Income tax assignment must submit all irs forms as well

Purpose: The purpose of this is not merely to learn how to fill-in

forms but to enable you to meet the following goals:

 Calculate individual income tax.

 Identify and calculate business deductions and losses.

 Apply the elements of taxation of property transactions, including

basis, cost recovery, gains and losses and non-recognition

transactions.

Task: In order to successfully complete this assignment, you must.

 Prepare the 2020 federal income tax returns, including all required forms

and schedules, as needed for all members of the Lopez family.

 Throughout the return you will see instances where a line on the 1040,

indicates to attach either a schedule or a specific form if required. You

should review the information and instructions to determine and if required

include it as part of a completed return. You can ignore the requirement to

attach a W-2.

 When the form contains the phrase (attach schedule), without identifying a

specific form or schedule, this indicates that the amount on the form needs to

be further detailed but there is no specific form on which to do so.

In these cases, you should prepare a schedule that does so, such as in the

following example:

Professional Fees $1,200

Auto expenses 300

Miscellaneous 120

Total, Form 1040, Schedule A, line 11 $1,620

 Be sure to attach a list of any positions or conclusions that you made in the

preparation of the return. These will assist in the grading of the return and

would be part of the expectations at a firm to be included in the client file.

Assume that the return is being filed on time.

2

Criteria for Success: In order to earn maximum credit for this

assignment be sure to review the grading rubric.

Dimension/Task Fair Quality

(30 pt.)

Average Quality

(40 pts.)

Excellent

(45 pts.)

Business

Income – 20%

Your return meets

ANY of these

criteria:

-Key items requiring

special tax treatment

were not identified.

-Business income is

materially incorrect

Your return meets ANY

of these criteria:

-A key item requiring

special tax treatment

was not identified.

-A key item was

incorrectly computed.

Your return includes ALL

of the following criteria:

-Key items requiring

special tax treatment

were all identified.

-Business income is

correct.

Adjusted Gross

Income -20%

Your return meets

ANY of these

criteria:

-Key items requiring

special tax treatment

were not identified.

-AGI is materially

incorrect

Your return meets ANY

of these criteria:

-A key item requiring

special tax treatment

was not identified.

-A key item was

incorrectly computed

Your return includes ALL

of the following criteria:

-Key items requiring

special tax treatment

were all identified.

– Adjusted gross income

is correct

Content-

Taxable Income

– 20%

Your return meets

ANY of these

criteria:

– Key items requiring

special tax treatment

were not identified.

-Taxable income is

materially incorrect.

Your return meets ANY

of these criteria:

-A key item requiring

special tax treatment

was not identified.

-A key item was

incorrectly computed

Your return includes ALL

of the following criteria:

-Key items requiring

special tax treatment

were all identified.

-Taxable income is

correct

Content- Tax

Liability– 20%

Your return meets

ANY of these

criteria:

– Key items requiring

special tax treatment

were not identified.

-Tax liability is

materially incorrect.

Your return meets ANY

of these criteria:

-A key item requiring

special tax treatment

was not identified.

-A key item was

incorrectly computed

Your return includes ALL

of the following criteria:

-Key items requiring

special tax treatment

were all identified.

-Taxable liability is

correct

– All pertinent tax credits

properly applied.

Completeness-

20%

Your return meets

ANY of these

criteria:

-Many schedules or

forms are missing

-Many schedules or

forms are

incomplete

Your return meets ANY

of these criteria:

-A schedule or form is

missing

-A schedules or form is

incomplete

Your return includes ALL

of the following criteria:

-Necessary schedules and

forms are provided.

-Schedules and forms are

complete.

3

Jorge Lopez age 44 (SSN 111-11-1111) and his wife Margarita Lopez age 42 (SSN 111-22-2222)

live at 145 Gulf View Drive, Palm View, FL 34221. The Lopez have a daughter Amanda (SSN 111-

33-3333), age 20 and a son Max, age 10 (SSN 111-44-4444). In addition, they provide 100% of

the support for Jorge’s mother Celia (SSN 112-11-1111) who is a resident of Mexico.

Amanda is a single full-time college student at FSU; she is now enrolled in her first year of law

school, which she began in August of 2020. Amanda worked during the summer as a lifeguard

for Lifeguards R Us at the Palm View Beach. She was able to work on her tan as well as earn

$2,850, for which she received a W-2and had no federal income taxes withheld. Amanda

completed her undergraduate studies in May of 2020 also at FSU, earning her bachelor’s in

Psychology. Amanda also had the following sources of income: $200 of interest income and

$300 of qualified dividend income. The Palm View Bar Association awarded Amanda a $2,000

per semester scholarship assuming she maintains a high GPA in law school. Amanda applied the

scholarship to her tuition. Jorge and Margarita help Amanda during the school year by paying

her room $7,000, board $2,000 and tuition $11,000 ($3,000 for undergraduate studies and

$8,000, for law school.) Jorge and Margarita provide more than 50% of Amanda’s support for

the year.

Max is enrolled in an after-school program for 10 months of the year at a cost of $250 a month

at Palm Youth Program (FEI# 11-8989898 123 Main Street Palm View FL 34221). During school

summer and winter breaks he attends a day camp offered by the same youth program for a

total cost of $2,200. Max attends St Mary’s Parochial School where the tuition is $ 400 per

month for 10 months, for “active parishioners” (those who donate a minimum of $2,000 per

year to St Mary’s Church.) For non-parishioners the tuition is $650 per month.

Jorge Lopez worked as a Sales Executive for Smiley Inc. (FEI 34-9876543 located at 123

Corporate Drive, Chicago, Il 60606) He received a salary and bonuses totaling gross wages of

$124,200 (withholdings include $18,500 of federal income tax, Social security of $7,700 and

Medicare of $1,801). Additionally, Smiley provides Jorge with a retirement plan and medical

insurance worth $7,400; the entire family is covered under this policy.

Margarita is a sole practitioner; her business is not a “specified trade or business.” She along

with her 2 part-time employees sews custom wedding dresses from the detached garage at the

home under the label Daisy Couture (EIN 59-1234567). The garage is 12% of the house’s total

square footage of 3,000. The business code is 315240. She had the following income and

expenses:

Gross Revenue $121,000

Cost of materials (material, thread, etc.) 28,000

Wages (including all payroll taxes required) 33,000

Website & Domain 700.

Business telephone 1,000.

The Lopez home cost a total of $475,000, of which the cost of the land was $75,000. The

current FMV of the house is $550,000 and the FMV in January 2013 was $485,000. The garage

as a workspace is depreciable under MACRS using the mid-month convention. They purchased

the home in June of 2012 and Margarita began her business in January of 2014. They spent an

additional $32,000 in 2014 to remodel the garage to create a separate workroom as well as

4

dressing rooms and an area to meet with prospective brides and their entourage. It was placed

in service on 6/1/2014.

In addition, Daisy Couture purchased 3 sewing machines in 2015 for $4,200 each as well as

computer equipment for $4,000. She has not taken Sec 179 nor bonus depreciation in the past.

During the current year, an additional specialized sewing machine for working with lace was

purchased for $7,000 on April 1.

The Lopez incurred the following other income and expenses:

Total Expenses related to the Principal Residence:

 Utility bills $4,600

 Real Estate taxes 4,300

 Mortgage interest 6,800

 Homeowner’s Insurance 1,900

Eyeglasses and exam for Margarita (unreimbursed by insurance) 600

Braces for Max (unreimbursed by insurance) 10,000

Cash contribution to Mayor Crawley’s Re-election Campaign 500

Cash contribution to St Mary’s Church 3,000

Sales tax on purchases (nonbusiness) 4,700

Dividends from 3G stock 900

Interest from City of Tampa bonds 700

Interest from savings account 210

During the year the following events also occurred:

a. During the year on October 1, Margarita’s great aunt Consuelo died. Jorge and

Margarita received $100,000 from the life insurance policy. Neither Jorge nor Margarita

paid any of the premiums.

b. In addition to the life insurance, Consuelo bequeathed to Margarita her collection of

antique fans. Consuelo had started the collection as a child and her basis in the fans,

was $ 750, the FMV of the fans at the date of Consuelo’s death was $10,000. Margarita

sold them to a collector on December 30 for $10,800.

c. Jorge enjoys playing the drums and plays in a band on weekends. His band, Las

Cucarachas has developed a local following and they decided to try recording some

original music. The recording was completed in October of this past year. His share of

the gross revenue was $1,400 for playing shows and $150 of recording sales. His share

of the expenses are as follows:

Studio Rental $1,500

Recording production 1,000

New drums and drumsticks 400

Website 200

Printing Flyers 350

5

d. Jorge and Margarita had purchased a plot of land in North Carolina in 2015 for $25,000.

This year on June 7 th they sold the property for $110,000, to an unrelated third party.

$5,000 in selling expense was part of the closing costs paid by the Lopez. In accordance

with the agreement, the buyers paid a deposit of $30,000 at closing and agreed to pay

$20,000 plus 5% interest each year for the next four years.

e. The Lopez had the following sales activity in their brokerage account during the year (all

transactions were reported on a Form 1099-B. Basis information on each stock was

reported to the IRS):

Description Date

Purchased

Basis Date Sold Amount

Realized

2,000 shares of Microsoft 1/18/2020 $22,000 8/1 $27,500

125 shares of Apple Inc. 5/18/2005 15,000 8/1 32,000

150 shares of Visa 6/15/2011 18,000 8/1 24,000

1,000 shares of Cardinal 5/15/2016 23,000 8/1 28,000

250 shares of 3G 6/17/2013 14,000 8/1 12,500

Additional Info: The Lopez’s have a $15,000 long-term capital loss carryover

from the prior tax year. Amount realized is net of all brokerage fees.

f. On September 1 of this year, the Lopez’s purchased a 2-bedroom condo in

Breckenridge, CO. This property is held as a rental investment. The property cost

$465,000 (of which $50,000 is allocated to land and $15,000 to the furniture and

fixtures) and is located on 1234 Ski Runway, Breckenridge, CO 80424. The family

resided in the home for personal recreation for 25 days and rented the condo for 75

days during 2020. $25,000 in gross rental receipts was collected in 2020, which included

$4,600 that was received in advance for the 2020 ski season. They will use the IRS

Method when allocating the rental expenses and MACRS mid-month convention for

calculating depreciation. They pay a rental management company to handle all aspects

of renting and care for the property. Additional information regarding the property are

summarized below:

Description Amount

Property Taxes (allocated for the portion of year) $4,000

Interest on mortgage 3,800

Repairs 1,800

Condo Maintenance Fees 3,200

Insurance (allocated for the portion of year) 600

Utilities 1,200

Management Fee paid to rental management company 4,200

g. During the year Margarita contributed $3,000 to an IRA for 2020.

h. Margarita purchased an annuity in 2016 and invested $36,000 and receives $4,000

yearly over a 12-year period. She received a $4,000 payment in December of this year.

i. The Lopez total federal income tax bill for 2019 was $20,500 and they made timely

quarterly estimated payments for 2020 of $3,200 per quarter.

j. Additional information about the Lopez family.

o If a refund results, the taxpayers want a check sent to them.

6

o They do not wish to contribute to the Presidential Election Campaign fund.

o The Lopez did not own, control or manage any foreign bank accounts nor were

they grantors or beneficiaries of a foreign trust during the tax year.

o They did not acquire, sell or exchange virtual currency.

o They do not elect to defer any taxes pursuant to the CARES Act.

Required:

Prepare the 2020 federal income tax returns, including all required forms and

schedules, as needed for all members of the Lopez family. Remember that they have

hired you prepare their return correctly while minimizing their current tax liability.

Any decisions, assumptions position you take should be defensible and have tax

savings for the client at their core.

Throughout the return you will see instances where a line on the 1040, indicates to

attach either a schedule or a specific form. You should review the information and

instructions to determine and if required include it as part of a completed return.

You can ignore the requirement to attach a W-2.

When the form contains the phrase (attach schedule), without identifying a specific

form or schedule, this indicates that the amount on the form needs to be further

detailed but there is no specific form on which to do so.

In these cases, you should prepare a schedule that does so, such as in the following

example:

Professional Fees $1,200

Auto expenses 300

Miscellaneous 120

Total, Form 1040, Schedule A, line 11 $1,620

Be sure to attach a list and explanations of any positions, assumptions or

conclusions that you made in the preparation of the return. These will assist in the

grading of the return and would be part of the expectations at a firm to be included

in the client file for the reviewer.

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