Accounting Tax Return
Requirements:
Reba Dixon is a fifth-grade school teacher who earned a salary of $38,000 in 2018. She is 45 years old and has been divorced for four years. She received $1,200 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental.
Reba and her daughter Heather (20 years old at the end of the year) moved to Georgia in January of this year. Reba provides more than one-half of Heather’s support. They had been living in Colorado for the past 15 years, but ever since her divorce, Reba has been wanting to move back to Georgia to be closer to her family. Luckily, last December, a teaching position opened up and Reba and Heather decided to make the move. Reba paid a moving company $2,010 to move their personal belongings, and she and Heather spent two days driving the 1,426 miles to Georgia.
Reba rented a home in Georgia. Heather decided to continue living at home with her mom, but she started attending school full-time in January at a nearby university. She was awarded a $3,000 partial tuition scholarship this year, and Reba helped out by paying the remaining $500 tuition cost. If possible, Reba thought it would be best to claim the education credit for these expenses.
Reba wasn’t sure if she would have enough items to help her benefit from itemizing on her tax return. However, she kept track of several expenses this year that she thought might qualify if she was able to itemize. Reba paid $5,800 in state income taxes and $12,500 in charitable contributions during the year. She also paid the following medical-related expenses for her and Heather:
Insurance premiums $5,795
Prescription medicine $350
New contact lenses for Heather $200
Shortly after the move, Reba got distracted while driving and she ran into a street sign. The accident caused $900 in damage to the car and gave her whiplash. Because the repairs were less than her insurance deductible, she paid the entire cost of the repairs. Reba wasn’t able to work for two months after the accident. Fortunately, she received $2,000 from her disability insurance. Her employer, the Central Georgia School District, paid 60 percent of the premiums on the policy as a nontaxable fringe benefit and Reba paid the remaining 40 percent portion.
A few years ago, Reba acquired several investments with her portion of the divorce settlement. This year she reported the following income from her investments: $2,200 of interest income from corporate bonds and $1,500 interest income from City of Denver municipal bonds. Overall, Reba’s stock portfolio appreciated by $12,000 but she did not sell any of her stocks.
Heather reported $6,200 of interest income from corporate bonds she received as gifts from her father over the last several years. This was Heather’s only source of income for the year.
Reba had $10,000 of federal income taxes withheld by her employer. Heather made $1,000 of estimated tax payments during the year. Reba did not make any estimated payments. Reba had qualifying insurance for purposes of the Affordable Care Act (ACA).
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Medical care expenses
$1,100
Nonprescription medicine
$100
(Part 2 is on the reverse side) ïƒ
Part 2: In addition to the information in Part 1, now also assume the following:
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The $19,500 of expenses associated with Reba renting out a small apartment building is comprised of the following items: $5,500 depreciation, $6,500 property taxes, $3,000 insurance, $1,000 repairs, and $3,500 utilities. Reba will report this information and the $50,000 of rental payments received from tenants on Schedule E.
Reba is a part-time chef who has developed a new way to prepare great tasting, low- carbohydrate meals using fresh ingredients. She teaches cooking classes during the summer months when she is not teaching and reports this activity as a sole proprietorship on Schedule C using a principal business code of 611000 in Box B. Activity for the year included: gross receipts = $15,670, food supplies = $3,850, legal expenses = $900, office expense = $410, advertising = $800, and the purchase of a portable convection oven on June 15 used 100% for business purposes = $1,300 (claim the largest depreciation deduction possible). In addition, Reba occasionally uses her personal car for business. Assume that Reba maintains a mileage log showing that she drove her car a total of 10,000 miles during the year including 900 miles for business purposes. Reba does not maintain a home office.
Reba had two stock transactions during the year: 1) Sold 5,000 shares of LMN Corp. common stock for $110,000 on May 5. The shares were originally purchased for $60 each on August 7, 2013. Reba decided to sell the LMN stock before the market price dropped any lower. 2) Sold 900 shares of Home Depot, Inc. common stock for $150 per share on April 21, 2017. The shares were inherited from Reba’s Aunt on March 21, 1997. We will discuss in class how to determine the basis of these shares.
Reba borrowed $40,000 from a broker to purchase investment assets including stocks and bonds. During the year, she paid the broker $2,700 of interest related to this loan.
Taking the above information into account, prepare a complete and accurate U.S. federal income tax return (but not the state and local returns). Because the 2018 version of the forms and schedules are not yet generally available, use the 2017 version and update the amounts, rates, and various line items accordingly as discussed in class. The forms and schedules can be downloaded and printed from the Internal Revenue Service (IRS) website (http://www.irs.gov):
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Form 1040 – pages 1 and 2
Schedule A – Itemized Deductions
Schedule B – Interest and Ordinary Dividends Schedule C – Profit or Loss from Business Schedule D – Capital Gains and Losses
Schedule E – Supplemental Income and Loss Schedule SE – Self-Employment Tax
Form 4562 – Depreciation and Amortization Form 8863 – Education Credits
Form 8949 – Sales & Dispositions of Capital Assets
Completing the forms manually in pencil As you prepare the forms, please use any Security Numbers (SSNs) that you wish. amount of tax due (or refunded) with the
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