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Presentation/PPT
27/08/2022
Tax Return Problem
Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His Social Security number is 111-11-1112. Devon does not want $3 to go to the Presidential Election Campaign Fund.
Devon’s wife, Ariane, passed away in 2012. Devon’s son, Tom, who is age 16, resides with Devon. Tom’s Social Security number is 123-45-6788.
Devon owns a sole proprietorship for which he uses the accrual method of accounting and maintains no inventory. His revenues and expenses for 2016 are as follows:
Sales revenue$740,000Cost of goods sold (based on purchases for the year)405,000Salary expense88,000Rent expense30,000Utilities8,000Telephone6,500Advertising4,000Bad debts5,000Depreciation21,000Health insurance26,000Accounting and legal fees7,000Supplies1,000
Health Insurance-$8,000 for Devon and $18,000 for the employess; Devon choose the immediate expense election of $21,000 of Office Equipment.
Other income received by Devon includes the following:
Dividend income (qualified dividends): Swan, Inc.$10,000 Wren, Inc.2,000Interest income: First National Bank11,000 Second City Bank2,500 County of Santa Fe, NM bonds17,000
During the year, Devon and his sole proprietorship had the following property transactions:
Devon’s potential itemized deductions, exclusive of the aforementioned information, are as follows:
Medical expenses (before the 10% floor)$ 9,500Property taxes on residence5,800State income taxes4,000Charitable contributions10,000Mortgage interest on residence (First National Bank)9,900Sales taxes paid5,000
During the year, Devon makes estimated Federal income tax payments of $40,000.
Compute Devon’s lowest net tax payable or refund due for 2016 assuming that he makes any available elections that will reduce the tax. You will need Forms 1040, 4562, 8824, and 8949 and Schedules A, B, C, D, and SE. Suggested software: H&R BLOCK Tax Software. Also attach explanations of all the items in this problem. The explanation should include why each item is taxable, non taxable, deductible or not deductible. Make explanations detailed and site code sections as appropriate. Lastly, compute the tax liability with explanations under Tax Reform assuming the return is filed for the 2018 tax year including application of IRC Section 199A.
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