K. Susan has summarized the following cash expenditures for 2016 from canceled checks, mortgage company statements, and other documents:
Prescription medicines and drugs ……………………………………………………………….. $982
Medical insurance premiums (paid by Susan)………………………………………………….2,830
Doctors’ and hospital bills (net of reimbursements)…………………………………………1,535
Contact lenses for David …………………………………………………………………………………..218
Real estate taxes paid on:
Dallas residence ……………………………………………………………………………………………….$3,400
Los Angeles residence ……………………………………………………………………………………….$5,600
Sales taxes paid on Susan’s new auto …………………………………………………………………1,485
Ad valorem taxes paid on both autos…………………………………………………………………..350
Interest paid for:
Dallas home mortgage …………………………………………………………………………………..5,250*
(*Does not include the mortgage prepayment penalty identified in item(b)above.
Los Angeles home mortgage ……………………………………………………………………………10,200**
(**Does not include the interest points charged for the new mortgage identified in item (d)above.
Credit card interest …………………………………………………………………………………………..480
Personal car loan ……………………………………………………………………………………………….1,720
Cash contributions to:
United Methodist Church…………………………………………………………………………………..5,200
Salvation Army ……………………………………………………………………………………………………1,500
Barack Obama Campaign Fund…………………………………………………………………………….250
Susan’s unreimbursed employee expenses ………………………………………………………….470***
(***Does not include any costs for meals or entertainment).
David’s unreimbursed employee expenses …………………………………………………………..360
Tax return preparation fee …………………………………………………………………………………..375
Susan also noted that she and David had driven their personal automobiles 500 miles to receive medical treatment for themselves and their children. She also has a receipt for 100 shares of Apple stock that she gave to her alma mater, Southern Methodist University , on November 12,2016. The stock was valued at $70 per share on the date of the gift and was from the block of Apple stock Susan had received as a wedding present from her grandfather. (Sold 400 shares of Apple stock for $78 per share on July 20,2016. Susan had received 1,000 shares of Apple stock as a birthday present from her grand-father on June 3,2007. Her grand-father had purchased the stock for $35 per share on May 7,2003, and the stock was valued at $60 per share on the date of the gift . Susan’s grandfather paid gift taxes of $10,000 as a result of the gift. )
The amounts of real estate taxes are the amounts the Holmans were apportioned in the sale of their Dallas residence and the purchase of their Los Angeles residence, respectively. Thus, if they are deductible, the entire amount is deductible and you do not need to worry about apportioning them based on their periods of residence.
The amount specified as “Ad valorem taxes paid on both autos” is the total amount paid on both automobiles together—not the amount paid on each automobile. (Thus, a total of $350, as opposed to $700). We don’t know the specific amount spent on each car, but the specific allocation doesn’t make any difference. For a discussion of “ad valorem” taxes (i.e., taxes imposed on the value of certain assets),
The Problem explicitly indicates that Susan’s unreimbursed employee business expenses “Do not include any costs for meals or entertainment”, but is silent regarding David’s unreimbursed business expenses. You may also assume that David’s unreimbursed employee business expenses do not include any costs for meals or entertainment.
As directed by the Problem, prepare the Holmans’ Federal income tax return for 2016. As indicated by the problem, if they have a refund, they would prefer to have it credited (i.e., applied) against their 2017 taxes (presumably because they are expecting to have a required estimated tax payment obligation related to David’s self-employment income).