Based on the following fact pattern, you are to prepare a 2014 federal Form 1040 and Schedules A, B, D, and E for the taxpayer. In addition, you will need to complete Form 8283. (Please note that this taxpayer would technically also be required to file Form 8949 for his stock sales but you should just include that information directly on Schedule D.) These forms can be found on the IRS web site (www.irs.gov). The instructions for these forms and schedules can be helpful in completing the forms and are also available on www.irs.gov. You do not need to prepare or attach any source documents such as Form 1099s. You do not need to prepare a state income tax return. If you feel any relevant information is missing, use reasonable assumptions to fill in the gaps.
When completing the return, ignore the following issues:
• Tax penalties - assume the taxpayer is not subject to any underpayment penalties
• Alternative Minimum Tax (AMT) - assume the taxpayer is not subject to this tax
• Tax credits - assume the taxpayer is not eligible for any income tax credits
Raymond (Ray) Donovan is unmarried and has three children from his previous marriage to Abigail (Abby) Donovan. Two of the children, Bridget and Connor, live with Ray but the youngest child, Patrick, lives with Abby. According to their divorce decree, Ray and Abby can only attempt to claim a child as a dependent if that child was part of their household. Ray paid Abby $800 per month in alimony and $500 per month in child support in 2014. In addition, Ray's father, Mitch Donovan, also lived with Ray in 2014 until his death. Mitch is retired and received $3,600 in social security benefits in 2014. Bridget is a college student at Yale University studying architecture. Bridget lives on campus during the school year but spends the summer at her father's house. Bridget received an academic scholarship that pays for her tuition and fees but Ray took out a student loan to pay for Bridget's room and board while at school. Connor is a freshman at Springfield High School. Ray also provided the following additional information about 2014.
1. Personal information for the Donovan family members is as follows:
|
Name
|
Birthday
|
SSN
|
|
Ray Donovan
|
9/28/1965
|
325-43-4835
|
|
Abby Donovan
|
10/11/1968
|
325-65-6180
|
|
Bridget Donovan
|
10/8/1995
|
813-60-9514
|
|
Connor Donovan
|
7/25/2000
|
813-64-1625
|
|
Patrick Donovan
|
6/1/2008
|
813-58-4859
|
|
Mitch Donovan
|
3/9/1940
|
321-28-2507
|
2. Ray is employed as the Assistant Director of Marketing at ProMedica Health Care in Toledo, Ohio. A copy of Ray's 2014 Form W-2 is attached. In addition to the items reported on Ray's Form W-2, he also received the following fringe benefits from his employer:
• ProMedica pays for Ray to park at a nearby parking garage. This would normally cost an employee $200 per month.
• Ray eats in the ProMedica cafeteria two days each month during his department's bi-weekly marketing brainstorming sessions. These meals are free to Ray and provided for ProMedica's convenience so Ray can participate in these sessions, which last all day. The value of Ray's meals in 2014 is $360.
• Ray took advantage of ProMedica's educational assistance program and enrolled in the Executive MBA program at the University of Toledo. ProMedica paid all of his $7,100 in tuition in 2014.
3. In January 2014, Connor slipped on some ice outside of a convenience store and broke his arm. This accident resulted in $1,000 of medical costs that Ray had to pay himself because they were not covered by Ray's health insurance policy. The store's management reimbursed Ray for the entire $1,000.
4. In February 2014, Bridget totaled her car while driving home from school in the snow. Ray owned the car that Bridget was driving. While Bridget was not seriously injured, the car was a complete loss. On the date of the accident, the car was worth $18,000 and the tax basis was $22,000. In March 2014, Ray received $2,000 in insurance reimbursements for the loss. (NOTE: Compute any deductible loss on your own. Do not complete Form 4684.)
5. In March 2014, Ray celebrated his 10th year of working at ProMedica. In honor of this milestone, ProMedica gave him a $1,000 cash award.
6. In June 2014, Ray's father Mitch died after a short illness. Ray was one of the heir's to his father's estate and he received the following items from his father's estate in December 2014:
• $55,000 in cash
• Stock valued at $190,000 (father's tax basis was $65,000)
7. Ray has some accounts at Key Bank and owns several investments (publicly-traded stocks and bonds). He received several 1099's related to the interest and dividends earned in 2014 on these investments. Copies of the Form 1099's he received documenting the interest and dividends he received in 2014 are attached.
8. In addition to the stocks and bonds Ray owns, he also owns a 1% share in Freeport Mining & Development common stock. Freeport is organized as an s-corporation (federal identification number 45-3158944). Freeport reported taxable income of $200,000 in total for 2014 and sent Ray a 2014 Schedule K-1 indicating his share of this taxable income (see attached). Ray does not materially participate in Freeport's business activities.
9. Ray received a Form 1099-B from his investment broker for the sale of the following securities during 2014:
|
Security
|
Sale
Date
|
Purchase
Date
|
Gross
Sales Price*
|
Commission Paid on Sale*
|
fax
Basis*
|
|
Procter & Gamble Co., 100 shares
|
7/18/2014
|
9/9/2013
|
$ 7,775
|
$ 100
|
$ 8,055
|
|
FirstEnergy Corp., 200 shares
|
3/3/2014
|
8/4/2008
|
6,104
|
200
|
13,790
|
10. On January 2, 2014, Ray took advantage of low mortgage interest rates and refinanced his $225,000 home mortgage with Quicken Loans. The new home loan is for 15 years. He paid $1,500 in closing costs and $2,250 in discount points to obtain the loan. The house is worth $315,000 and his tax basis is $250,000. In April 2014, he also obtained a separate $20,000 home-equity loan. He used the proceeds from the home-equity loan to put in an in-ground pool in the backyard. The details of his 2014 interest expense are as follows:
|
Interest expense
|
Amount
|
|
Primary home mortgage
|
$ 6,210
|
|
Home-equity loan
|
680
|
|
Student loan (Bridget's dorm/meal plan)
|
950
|
|
Credit cards
|
132
|
|
Car loan on Ray's vehicle
|
1,193
|
11. During 2014, Ray paid the following unreimbursed medical expenditures:
|
Item
|
|
|
Transportation for Mitch's cancer treatment at the Cleveland Clinic (personal vehicle mileage)
|
1,200 miles
|
|
Hospital charges for Mitch
|
$ 8,500
|
|
Physician charges for Mitch
|
1,830
|
|
Physician charges for Ray
|
125
|
|
Physician charges for Bridget
|
200
|
|
Physician charges for Connor
|
150
|
|
Prescription medications for Ray
|
600
|
|
Prescription medications for Mitch
|
1,300
|
|
Prescription medications for Bridget
|
360
|
|
Prescription medications for Connor
|
90
|
|
Over-the-counter vitamins and nutritional supplements
|
335
|
|
Orthodontist charges for Connor's braces
|
3,900
|
|
Cosmetic surgery for Ray
(eyelid lift to give him a more youthful appearance)
|
1,800
|
|
Eyeglasses for Bridget
|
550
|
|
Contact lenses for Ray
|
400
|
12. On August 29, 2014, Ray contributed used clothing to The Salvation Army. The original cost of the clothing was $4,000. He has substantiation valuing the donation at $400. The Salvation Army is located at 385 Ridge Road, Toledo, OH 43601. In January 2014, Ray gave $50 to a homeless person he saw when leaving work. On December 30, 2014, Ray contributed 50 shares of Facebook, Inc. common stock to the University of Toledo, his alma mater. This stock was purchased on July 24, 2013 for $1,325 in total and was worth $3,960 in total on the date of the contribution. In addition, Ray made the following cash contributions and received a statement from each of the following qualified organizations acknowledging his contribution:
|
Organization
|
Amount
|
|
Toledo Museum of Art
|
$300
|
|
His church
|
520
|
13. In April 2014, Ray filed his income tax returns for 2013. He received a refund of $845 on the 2013 federal income tax return. Hi also received a refund of on his 2013 Ohio state income tax return of $135 which he received in June 2014 (Form 1099-G attached). His 2013 itemized deductions were $24,860. He paid a local CPA $350 to prepare his 2013 tax returns.
14. Ray also provided the following information:
• He does not want to contribute to the presidential election campaign.
• He does not have any foreign bank accounts or trusts.
• He paid $6,600 in real estate taxes on his principal residence.
• He paid $650 in real estate taxes on a vacant lot he purchased with the hope of building his dream home in the future.
• He paid $3,000 in state and local sales taxes in 2014.
• When registering the family's vehicles in 2014, he paid $800 in total ($200 based on the gross weight of their vehicles and $600 in ad valorem tax).
• If he has an overpayment, he would like to receive it as a refund as opposed to applying it to his 2015 income tax liability.