The simulation problem requires you to fill out of the IRS required forms and/or schedules for a complete and accurate processable form. On these forms and/or schedules are 203 line entries or boxes that must be checked. These must be made to fill out the forms correctly. Each line is worth 1 point for a total of 203 possible points. You grade is calculated on the number of correct line entries over 203. Example (your score) 174 divided by (possible points) 203 = 85%. This will get you a 3.2 B+.
Paul J. and Judy L. Vance are married and file a joint return. Paul is self- employed as a dentist, and Judy is a college professor. Paul and Judy have two children. The oldest is Vince who lives at home. Vince is a law student at the University of Cincinnati and worked part-time during the year, earning $1,500, which he spent for his own support. Paul and Judy provided $6,000 toward Vinces support. Jennifer is the youngest and lived in the Vances home for the entire year. The Vances provide you with the following additional information.
The Vances do not want to contribute to the presidential election campaign.
The Vances live at 621 Franklin Avenue, Cincinnati, OH 45211.
Pauls birthday is 3/5/1961 and his Social Security number is 333-45-6666.
Judys birthday is 4/24/1964 and her Social Security number is 566-77-8888.
Vinces birthday is 11/6/1996 and his Social Security number is 576-18-7928.
Jennifers birthday is 12/12/2009 and her Social Security number is 613-97-8465.
The Vances do not have any foreign bank accounts or trusts.
Judy is a lecturer at Xavier University in Cincinnati, where she earned $30,000. The university withheld federal income tax of $3,375, $1,860 of Social Security tax and $435 of Medicare tax. She also worked part of the year for Delta Airlines. Delta paid her $10,000 in salary, and withheld federal income tax of $1,125, Social Security tax of $620, and Medicare tax of $145.
The Vances received $800 of interest from State Savings Bank on a joint account. They received interest of $1,000 on City of Cincinnati bonds they bought in January with the proceeds of a loan from Third National Bank of Cincinnati. Paul received a dividend of $540 on General Bicycle Corporation stock he owns. Judy received a dividend of $390 on Acme Clothing Corporation stock she owns. Paul and Judy received a dividend of $865 on jointly owned stock in Maple Company. All of the dividends are ordinary dividends.
Paul practices under the name “Paul J. Vance, DDS.” His business is located at 645 West Avenue, Cincinnati, OH 45211, and his employer identification number is 01-2222222. Pauls gross receipts during the year were $111,000. Paul uses the cash method of accounting for his business. Pauls business expenses are as follows:
Advertising 1,200
Professional dues 490
Professional journals for dentists 360
Contributions to employee pension plans 2,000
Malpractice insurance 3,200
Fine for overbilling State of Ohio for work performed on welfare patients 5,000
Insurance on office contents 720
Interest on money borrowed to refurbish office 600
Accounting services 2,100
Miscellaneous office expense 388
Office rent 12,000
Dental supplies used in dental services for patients 7,672
Utilities and telephone 3,360
Wages 30,000
Payroll taxes 2,400
In June, Paul decided to refurbish his office. This project was completed and the assets placed in service on July 1 2019. Pauls expenditures included $8,000 for new office furniture, $6,000 for new dental equipment (seven-year recovery period), and $2,000 for a new computer. Paul elected to compute his cost recovery allowance using MACRS. He did not elect to use §179 immediate expensing and he chose not to claim any bonus depreciation.
Judys mother, Sarah, died on July 2, 2018, leaving Judy her entire estate. Included in the estate was Sarahs residence (325 Oak Street, Cincinnati, OH 45211). Sarahs basis in the residence was $30,000. The fair market value of the residence on July 2, 2018, was $155,000. The property was distributed to Judy on July 2, 2018. The Vances have held the property and have managed it themselves and they started renting the house to the same tenant starting January 1, 2019.To compute depreciation on the house, the Vances had allocated $15,000 of the propertys basis to the land on which the house is located. The Vances collected rent of $1,000 a month during the months the house was rented during the year.
They incurred the following related expenses during this period:
Property insurance 500
Property taxes 800
Maintenance 465
Depreciation (to be computed by you)
The Vances sold 200 shares of Capp Corporation stock on September 3, 2018, for $42 a share. The Vances received the stock from Pauls father on June 25, 1980, as an inheritance. Pauls father originally purchased the stock for $10 per share in 1967. The stock was valued at $14.50 per share on the date of inheritance
Judy is required by Xavier University to visit several high schools in the Cincinnati area to evaluate Xavier University students who are doing their practice teaching. However, she is not reimbursed for the expenses she incurs in doing this. During the spring semester (January through April 2019), she drove her personal automobile 6,800 miles in fulfilling this obligation. Judy drove an additional 6,700 personal miles during 2019. She has been using the car since June 30, 2011. Judy uses the standard mileage method to calculate her car expenses.
Paul and Judy have given you a file containing the following receipts for expenditures during the year:
Prescription medicine and drugs (net of insurance reimbursement) $376
Doctor and hospital bills (net of insurance reimbursement) $2,468
Penalty for underpayment of last years state income tax $15
Real estate taxes on personal residence $4,762
Interest on home mortgage (paid to Home State Savings & Loan) $8,250
Interest on credit cards (consumer purchases) $595
Cash contribution to St. Matthews church $3,080
Payroll deductions for Judys contributions to the United Way $150
Fee for preparation of 2018 tax return paid April 12, 2019 of $500.
The Vances made timely estimated federal income tax payments of $1,700 each quarter during 2019. The Vances made the fourth-quarter payment on December 31, 2019. They would like to receive a refund for any over payments.