Tax Return project

MGMT 50400 (Section 001) Fall 2015 Individual Tax Return Project

PLEASE REMEMBER THAT YOU ARE TO COMPLETE A 2014 FEDERAL INCOME TAX RETURN FOR THIS PROJECT AS 2015 FORMS ARE NOT YET AVAILABLE.

OVERVIEW

In the following pages, you will find all the information necessary to complete a 2014 U.S. Individual Income Tax Return for Walter & Skyler White. While this assignment is not designed to be tricky, it may be difficult for many students, and it will most certainly require a significant input of your time. The purpose of this project is twofold. First, your ability to examine the receipts, disbursements, and situation of taxpayers, identify the relevant tax issues, and determine the appropriate tax treatment, as covered explicitly in the text, lectures, and homework, will be gauged. Second, completion of the project will require you to use forms and publications from the Internal Revenue Service to actually prepare the documents the taxpayer would be required to submit.

GUIDELINES AND INSTRUCTIONS

You will need to form groups of 2-4 people to work on this project. You must email me a list of your group members (only one email per group required) no later than Wednesday, October 14, at 9:30 AM to let me know your group members. I will respond back to confirm receipt of the group list.

Students must individually (within your own group only) complete the midterm project using resources from http://www.irs.gov, lecture notes, tax texts, etc. As this is a project, and not a homework assignment, I will be providing less guidance in office hours, etc. for students, although I will strive to point everyone in the right direction. Forms downloaded from IRS.gov are in the PDF format and, using Adobe Reader software, students MUST type their answers into the blanks.

For the entire project, students must assume that the taxpayers are interested in the tax-minimizing legal position.

IRS forms and instructions are designed to be read, understood, and followed by taxpayers without significant accounting backgrounds. While it may be challenging at first, senior accounting students should be able to read the instructions for each form and figure out how to complete the project. IRS Publication 17 is a very good resource and is probably the authoritative reference for completion of the project.

A note on using tax return computer software: I have NOT provided supporting documents, like W-2s and 1099s. This exclusion will make use of a software package more difficult and unlikely to generate a correct return. I will not prohibit you from using software, but do so at your own peril!

The only submission required for grading is a complete 2014 U.S. Individual Income Tax Return, which at minimum will consist of the following forms:

--Form 1040 --Form 1040, Schedule A --Form 1040, Schedule B --Form 1040, Schedule C

--Form 1040, Schedule D --Form 1040, Schedule SE --Form 1040-V

Depending on the tax treatment for some items determined to be appropriate by the preparer, Forms 2441, 4562, 8812, 8889, and/or Form 8949 may also be required. Each form submitted for grading must be COMPLETELY filled out, including the name and SSN of the taxpayer(s). For uniformity, I require that the forms be TYPED and printed, that any line with an entry of -0- be left blank, and negative numbers should be indicated in parentheses. Please round all numbers to the nearest whole dollar and omit “00” in the cents column.

This is a group assignment, so you may only work with students inside your own group. Please do not work with students from the other class or from other groups. For your final submission, due Wednesday, October 21st, at 3:30 pm, you MUST staple a cover sheet (template provided on Blackboard) to the entire return with each group member’s name, PUID, and section clearly printed and easily visible.

Good luck!

Check Figures:

Form 1040, Line 37: 93,342

Form 1040, Line 44: 8,546 (HINT: figured using capital gains worksheet)

Form 1040, Line 56: 5,946

Form 1040, Line 57: 6,587

Scenario: You are a tax accountant at the respected accounting firm Purdue, Krannert, and Rawls LLP (“PKR”) and the preparer for Walter White’s 2014 federal income tax return. PKR’s information is as follows: EIN: 56- 9291122; Address: 403 West State Street, West Lafayette, Indiana 47907; Phone number: 765-867-5309. Since you have agreed upon a flat fee of $2,000 for completing this return (will be paid to your firm in 2015), be sure to complete the paid preparer information on the tax return. You need to complete only the 2014 federal income tax return for Walter and Skyler White (no state tax return). Ignore the requirement to attach form(s) W-2 to the front page of the Form 1040, as this will be done by your administrative assistant when the return is processed to give to your client. Walter M. White (Age 49) and his wife Skyler J. (Age 39) live in Albuquerque, New Mexico with two children: Flynn (Son, Age 16) and Holly (Daughter, Age 2). Both children qualify as federal income tax dependents of Walter and Skyler. Neither Walter nor Skyler can be claimed as a dependent on another’s return, and neither would like to contribute to the Presidential Election Campaign Fund. As their dependents, both of their children qualify for a dependency exemption and a child tax credit. Walter and Skyler have no carryovers from the prior year. The Whites did not have a financial interest in or signature authority over a financial account at any time in 2014. The Whites provided the following information:

• Social Security Numbers: o Walter: 599-92-9999 o Skyler: 599-74-8733 o Flynn: 499-22-2093 o Holly: 499-23-3093

• Address: o 308 Negra Arroyo Lane, Albuquerque, New Mexico, 87104

1. In 2014, Walter was a chemistry teacher at Hermano High School in South Valley, New Mexico from January to May. His W-2 wages were $20,428, with $3,093 in federal taxes withheld and $592 in state taxes withheld.

2. In January, he also started a mobile car wash business called A1A Car Wash, LLC (A1A). A1A is conducted as a sole proprietorship with Walt being the sole owner. A1A started business on January 2, 2014 and is located at 9516 Snow Heights Circle, Albuquerque, New Mexico 87112. The EIN for the business is 57-9595959, and the NAICS code is 811190. The financial information provided by Walter on this business (cash method taxpayer) is enclosed at the end of the problem.

3. Skyler worked as a bookkeeper for Beneke Fabricators, Inc. Her W-2 wages were $48,939, with $4,320 in federal taxes withheld and $1,408 in state taxes withheld.

4. The Whites jointly received the following interest and dividend payments in 2014:

a. Interest from Bank of America: $488 b. Interest from LPH Bank: $2,874 c. Qualified Dividends from Heisenberg Corp: $1,243 d. Interest from municipal bonds from the City of Albuquerque: $1,000

5. Walt has a Scottrade self-managed equities account and made one trade during 2014. He

purchased 200 shares of 3D Systems Inc stock on November 15, 2013 for $80.17 per share ($16,034 total cost, no commissions). He sold all 200 shares on December 12, 2014 for $29.40 per share net of commissions ($5,880 total proceeds less commissions). The cost basis for this sale was reported to the IRS.

6. Holly attended daycare in 2014 at Goodman Academy (EIN #53-7555555) at 23 West Avenue, Albuquerque, New Mexico 87105. The total fees paid for Holly amount to $6,800 for 2014. Neither Walter nor Skyler received dependent care benefits from an employer in 2014.

7. Walter still owes student loans. In 2014, he made payments which included $453 in interest. All the proceeds from the loans were used to pay qualified education expenses.

8. Walter and Skyler are not covered by employer-provided retirement plans, so Skyler contributed $5,500 to a conventional IRA in 2014.

9. Walter and Skyler own their house, which is their principal residence, but have a mortgage on the property. In 2014, they paid $2,299 in real estate taxes on the property and $7,233 in interest.

10. In 2014, Walter and Skyler incurred the following medical expenses:

a. Doctor’s office visits for Flynn and Holly: $2,334

b. Elective cosmetic surgery (rhinoplasty) for Walter: $12,432 c. LASIK eye surgery for Skyler: $4,384 d. Eyeglasses and contacts for Skyler: $438 e. Prescription drugs for Walter, Skyler, Flynn, and Holly: $2,432

11. Walter contributed $3,000 (after-tax dollars) to a Health Savings Account (with family coverage)

for 2014. The Whites made no disbursements from this account in 2014.

12. Skyler donated fitness equipment valued at $480 to Volunteers of America (a qualified charity) in 2014. A receipt was provided, and no goods or services were rendered by the non-profit in exchange for this donation.

13. Additionally, Walter and Skyler made the following charitable contributions in 2014:

a. $1,000 cash donation to UNICEF (a registered 501(c)(3) non-profit organization) b. $300 paid to a neighborhood youth towards her expenses to go to cheerleading camp

14. Walter keeps a safe deposit box at LPH Bank, which costs $25 per month and was paid for 12

months in 2014.

15. Walter and Skyler paid the preparer of their 2013 tax return $1,250 in 2014.

16. Walter and Skyler only made one estimated payment of federal income tax of $3,800 on September 15, 2014. The Whites made no estimated payments of state tax during 2014. Since Walter and Skyler’s 2013 federal income tax liability was only $4,000, there will be no underpayment penalties on the 2014 return.

A1A CAR WASH INFORMATION

Walter reported the following information for A1A’s business activities (A1A uses the cash method of accounting): Revenues: Credit card receipts $55,104 Cash receipts 37,235 Total revenue $92,339 Expenses: Advertising $5,450 Insurance-professional 1,750 Office building rent 7,000 Equipment leases 12,050 Travel 200 Depreciation 4,130 Meals and entertainment 974 Supplies 8,230 Taxes and licenses 4,875 Legal and professional fees 550 Repairs and maintenance 1,000 Total Expenses $46,209 A1A purchased and placed in service the following fixed assets:

Item Useful Life Date Purchased Amount Cleaning Equipment 7.0 March 1 $20,500 Pressure Washer 7.0 June 1 $6,500 Office furniture 7.0 October 10 $1,900

A1A does not want to claim any bonus depreciation or Section 179 expensing on any of these assets. The depreciation included in the profit & loss statement above represents the correct amount for tax depreciation. A1A filed Forms 1099 for payments made to contractors when required to do so. Walter and Skyler paid $12,000 for health insurance for his family (for the time he was working at A1A). This amount is not included in the A1A expenses listed above. Neither Walter nor Skyler had access to employer-provided health insurance during the year while they were paying the premiums for this policy. The entire White family was covered by minimum essential health insurance during each month in 2014.