Tax return

Introduction to Taxation

Brown

Tax Return Project 1

SHAPE \* MERGEFORMAT

PROJECT 1 INSTRUCTIONS:

You may work in a group of up to three students to complete Project 1. Each group should work independently of the other groups. Please turn in ONE completed tax return for the group. Your group should submit one printed, paper version of the project to me at the beginning of class on the Project 1 due date (listed on the syllabus schedule). Each student in your group should sign their name on the front of the project indicating that all students participated and maintained academic integrity. Do NOT prepare the tax return with commercial tax preparation software (e.g. Turbo Tax).

Please prepare the Hamlit’s 2019 federal individual income tax return. They have asked you to minimize their tax liability to the extent legally possible. Be sure to read all sections of this document thoroughly (Instructions, Client Tax Information, and the Hints) before beginning work on this project. If necessary, clearly state any assumptions made in completing the tax return. Please read the directions on the forms and include any supporting schedules requested by the forms (unless otherwise noted in the Hints section of this assignment). Be sure to provide detail supporting any calculations. Please round numbers to the nearest dollar.

Your completed Project 1 should include the following items, in the following order:

· A cover letter to the Hamlit’s explaining how much additional tax they have to pay (or any refund they will receive) and any carryforward items that would be available for use in future tax years.

· 2019 Form 1040: U.S. Individual Income Tax Return (include Schedules 1 – 3, if applicable)

· 2019 Schedule C: Profit or Loss from Business

· 2019 Schedule D: Capital Gains and Losses (and Form 8949)

· 2019 Schedule SE: Self‐Employment Taxes

· 2019 Form 4562: Depreciation and Amortization (remember to include the completed supporting excel spreadsheet

CLIENT TAX INFORMATION:

Claude Hamlit comes to your office and asks you to prepare his 2019 federal income tax return. He provides you with the following information:

Claude (SS# 111-00-2793) and Gertrude (SS# 111-99-4027) Hamlit are married and file a joint income tax return. Their address is 144 Dover Lane, Independence, MO 64056. Claude was unemployed at the beginning of the year, but started a new job as the pharmaceutical researcher, and Gertrude works as a legal consultant specializing in estate planning. Her business’s name is Take Action Now Legal Consulting (EIN 84-2702855, Business Identification Code 541100). She rents a small office space at 3400 Horatio Lane, Gladstone, MO 64188.

1. Claude and Gertrude have an eighteen-year-old son, Prince (SS# 111-99-1313), and they provide 100% of his support. Prince started college in September of 2019 and attends the University of Copenhagen. All of Prince’s tuition, fees, and books are paid through scholarships he received. The Hamlit’s also have a sixteen-year-old daughter, Ophelia (SS# 111-99-1414) and they provide 100% of her support as well. Ophelia attends Frederick Douglass High School in Independence, MO.

2. Claude’s 2019 W-2 that he received from his employer is included in the tax information that he gives to you. He also included additional tax forms that he received. The following documents are available on Canvas (Additional Client Info.pdf):

· Claude’s W-2

· 1099-INT from Play within a Play FCU

· Consolidated brokerage statement from Rosencrantz & Guildenstern Investments (the statement includes a 1099-INT, a 1099-DIV, and a 1099-B)

· 1099-G from the Missouri Department of Revenue showing the unemployment Claude received at the beginning of the year

3. Gertrude’s business generated gross receipts of $126,000 in 2019. During 2019, she wrote checks for $81,870 related to her business. Gertrude uses the cash method of accounting and she keeps a separate bank account for her business. Gertrude also materially participates in the business and was not required to file any Form 1099s in 2019. An Excel spreadsheet that includes a detailed list of Gertrude’s expenditures (and a template for computing tax depreciation) is available on Canvas.

4. Gertrude began her legal consulting business in 2016 and purchased several assets during that year. She did not elect Section 179 expensing (and she elected out of bonus depreciation) at that time because her business was just beginning (with little cash inflow) and her accountant advised her that it would be better to stretch out the deductions over the depreciable lives of the assets. The assets are used 100% for business and have been depreciated using MACRS. The assets are listed on the tax depreciation schedule included with this assignment.

5. In April 2019, Gertrude purchased computer equipment (#2) for Take Action Now Legal Consulting for $4,600. She paid $1,000 down and financed the balance. She has been making payments of $112/month since April 2019. Of the total payments made during 2019, $182 was for interest.

6. Additional business-related information:

• Gertrude received $250 on November 1, 2019, from the sale of old computer equipment (Computer Equipment #1 which was purchased in February 2016).

7. The Hamlit’s itemized deductions totaled $21,250 for 2019 (do not prepare Schedule A).

8. Claude’s brother, King, passed away in June 2019 and left Claude an inheritance of $10,000 cash. His brother’s estate paid all necessary federal and state taxes before distributing the cash to the beneficiaries.

9. In October of 2019, Claude was driving his Convertible Car and was in a bad accident. Everyone survived with no injuries, but the car was damaged and uninsured. Rather than repair the car, Claude decided to sell it, and received $2,500 in cash for the car. Below is additional information about the transaction:

Asset Acquired Sold Selling price Adjusted Basis

Convertible car 05-01-14 10-25-19 2,500 24,995

Note1: The car was used for personal recreation only.

10. Claude and Gertrude sold some stock during 2019. Please refer to the consolidated brokerage statement provided in the client source documents for more information on the stock transactions.

HINTS:

1. The best way to approach the project may be to complete it in the following order:

• Depreciation expense (Form 4562, after completing the excel spreadsheet)

• Profit and loss from the business (Schedule C),

• Self-employment tax (Schedule SE)

• Capital gains & losses (Form 8949 and Schedule D)

• Finally, carry over the information from Schedules C, D, and SE to Form 1040 and Schedules 1-3, along with any other information that needs to be reported on Form 1040.

2. Assume the computer equipment is located at Gertrude’s place of business (i.e., NOT listed property).

3. For this assignment (and this assignment only!), report the gain or loss on the sale of the computer equipment #1 on Schedule C as “other income” (line 6) or “other expenses” (line 27a) as appropriate.

4. Ignore Part IV on Schedule C.

5. Enter $1,020,000 on line 1 of Part I on Form 4562. Ignore parts A, B, & C of Section V on Form 4562.

6. Neither Claude nor Gertrude elects to contribute to the Presidential Election Campaign

7. Use the Tax Tables (available on Canvas) and the qualified dividend and capital gain worksheet (available on Canvas) to figure the tax on line 12a of Form 1040.

9. The Hamlits do not have a foreign address. They do not want to allow another person to discuss their return with the IRS.

10. You are not required to calculate AMT, the qualified business income deduction, or any tax credits for this project.

11. In addition, I am available as the client (Claude and Gertrude Hamilton) and as a “consultant” for questions remaining after your group has thoroughly reviewed the entire assignment.