Tax Return Assignment - Problem
You have been asked to prepare a 2016 tax return for the Johnson family. Milton D. Johnson (789-11-2345, born 9/26/1970) and his wife, Elizabeth S. Johnson (345-22-6789, born 1/31/1976) have three children; Lisa age 9 (324-55-9988), Stephen, age 11 (123-44-5678) and Andrew, age 19 (543-88-9876). They live at 1205 Second Street, New Orleans, LA 70130.
Milton Johnson is a psychiatrist with his own practice, New Orleans Therapy ("NO Therapy"), which is located nearby at 3450 Prytania St. New Orleans, LA 70130. NO Therapy used the cash basis of accounting.
1. NO Therapy had the following transaction during 2016:
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Service Revenue
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$725,000
|
|
Administrative Staff Salaries
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210,000
|
|
Advertising
|
9,000
|
|
Office Rent
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120,000
|
|
Insurance
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50,000
|
|
Utilities
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24,000
|
|
Meals & Entertainment
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8,000
|
|
Dues
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2,000
|
|
Travel Expenses
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6,000
|
|
Legal Fees
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15,000
|
|
Cell Phone (100 % business)
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2,000
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2. NO Therapy purchased $84,000 of office furniture for business use on April 3, 2016. An election is made to expense the acquisition cost under Section 179. The assets have a 7 year life and Milton wants to maximize the current year deduction.
3. The following property was acquired and placed in service in prior years:
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Property
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Placed in service
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Property Class
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Cost
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Method
|
|
Computers
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October 2015
|
5 years
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$15,000
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MACRS
|
|
Printers
|
May 2015
|
5 years
|
$30,000
|
MACRS
|
|
Furniture
|
January 2015
|
7 years
|
$35,000
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MACRS
|
Section 179 or bonus depreciation was not elected for any of the property above.
4. Elizabeth is a nurse at a Children's Hospital. She received a W-2 from Children's Hospital showing wages for 2016 of $75,000. She had $16,000 withheld for federal income taxes and $3,000 withheld for Louisiana state income taxes. Elizabeth's job provided health insurance for the family. She contributed $4,650 to OASDI and $1,088 to HI or a total of 7.65% on her wages.
5. Milton paid estimated federal income taxes of $8,000 ($2,000 for 4 quarters) and estimated state income taxes of $9,000 ($3,000 for the first 3 quarters).
6. Milton and Elizabeth received a Form 1098-T from UNO showing they paid $6,000 in eligible education expenses for Andrew who is a full-time student in his first year at UNO.
7. Milton is still paying off his loans hum medical school. He received Form 1098-E showing that he paid $5,000 m modern loan interest.
8. The Johnson donated 1,000 shares of ABC company stock to the UNO Department of Accounting on July 1, 2016. The stock had a basis of $10 per share and a FMV of $40 per share was purchased in 2011. ABC is publicly traded.
9. Milton and Elizabeth had the following personal expenses for the year:
Home mortgage interest $18,000
Real property taxes 7,000
Cash donations:
First Methodist Church 9,400
LASPCA 95
LSU Athletic Foundation 5
UNO Dept. of Accounting 12,000
American Cancer Society 500
Medical Expenses:
Prescription medications unreimbursed 3,600
Doctor's bills unreimbursed 17,000
Insurance premiums 4,400
Wheelchair ramp for Elizabeth's mother 11,000
(added value to home: $5,000)
10. Milton and Elizabeth provide 100% of the support for Elizabeth's mother, Joyce Keller (111-22-3333) who resides in a nursing home that costs $36,000 a year. She spends one weekend a month at the Johnsons' home.
11. Milton and Elizabeth have the following investment income for 2016:
Whitney Bank (1099-INT) $100 interest
Exxon stock (1099-DIV) $16,000 dividends (qualified)
New Orleans municipal bonds $3,000 interest
12. Milton and Elizabeth had the following stock transaction during 2016. They received a Form 1099-B showing the proceeds of the sales.
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Date
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Shares
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Selling Price
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Basis
|
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1/14
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Sold 500 shares ISC
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$100/share
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Paid $56/share for 400 share on 2/10/2012. There was a 2 for 1 stock on 10/6/2012.
|
|
6/30
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Sold 300 shares LOW
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$70/share
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Paid $9/share for 400 shares on 4/8/2011.
|
|
9/25
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Sold 100 shares RKL
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$64/share
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Paid $44/share for 100 shares on 3/20/2016.
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100 shares of General Business stock purchased in 2006 for $3,600 became worthless in 2016.
13. Milton received $100,000 of life insurance proceeds when his father passed away during the year.
14. The Johnsons' home was damaged during an electrical fire on August 12, 2016. The adjusted basis of the home before the fire was $525,000. The FMV before the fire was $700,000 and the FWV after the fire was $550,000. The insurance company reimbursement was $70,000.