University of South Florida F1040 Forms Principle of Taxation Report
Note: this assignment is for tax year 2019Facts FILL UP F1040 FORMSWilliam Spicer (123-45-5789) and June Spicer (937-65-4321) have two dependent children, Sophie (236-52-6587) age 9 and Carl (236-52-6588) age 7, both of whom live at home. William operates a gourmet market in Raleigh, NC Bill’s Market, as an accrual-basis sole proprietorship.The information on gross sales, expenses, and property transactions is shown below. William receives no salary and therefore, there is no related FICA tax for him.The Market sold a unique piece of equipment for $13,000. It had originally cost $5,000when purchased on March 5, 2015; it had an adjusted basis of $3,000 when sold on August15, 2019. The Market also sold a display case for $1,000 on December 12, 2019, that had cost$12,000 when purchased on June 6, 2013; it had an adjusted basis of $4,000 when sold. Thegains or losses on these asset sales are the same for tax and financial accounting. Thebusiness complies with all Form 1099 requirements.William is also a 10 percent shareholder in Imagineers Corporation, an S corporation, buttakes no active role in the business. He received a Schedule K-1 from this S corporationreporting $18,000 in ordinary business income.June is a general partner in The Bridal Shop Partnership. She worked 3 days a week at the shop and received a Schedule K-1 reporting a $12,000 guaranteed payment and $8,000 in ordinary business income. June paid $3,800 for after-school and summer child care while she worked.2019 financial results for Bill’s Market is as follows:Gross sales ($1,300,000 from credit card sales) 3,700,000Merchandise purchases 2,480,000Expenses:Advertising 40,000Charitable contributions 20,000Cleaning/maintenance 12,000Depreciation (MACRS pre-2019 purchases) 3,000Section 179 expense (2/1/19 display case) 5,000Payroll taxes 18,000Health insurance 15,000*Insurance (excludes health) 18,000Interest expense 1,000Licenses/fees 4,000Meals/entertainment 10,000Office expenses 14,000Rent 120,000Salary/wages 210,000Travel 8,000Utilities 32,000*Includes $3,000 for health insurance for William and his family.The following information pertains to the completion of the Spicers’ personal tax return:Interest income $ 500Dividend income (all qualified) 1,300Unreimbursed doctor’s bills 8,Unreimbursed hospital bills 9,000Dental bills 2,000Mortgage interest 14,000Real estate taxes 7,800Contributions to their church 1,500Investment advisor fees $3,659The Spicers sold 10,000 shares of ABC stock on February 2, 2019 for $4,000. They hadpurchased the stock on August 1, 2010 for $18,000. During 2019, the Spicers paid $300 withtheir 2018 North Carolina state income tax return and made $4,600 in estimated payments for2019 to NC. This amount exceeds their alternate state sales tax deduction. June is a volunteer at thechildren’s school two days a week tutoring at-risk students. Her total mileage for her trips toand from the school was 1,200 miles. She also had unreimbursed out-of-pocket expenses forteaching materials for these students of $232. Additionally, the Spicers contribute $3,000 each to regular IRAs.The Spicers made 2019 Federal quarterly estimated tax payments of $17,500 each quarter. All payments were made when due. Any refund that the Spicers have for 2019 is to be applied to their 2020 estimated taxes.Form 1040 and Related Forms and SchedulesForm 1040: U.S. Individual Income Tax Return & Schedules 1-3Schedule A: Itemized DeductionsSchedule C: Profit or Loss from Business (Sole Proprietorship)Schedule D: Capital Gains and LossesSchedule E: Supplemental Income and LossSchedule SE: Self-Employment Tax (2)Form 2441: Child and Dependent Care ExpensesForm 4562: Depreciation and AmortizationForm 4797: Sales of Business PropertyForm 8582: Passive Activity Loss LimitationsForm 8949: Sales and Other Disposition of Capital AssetsThe Spicers will prepare only one joint tax return, their Form 1040, along with all the requiredschedules and forms including the Schedule C where the income and expenses for Bill’s Market are reported. A Form 4797 is completed for the business property dispositions; thesale of the stock is entered on the Form 8949; the net gain on the equipment disposition andthe gain or loss on the stock are both included on the Spicer’s Schedule D. The depreciationrecapture, if any, is also entered on Form 4797 and is transferred directly to the Spicers’ Form 1040.Two other items are not included on the Schedule C—the health insurance for William andhis family (which is deducted on page 1 of the Form 1040 as a deduction for AGI) and thecharitable contribution (which is included with the Spicers’ personal charitable deductions ontheir Schedule A). June is allowed to deduct 14 cents per mile for the 1,200 miles driven($168) for her volunteer work along with her out-of-pocket charitable expenses of $232.Their other itemized deductions are $23,800 for mortgage interest and $680 for Personal Property taxes. Their dividend income is taxed at the Capital Gain rate, while the rest of their income is taxed at the regular rates.