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Ask Lane Your Own Question

Lane
Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3645
Experience:  Providing Financial & Tax advice since 1986
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Customer Question

• Use the following information to complete Paul and Judy Vance’s 2010 federal
income tax return. If information is missing, use reasonable assumptions to fill
in the gaps.
• You may need the following forms and schedules to complete the project:
Form 1040, Schedule A, Schedule B, Schedule C, Schedule D, Schedule E,
Schedule SE, Form 2106-EZ, Form 4562 (for the dental practice), Form 4562
(for the rental property), Form 4797, and Form 8863. The forms, schedules,
and instructions can be found at the IRS Web site (www.irs.gov). The
instructions can be helpful in completing the forms.
Facts:
1. 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
three 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 Vince’s support (including $4,000 for Vince’s fall tuition). They also
provided over half the support of their daughter, Joan, who is a full-time
student at Edgecliff College in Cincinnati. Joan worked part-time as an inde-
pendent contractor during the year, earning $3,200. Joan lived at home until
she was married in December 2010. She filed a joint return with her husband,
Patrick, who earned $20,000 during the year. Jennifer is the youngest and
lived in the Vances’ home for the entire year. The Vances provide you with the
following additional information:
• Paul and Judy would like to take advantage on their return of any
educational expenses paid for their children.
• The Vances do not want to contribute to the presidential election
campaign.
• The Vances live atXXXXX Cincinnati, OH 45211.
• Paul’s birthday is XXXXX and his Social Security number is XXXXX
• Judy’s birthday is XXXXX and her Social Security number is XXXXX
• Vince’s birthday is XXXXX and his Social Security number is XXXXX
• Joan’s birthday is XXXXX and her Social Security number is XXXXX
• Jennifer’s birthday is XXXXX and her Social Security number is
XXX-XX-XXXX.
• The Vances do not have any foreign bank accounts or trusts.
2. Judy is a lecturer at Xavier University in Cincinnati, where she earned $30,000.
The university withheld federal income tax of $3,375, state income tax of

Appendix C C-1
$900, Cincinnati city income tax of $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,
state income tax of $300, Cincinnati city income tax of $125, Social Security
tax of $620 and Medicare tax of $145.
3. 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. They paid interest of $1,100 on the loan. Paul received a dividend
of $540 on General Bicycle Corporation stock he owns. Judy received a divi-
dend 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 received in 2010 are qualified dividends.
4. Paul practices under the name “Paul J. Vance, DDS.” His business is located at XXXXX Cincinnati, OH 45211, and his employer identification num-
ber is 01-2222222. Paul’s gross receipts during the year were $111,000. Paul uses
the cash method of accounting for his business. Paul’s business expenses are as
follows:
Advertising $ 1,200
Professional dues 490
Professional journals 360
Contributions to employee benefit plans 2,000
Malpractice insurance 3,200
Fine for overbilling State of Ohio for work 5,000
performed on welfare patient
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 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. Paul’s 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 to not claim any bonus depreciation.
5. Judy’s mother, Sarah, died on July 2, 2005, leaving Judy her entire estate.
Included in the estate was Sarah’s residence (325 Oak Street, Cincinnati, OH
45211). Sarah’s basis in the residence was $30,000. The fair market value of the
residence on July 2, 2005,
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

when do you need this?

Customer :

asap

Customer :

there is a 2nd half the question to how do i post that

Customer :

was $155,000. The property was distributed to Judy


on January 1, 2006. The Vances have held the property as rental property and


have managed it themselves. From January 1, 2006, until June 30, 2010, they


rented the house to the same tenant. The tenant was transferred to a branch


office in California and moved out at the end of June. Since they did not want


to bother finding a new tenant, Paul and Judy sold the house on June 30, 2010.


They received $140,000 for the house and land ($15,000 for the land and $125,000


for the house), less a 6 percent commission charged by the broker. They had


C-2 Appendix C


depreciated the house using the MACRS rules and conventions applicable to


residential real estate. To compute depreciation on the house, the Vances had


allocated $15,000 of the property’s basis to the land on which the house is


located. The Vances collected rent of $1,000 a month during the six months


the house was occupied during the year. They incurred the following related


expenses during this period:


Property insurance $500


Property taxes 800


Maintenance 465


Depreciation (to be computed) ?


6. The Vances sold 200 shares of Capp Corporation stock on September 3,


2010, for $42 a share (minus a $50 commission). The Vances received the


stock from Paul’s father on June 25, 1979, as a wedding present. Paul’s


father originally purchased the stock for $10 per share in 1966. The stock


was valued at $14.50 per share on the date of the gift. No gift tax was paid


on the gift.


7. 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 2010), she drove


her personal automobile 6,800 miles in fulfilling this obligation. Judy drove an


additional 6,700 personal miles during 2010. She has been using the car since


June 30, 2009. Judy uses the standard mileage method to calculate her car


expenses.


8. Paul and Judy have given you a file containing the following receipts for expen-


ditures 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 year’s 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. Matthew’s church 3,080


Payroll deductions for Judy’s contributions to the United Way 150


Professional dues (Judy) 325


Professional subscriptions (Judy) 245


Fee for preparation of 2009 tax return paid April 14, 2010 500


9. The Vances filed their 2009 federal, state, and local returns on April 14,


2010. They paid the following additional 2009 taxes with their returns:


federal income taxes of $630, state income taxes of $250, and city income


taxes of $75.


10. The Vances made timely estimated federal income tax payments of $1,500 each


quarter during 2010. They also made estimated state income tax payments of


$300 each quarter and estimated city income tax payments of $160 each quarter.


The Vances made all fourth-quarter payments on December 31, 2010. They would


like to receive a refund for any overpayments.

Customer :

I really need to have a conversation with you to provide the necessary information

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