31 Aug Income tax
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Note: This problem is divided into four parts. You will need to complete some of the forms in the other parts in order to determine the amounts to be used on Form 1040. Some of the data information will be reproduced in the other parts for convenience. |
Michael D. and Jeanette S. Boyd live with their family at the Rock Glen House Bed & Breakfast, which Michael operates. The Bed & Breakfast (B&B) is located at 33333 Fume Blanc Way, Temecula, CA 92591. Michael (born May 4, 1977) and Jeanette (born June 12, 1978) enjoy good health and eyesight.
1. The Boyds have three sons. Maxwell was born April 16, 2003, Seve was born December 2, 2008, and Denzel was born January 13, 2010. All three boys live at home and the Boyds provide more than 50% of their support.
2. The Rock Glen House B&B is operated as a sole proprietorship and had the following income and expenses for the year:
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All of the above amounts relate to the business portion of the Bed & Breakfast; the personal portion is accounted for separately. The Rock Glen House B&B uses the cash method of accounting and has no inventory. The employer tax ID number is 95-1234567. Michael contracted the coronavirus in 2020 and the bed and breakfast was forced to close for 24 days. Shortly after recovering, Michael was required to close the bed and breakfast for another 15 days while he cared for his son Denzel, who was unable to attend school. Michael elects to take any sick and family leave credits associated with this leave, but does not defer his self-employment tax payments.
3. The Boyds made estimated federal income tax payments of $2,000 and estimated state income tax payments of $6,000 (all made during 2020).
4. Jeanette worked about 1,000 hours as a substitute schoolteacher with the local school district. She also spent $246 out-of-pocket for various supplies for her classroom. For the current year, Jeanette’s Form W-2 from the school district is located on a separate tab.
5. Michael is retired from the U.S. Navy. His annual statement from the Navy, Form 1099-R.
6. Michael and Jeanette paid (and can substantiate) the following amounts during the year:
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The Boyds are taking the standard deduction in 2020.
7. During the year, Michael and Jeanette received the following qualifying dividends and interest:
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Also, Jeanette owns Series EE U.S. savings bonds. During the year, the bond redemption value increased by $1,300. Jeanette has not elected the accrual method for these bonds. There were no British taxes paid on the interest from the Bank of England. All the above stocks, bonds, and bank accounts are community property.
8. Jeanette has a stock portfolio. During the year, she sold stock, for which she received 1099-B Forms, as follows (basis was provided to the IRS in all cases):
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9. Jeanette paid her ex-husband $4,600 alimony in the current year, as required under the 2003 divorce decree. Her ex-husband’s name is Hector Leach and his Social Security number is 566-23-5431.
10. Michael does all the significant work in the Bed & Breakfast and therefore he pays self-employment tax on 100 percent of the earnings from the B&B.
11. During the year, Michael’s uncle Boris died. Boris had a $50,000 life insurance policy that named Michael as the beneficiary. Michael received the check for the benefits payable under the policy on November 30 of the current year. Boris also left Michael a parcel of land with an appraised value of $120,000.
12. Michael is a general partner in a partnership that owns a boutique hotel in northern California and leases the property to a hotel management company. Michael does not materially participate in the partnership activity but the partnership activity does rise to the level of a trade or business. See Schedule K-1 from the partnership.
13. Jeanette was not eligible for health care benefits due to the part-time nature of her job thus health insurance for the Boyd household was purchased through the Covered California program and the Boyds received the Form 1095-A. They had no other health insurance during 2020. Assume that the self-employed health insurance deduction is $1,472. The Boyds did not claim an advance premium tax credit. Click here to access the completed Form 1095-A to use when completing Form 8962.
14. The Boyds received a $3,400 EIP in 2020.
Required:
Michael and Jeanette have come to you to prepare their 2020 federal income tax return. You are not required to complete the state income tax return. Do not file a federal Form 4952.
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Click here to access the tax table for this problem.
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The taxpayers do not want to make a contribution to the presidential election campaign.
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Enter all amounts as positive numbers, except for a “loss.” If required, enter a “loss” as a negative number on the tax form.
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If an amount box does not require an entry or the answer is zero, enter “0”.
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If required, round your answers to the nearest dollar. On Schedule SE, use the rounded amounts in subsequent computations.
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Remember, the taxpayers make the election to include any child’s interest and dividends on their tax return.
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Make realistic assumptions about any missing data that you may need.
The following is a list of the 13 forms and schedules that you will need to complete the tax return:
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