lodging, $90 on a rental car, and $150 on meals. Donna has proper receipts for these amounts. Donna drove her 2006 Ford Explorer 1,631 miles for business related to PTC. The Explorer was driven a total of 17,172 miles for the year. Included in the total 17,172 miles is 5,000 miles spent commuting to the store. Donna has the required substantiation for this business mileage. She uses the standard mileage method. In July, Douglas loaned a friend $7,000 so he could buy a car. Douglas’s friend lost his job in 2015 and stopped making payments on the loan. He plans to start making payments again, however, with additional interest as soon as he has new employment. Douglas and Donna own a rental beach house in Hawaii. The beach house was rented for the full year during 2015 and was not used by the Douglas and Dona during the year. Douglas and Donna were active participants in the management of the rental. Pertinent information about the rental house is as follows: 3 Address: [choose a street address], Lihue, HI 96766 • Net rental income $20,650 • Mortgage interest $7,900 • Real estate taxes $2,300 • Utilities $2,125 • Maintenance $2,900 The house is fully depreciated so there is no depreciation expense. For the 2015 tax year, on March 15, 2016, Douglas contributes $5,500 to a traditional IRA for himself and $5,500 to a traditional IRA for his wife. He is not covered by a qualified retirement plan at work. Donna had a retirement plan at the job from which she was laid off on January 2, 2015. The plan had a balance of $24,000. On May 10, 2015, Donna had the entire retirement plan balance rolled directly into an IRA at TEB, Inc. (Note that the “Saver’s Credit” may apply to some of this retirement information). Douglas and Donna paid the following in 2015 (all by check or can otherwise be substantiated): • Contributions to Perpetual Perpetuity Catholic Church $410 • Tuition to Perpetual Perpetuity Catholic School for Derrick $6,000 • Clothes to Salvation Army (10 bags in good condition) $275 • Contributions to George Kerry’s Congressional campaign $250 • Psychotherapy for Donna $2,000 • Eyeglasses for Derrick $375 • Prescription medication and drugs $1,850 • Credit card interest $1,345 • Interest on Douglas’s dental school loans $3,125 • Investment interest on stock margin account $345 • Auto loan interest (auto was paid for by a home equity loan on residence) $900 • Auto insurance $1,600 • Dave Deduction, CPA, for preparation of last year’s tax return $700 • Safe-deposit box for storage of stocks and tax data $100 • Contribution to an educational savings account for Derrick $1,000 • Home mortgage interest $10,910 • Home property taxes $8,400 • Unreimbursed business expense (seminar on tooth polishing) $700 In June, Douglas purchased a new professional camera for $6,980. While Douglas and Donna were on vacation in August, someone broke into their residence and stole the camera. Douglas’s homeowners’ insurance did not reimburse him for any part of the loss since he declined the special premium add-on for high value items required by his policy. 4 PART THREE On November 14, Donna purchased the building where her store is located. She paid $230,000 for the building and $100,000 for the land it is located on. Donna’s store is the only business in the building. Douglas owned 1,000 shares of BA stock with a basis of $30 per share. The stock was purchased 6 years ago on June 10. Douglas sells 500 shares of BA stock to his uncle Steve and 500 of the shares to his sister Sara for $5 per share on December 31, 2015. Douglas sold the following securities during the year and received a Form 1099-B that showed the following information: Security Description Date Acquired Date Sold Selling Price Adjusted Basis Orange, Inc. 100 Shares Common 02/11/97 04/16/15 $3,080 $2,150 Banana, Inc. 100 Shares Common 07/17/01 07/31/15 2,000 4,210 Grape, Corp. 100 Shares Preferred 12/08/14 09/25/15 8,975 10,510 Plum, Inc. 5 Bonds due 4/2016 12/30/05 01/02/15 5,155 5,320 Peach Mutual Fund 5,010.150 Shares 05/30/06 10/22/15 60,120 56,480 The selling price given is net of sales commissions. In addition to the above amounts, the Mango mutual fund distributed a long-term capital gain of $450 on December 30, 2015. Douglas purchased 5 acres of raw land in Reno, NV, 10 years ago. His basis in the land was $90,000. On August 1, 2015, he sold the land for $150,000 on the installment method. Douglas received $52,500 in the year of sale, and the balance was payable at $9,750 per year for the next 10 years, plus a market rate of interest. On May 15, 2015, Douglas and Donna sold their personal residence for $585,150 and purchased a new house for $725,000. They had owned the old house for 20 years and it had an adjusted basis of $35,075. The house had been their personal residence for all the years they were married. They moved into the new house on May 18, 2015.
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