Instructions:
-
Prepare the 2013 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.
-
Do not prepare tax returns for any other individuals
mentioned in the problem.
-
The ages provided in the problem are determined as of
12/31/13.
-
Must not use tax
software. Prepare return using 2013 tax forms provided or found at
www.irs.gov.
-
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.
-
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.
-
Brett Simon’s tax return must be saved as a PDF file and
submitted to the relevant assignment link. (in addition to the
documents required by #5 and #8 of this document). This assignment
is subject to the 10% late submission discount.
Facts:
Brett, age 45, is single and resides
at 123 Main Street, West Haven, CT 06516. His social security
number is 123-45-6789. Brett has two children, Kyle (age 17) and
Grace (age 10), 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. Ella receives Social Security income of $15,000 per year and
Brett pays his mother $75 per week to watch Grace after school (36
weeks). Brett does not want to designate $3 to the Presidential
Election Campaign fund.
On New Year’s Eve 2009, Brett’s
wife and Grace’s mother 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 2013 awarding
compensatory damages of $15,000 and punitive damages of $35,000.
Brett was the named beneficiary of
Susan’s $150,000 life insurance policy. Brett was given the option
by Liberty Mutual to either receive the entire proceeds as one
payment in 2010 or to receive $32,000 per year for five years. Brett
chose to receive the proceeds in installments, the fourth of which
was received in February, 2013.
Due to the loss of his wife, Brett
decided that he should work from home. In December of 2012, he
retired from his job as a Waterbury police officer and started his
own security company on January 1, 2013. He continued to work
part-time for the Police Department in 2013. His W-2 from the
Waterbury Police Department (EIN 06-1234567) reported the following:
wages $10,000, federal income taxes withheld $1,000, and Connecticut
income taxes withheld $500. 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.
In 2013 Brett returned to school to
pursue a master’s degree in Criminal Justice. During 2013, Brett
paid $3,000 for qualified tuition expenses.
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 500 of the 3,000 total square
footage of his home. The home cost $400,000 at acquisition
(12/01/2000 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 $2,000.
Revenue and expenses for Safe &
Secure for the year were as follows:
|
Security services Revenue
|
$50,000
|
|
Alarm monitoring services Revenue
|
$10,000
|
|
Equipment rent expense
|
$5,000
|
|
Business insurance expense
|
$500
|
|
Advertising expense
|
$800
|
|
Legal expenses
|
$500
|
|
Wages paid to his employee
|
$9,000
|
|
Payroll taxes paid on employee
wages
|
$800
|
|
Office Supplies Expense
|
$1,000
|
|
Liability Insurance Expense
|
$500
|
Brett received the following interest
and dividend income in 2013 (he did not have any interest in a
foreign account or trust):
|
|
Interest
|
|
Dividends
|
|
Webster Bank
|
$500
|
UTC Corporation**
|
$2,000
|
|
Waterbury Credit Union
|
$300
|
Ace Corporation**
|
$300
|
|
Multistate Municipal Bonds
|
$800
|
Walmart**
|
$500
|
**Non-Qualified dividends
On November 1, 2005, Brett and Susan
invested in Ace Corporation by purchasing 100 shares at $60/share.
Concerned about the future of the company, he sold the shares at
$20/share on February 1, 2013. 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, Kyle’s mother (social security #985-25-6975).
Pursuant to their divorce agreement, Brett is required to make
monthly alimony payments of $500 to Elaine. Brett faithfully makes
each month’s payment. In addition, Elaine is required to pay Brett
$800 per month for child support. Kyle resides with his mother
during the summer and school vacations.
Brett is an avid fisherman. In
December 2013, Brett’s fishing boat which is stored at the Mystic
dock was stolen and not recovered. Prior to the theft, the boat’s
fair market value and adjusted basis was $30,000 and $25,000
respectively. The boat which was acquired in 2010 was not insured.
Kyle 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 semester tuition
expenses of $18,000. In addition, he took a student loan for $6,000
to pay for room and board. Brett paid the balance of Kyle’s
tuition costs from Brett’s savings account.
Brett paid (and can substantiate) the
following during the year:
|
Health insurance premiums for Brett
and kids (paid during 2013)
|
$5,600
|
|
Interest on Discover credit card
|
$300
|
|
Dental expenses (Grace’s braces)
|
$6,000
|
|
Donna’s medical expenses
|
$500
|
|
“Lifestyle” lift for Donna
|
$6,500
|
|
Mortgage interest (Main St) (Total
mortgage
|
$5,800
|
|
Real estate taxes (Main St)
|
$2,000
|
|
Mortgage interest (Donna’s home)
|
$1,000
|
|
Property taxes (assessed on car’s
value)
|
$350
|
|
Utilities for residence
|
$4,500
|
|
Homeowner’s insurance
|
$900
|
|
Contributions to church
|
$800
|
|
Used furniture donated to Goodwill
(FMV) (Cost = 1,000)
|
$800
|
|
Cost of one dinner ticket to attend
a fundraiser for the “Republican National Committee”; value of
a comparable dinner = $50
|
$475
|
Brett did not keep mileage records for
medical or charitable contribution deduction purposes.
In 2013, Brett paid a balance of $800
with his 2012 Connecticut income tax return. He also made state
estimated tax payments totaling $1,000 ($250 on each of the following
dates 4/15/13, 06/15/13, 09/15/13 and 01/15/14).
In the event he is due a refund of
tax, Brett would like to apply all of his overpayment to his 2014 tax
liability.
May 7th, 2018 
