100. Devon Bishop, age 40, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His Social Security number is 111-11-1111. Devon does not want $3 to go to the Presidential Election Campaign Fund.
Devon was divorced in 2008 after 15 years of marriage. He pays alimony of $18,000 a year to his former spouse, Ariane. Ariane's Social Security number is 123-45-6789. Devon's son, Tom, who is age 16, resides with Ariane. Devon pays child support of $12,000 per year. Ariane has provided Devon with a signed Form 8332 in which she releases the dependency deduction to him for 2012. Tom's Social Security number is
123-45-6788.
Devon owns a sole proprietorship for which he uses the accrual method of accounting.
His revenues and expenses for 2012 are as follows:
Sales revenue $740,000
Cost of goods sold 405,000
Salary expense 88,000
Rent expense 30,000
Utilities 8,000
Telephone 6,500
Advertising 4,000
Bad debts 5,000
Depreciation 21,000
Health insurance* 26,000
Accounting and legal fees 7,000
Supplies 1,000 * $18,000 for employees and $8,000 for Devon.
Other income received by Devon includes the following:
Dividend income:
Swan, Inc. $10,000
Wren, Inc. 2,000
Interest income:
First Bank 11,000
Second Bank 2,500
City of Asheville bonds 17,000
Lottery winnings (tickets purchased cost $500) 10,000
During the year,Devon and his sole proprietorship had the following property transactions:
a. Sold Blue, Inc. stock for $45,000 on March 12, 2012. He had purchased the stock on
September 5, 2009, for $50,000.
b. Received an inheritance of $300,000 from his Uncle Henry. Devon used $200,000 to purchase Green, Inc. stock on May 15, 2012 and invested $100,000 in Gold, Inc. stock on May 30, 2012.
c. Received Orange, Inc. stock worth $9,500 as a gift from his Aunt Jane on June 17,
2012. Her adjusted basis for the stock was $5,000. No gift taxes were paid on the transfer. Aunt Jane had purchased the stock on April 1, 2006. Devon sold the stock on July 1, 2012, for $22,000.
d. On July 15, 2012, Devon sold one-half of the Green, Inc. stock for $40,000.
e. Devon was notified on August 1, 2012, that Yellow, Inc. stock he purchased from a colleague on September 1, 2011, for $52,500 had become worthless. While he perceived that the investment was risky, he did not anticipate that the corporation would declare bankruptcy.
f. On August 15, 2012, Devon received a parcel of land in Phoenix worth $220,000 in exchange for a parcel of land he owned in Tucson. Because the Tucson parcel was worth $245,000, he also received $25,000 cash. Devon's adjusted basis for the Tucson parcel was $210,000. He originally purchased it on September 18, 2009.
g. On December 1, 2012, Devon sold the condominium in which he had been living for the past 10 years. The sales price was $480,000, selling expenses were $28,500, and repair expenses related to the sale were $9,400. Devon and Ariane had purchased the condominium as joint owners for $180,000. Devon had received Ariane's ownership interest as part of the divorce proceedings. The fair market value at that time was $240,000.
Devon's potential itemized deductions, exclusive of the aforementioned information, are as follows:
Medical expenses (before the 7.5% floor) $ 9,500
Property taxes on residence 5,300
State income taxes 4,000
Charitable contributions 10,000
Mortgage interest on residence 9,900
Sales taxes paid 5,000
During the year, Devon makes estimated Federal income tax payments of $40,000.
Compute Devon's lowest net tax payable or refund due for 2012 assuming that he makes any available elections that will reduce the tax. If you use tax forms for your computations, you will need Forms 1040, 4562, 8332, and 8824 and Schedules A, B, C, D, and SE. Suggested software: H&R BLOCK At Home.