Complete the federal and California tax returns for the Kaisers.


Question Description:

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Complete the federal and California tax returns for the Kaisers. John and Ruth Kaiser, ages 46 and 47, are husband and wife and reside at 2168 Eagle Court, Rocklin, CA 95677. John is a computer consultant who specializes in installing software systems. John deals mainly with city and county governments and school districts. Currently, John has contracts with Placer and El Dorado Counties which pay him an annual retainer to be on call as needed and he works on a per job basis for other entities. As noted below (see item 3), he conducts his consulting business from an office in his home. Ruth is a teacher employed by the Rocklin School District. She has been completing classes offered by CSU-Sacramento leading to a Master of Arts in Education. In driving to work and school, Ruth uses the family Audi. The Kaisers constructed their residence on Eagle Court in 2006 at a cost of $520,000. They had acquired the lot from a grandparent several years before for an additional $20,000. Of the 3,200 square feet of livable space, one-fourth (25%) is used as John’s office. Besides the interest on the home mortgage and property taxes (see item 18 below), residential expenses for 2008 are as follows: Utilities$4,200 Security system annual service fee600 Homeowner’s insurance800 Carpeting of office area, 6/7/072,200 John’s office furniture (e.g., desk, chairs, drafting tables) was expensed previously under section 179 when acquired. On May 16, 2008, however, he bought a new Xerox copier for $850. In August of 2007, John purchased a BMW that he uses exclusively for business. No trade-in was involved and part of the purchase price of $45,000 was financed. For 2007, he did not choose to claim any section 179 expensing. Under the actual operating cost method, he uses 200% declining-balance with half-year convention. His expenses relating to the BMW for 2008 are as follows: ItemAmount Gasoline$2,400 Oil and lubrication120 Auto insurance1,400 Interest on car loan1,200 Repairs (not under warranty)520 During 2008, John drove the BMW 18,000 miles. Except for the work he does for Placer and El Dorado Counties, John’s consulting usually requires overnight stays. On a typical trip, he drives to the work location and stays at a motel until the assignment is complete. In addition to the auto expense previously noted (see item 4), his business travel expenses for 2008 are summarized below: ItemAmount Meals$7,400 Lodging8,200 Laundry310 Parking205 These expenses are billed as incurred and reimbursed by the county along with the statement for services that John submits. To maintain good relations with his clients for whom he does work, John gives fruit baskets at Christmas. Each basket cost $23 with wrapping ($2) and shipping ($4), making the total $29. On December 19, 2008, John charged the fruit baskets order of $609 (21 baskets at $29 each) to his Visa credit card. [The Visa bill was paid in January 2009.] Placer and El Dorado Counties pay John an annual retainer of $8,000 and $12,000, respectively. The retainers for a year are to be paid by December 31 of that year. For budgetary reasons, however, Placer delayed its 2007 payment until February 2008. All other retainers were paid on schedule. One private client, Jim Beaver, retained John to write a computer software program for investment tracking. When John presented Jim with an invoice for $6,000, Jim offered John a choice: cash or a Jeep Wrangler (1999, V-6) listed for sale at $7,999. The blue book value of a ‘99 Jeep Wrangler ranges from $3,675 to $7,925. John needed a car for his daughters, he accepted the Jeep. Expenses incurred by Ruth during 2008 in pursuing the M.S. in Education are as follows: Tuition (spring and fall 2008)$7,100 Books, lab supplies, computer software940 Campus parking230 Mileage driven evenly throughout the years is 1,045 miles. For tax purposes, the Kaisers use the standard mileage method for the Audi which was purchased on June 15, 2006. For several year…

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