INDIVIDUAL
TAX RETURN PROBLEM 5

Required:
Use
the following information to complete Paul and Judy Vance’s 2011 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 independent contractor during the year, earning
$3,200. Joan lived at home until she was married in December 2011. 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 at 621 Franklin Avenue,
Cincinnati, OH 45211.

Paul’s birthday is 3/5/1957 and his
Social Security number is 333-45-6666.

Judy’s birthday is 4/24/1960 and her
Social Security number is 566-77-8888.

Vince’s birthday is 11/6/1988 and his
Social Security number is 576-18-7928.

Joan’s birthday is 2/1/1992 and her
Social Security number is 575-92-4321.

Jennifer’s birthday is 12/12/1999 and
her Social Security number is 613-97-8465.

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 $900, Cincinnati city income tax of $375,
$1,260 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 $420, 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 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 received in 2011 are qualified dividends.
4.
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. 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 performed on welfare patient 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 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,
2006, 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, 2006,
was $155,000. The property was distributed to Judy on January 1, 2007. The
Vances have held the property as rental property and have managed it
themselves. From 2007 until June 30, 2011, 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, 2011. 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 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, 2011, for $42 a share (minus a $50
commission). The Vances received the stock from Paul’s father on June 25, 1980,
as a wedding present. Paul’s father originally purchased the stock for $10 per
share in 1967. 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 2011), she drove her personal automobile 6,800 miles in fulfilling
this obligation. Judy drove an additional 6,700 personal miles during 2011. She
has been using the car since June 30, 2010. 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 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
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 2010 tax
return paid April 14, 2011 500

9.
The Vances filed their 2010 federal,
state, and local returns on April 14, 2011. They paid the following additional
2010 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 2011. 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, 2011. They would like to
receive a refund for any overpayments.
INDIVIDUAL
TAX RETURN PROBLEM 5Required:Use
the following information to complete Paul and Judy Vance’s 2011 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 independent contractor during the year, earning
$3,200. Joan lived at home until she was married in December 2011. 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 at 621 Franklin Avenue,
Cincinnati, OH 45211.
Paul’s birthday is 3/5/1957 and his
Social Security number is 333-45-6666.
Judy’s birthday is 4/24/1960 and her
Social Security number is 566-77-8888.
Vince’s birthday is 11/6/1988 and his
Social Security number is 576-18-7928.
Joan’s birthday is 2/1/1992 and her
Social Security number is 575-92-4321.
Jennifer’s birthday is 12/12/1999 and
her Social Security number is 613-97-8465.
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 $900, Cincinnati city income tax of $375,
$1,260 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 $420, 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 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 received in 2011 are qualified dividends.4.
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. 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 performed on welfare patient 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 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,
2006, 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, 2006,
was $155,000. The property was distributed to Judy on January 1, 2007. The
Vances have held the property as rental property and have managed it
themselves. From 2007 until June 30, 2011, 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, 2011. 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 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, 2011, for $42 a share (minus a $50
commission). The Vances received the stock from Paul’s father on June 25, 1980,
as a wedding present. Paul’s father originally purchased the stock for $10 per
share in 1967. 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 2011), she drove her personal automobile 6,800 miles in fulfilling
this obligation. Judy drove an additional 6,700 personal miles during 2011. She
has been using the car since June 30, 2010. 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 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
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 2010 tax
return paid April 14, 2011 5009.
The Vances filed their 2010 federal,
state, and local returns on April 14, 2011. They paid the following additional
2010 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 2011. 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, 2011. They would like to
receive a refund for any overpayments.