Instructions:
1. Prepare the 2015 Form 1040 and all other required Federal forms and schedules for Brett Simons. The returns should be prepared taking the maximum tax benefit allowable into consideration. Round all amounts to whole dollars.
2. Do not prepare tax returns for any other individuals mentioned in the problem.
3. The ages provided in the problem are determined as of 12/31/15.
4. Student must not use tax software. Prepare return using 2015 tax forms provided or found at www.irs.gov.
5. Important Requirement! Any and all amounts excluded from income or deductions either limited or not taken must be identified. All calculations used in the determination of the components of taxable income or tax liability must be provided. This requirement should be provided in a separate file (Word or Excel) and must be submitted with the completed tax return.
6. Work independently. Do not collaborate with anyone. Collaboration or assistance, in any form, is considered cheating and will result in a grade of zero for any student(s) involved.
7. Brett Simon's tax return must be saved as a PDF file and submitted to the relevant assignment link at Unit 7 (in addition to the documents required by #5 and #8 of this document). This assignment is subject to the 10% late submission discount.
8. Page 1 of this document (with your name inserted) must be returned as part of your submission; points will be deducted if it is not attached.
Facts:
Brett, age 45, is single and resides at 123 Main Street, West Haven, CT 06516. His social security number is 123-45-6788. Brett has two children, Alec (age 17) and Grace (age 8), and their social security #'s are 049-52-5472 and 045-23-5432 respectively. Brett's mother, Donna Simons (age 70, social security #048-68-5874) lives at 50 Benton Street, West Haven, CT. Donna receives Social Security income of $11,000 per year and $9,000 in part-time wages. Brett pays ABC Afterschool Care (EIN: 01-123456) $100 per week to watch Grace after school (40 weeks). Brett does not want to designate $3 to the Presidential Election Campaign fund.
On New Year's Eve 2012, Brett's wife Susan, was tragically killed in an automobile accident caused by a drunk driver. Brett survived the accident sustaining a broken leg and arm. He filed a lawsuit with respect to his injuries which was settled in 2015 awarding compensatory damages of $60,000 and punitive damages of $15,000.
Brett was the named beneficiary of Susan's $100,000 life insurance policy. Brett was given the option by Liberty Mutual to either receive the entire proceeds as one payment in 2012 or to receive $22,000 per year for five years. Brett chose to receive the proceeds in installments, the fourth of which was received in February, 2015.
Due to the loss of his wife, Brett decided that he should work from home. In December of 2014, he retired from his job as a Waterbury police officer and started his own security company on January 1, 2015. He continued to work part-time for the Police Department in 2015. His W-2 from the Waterbury Police Department (EIN 06-1234567) reported the following: wages $18,000, federal income taxes withheld $4,500, and Connecticut income taxes withheld $2,000. WPD withheld the proper amounts of social security and medicare taxes from Brett's pay during the year. Brett was not a participant in WPD's retirement plan.
Brett's business "Safe & Secure" (taxpayer I.D. #06-7654321) opened for business on January 1st. He uses the cash method of accounting and materially participates in the operation of this business. Brett uses his finished basement as his office. It has a separate entrance for clients and occupies approximately 600 of the 3,000 total square footage of his home. The home cost $300,000 at acquisition (1/1/2010 and does not include cost of land). Brett rents all necessary office furniture and equipment however repairs to the walls and painting were required to make it client ready. The total cost for the wall repairs and painting was $3,000.
Revenue and expenses for Safe & Secure for the year were as follows:
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Security services Revenue
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$70,000
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Alarm monitoring services Revenue
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$15,000
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Equipment rent expense
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$10,000
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Business insurance expense
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$900
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Advertising expense
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$800
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Legal expenses
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$300
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Wages paid to his employee
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$13,000
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Payroll taxes paid on employee wages
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$1,400
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Office Supplies Expense
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$1,000
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Liability Insurance Expense
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$300
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Brett received the following interest and dividend income in 2015 (he did not have any interest in a foreign account or trust):
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Interest
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Dividends
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Webster Bank
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$600
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UTC Corporation**
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$2,000
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Waterbury Credit Union
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$200
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Ace Corporation**
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$900
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Multistate Municipal Bonds
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$300
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Walmart**
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$500
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**Non-Qualified dividends
On November 1, 2010, Brett and Susan invested in Ace Corporation by purchasing 100 shares at $50/share. Concerned about the future of the company, he sold the shares at $10/share on February 1, 2015. Brett received a Form 1099-B from his investment company that reported the sale and basis of the stock sold.
Prior to meeting Susan, Brett was married to Elaine, (social security #321-54-6789). Pursuant to their divorce agreement, Brett is required to make monthly alimony payments of $700 to Elaine. Brett faithfully makes each month's payment.
Alec graduated high school in June and decided to study chemistry at a state university. He received an academic scholarship of $10,000 towards his first year tuition expenses of $18,000. In addition, he took a student loan for $3,000 to pay for room and board. Brett paid the balance of Alec's tuition costs from Brett's savings account.
Brett paid (and can substantiate) the following during the year:
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Health insurance premiums for Brett and kids (paid during 2015)
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$8,800
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Interest on personal credit card
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$500
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Dental expenses (Grace's braces)
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$2,000
|
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Mortgage interest (Main St) (Total mortgage < 1,000,000)
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$6,000
|
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Real estate taxes (Main St)
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$3,000
|
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Mortgage interest (Donna's home)
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$1,000
|
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Property taxes (assessed on car's value)
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$300
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Utilities for residence
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$5,000
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Homeowner's insurance
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$900
|
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Contributions to church
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$400
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Used furniture donated to Goodwill (FMV) (Cost = 1,000)
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$800
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Cost of one dinner ticket to attend a fundraiser for the "Republican National Committee"; value of a comparable dinner = $50
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$475
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Brett did not keep mileage records for medical or charitable contribution deduction purposes.
In 2015, Brett paid a balance of $1,200 with his 2014 Connecticut income tax return. He also made state estimated tax payments totaling $1,600 ($400 on each of the following dates 4/15/15, 06/15/15, 09/15/15 and 01/15/16).
In 2015, Brett made federal estimated tax payments totaling $4,000 ($1,000 on each of the following dates 4/15/15, 06/15/15, 09/15/15 and 01/15/16).
In the event he is due a refund of tax, Brett would like to apply all of his overpayment to his 2016 tax liability.