Tax Project The Tax Return Project is Appendix E, Problem 2 in


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Tax Project The Tax Return Project is Appendix E, Problem 2 in your text. You may use tax software or the attached forms to complete the return and all necessary schedules. Submit the forms here by the due date, as late tax returns are not accepted. Requirements: Prepare an income tax return for the Browns for 2014 following these guidelines: 1. Make Necessary assumptions for information not given in the problem but needed to complete the return 2. The Browns are employing the same tax return preparer who completed their prior year tax return 3. The taxpayers have substantiation (records, receipts) to support all transactions for the year 4. If any Refund is due, the Browns want it applied to next year’s tax liability 5. The Browns do not want to contribute to the Presidential Election Campaign Fund. David (Dave) S. and Karen H. Brown 4112 Foxglove Drive, McKinney, TX 75070 Dave –retired petroleum engineer Karen- portrait artist Joint tax return 1) 1. pension plan Dave contributed $250,000 (after-tax dollars) ; life-annuity payout of $60,000 per year over his life. 2. as part of retirement package- dave also received nontaxable health insurance coverage for him and Karen. 3. Due to Dave’s expertise in Gulf of Mexico offshore operations, Pelican continues to use his services on a consulting basis (see item 3 below) 2) Karen well known for oil portraits (business activity code 711510) 15 to 16 per year. $3200 per portrait (never varies, set several years ago)- She does all of her work in the studio the Browns maintain their personal residence (see item 6 below). Karen is cash-basis taxpayer w/ respect to her art business 3)Dave made 7 trips on behalf of Pelican as an outside bus consultant (business activity code 541330). Airfare: $5100 Lodging: $3100 Meals: $2200 Ground Transportation: $750 Total= $11,150 Dave recovers his expenses when he is paid by Pelican for services rendered. They reimburse Dave based on his verbal report of how much he spent 4) In Jan 2014, Karen was paid for 3 portraits she painted and delivered in late 2013. During 2014, Karen completed 14 portraits. Payment was received for 11 portraits when they were delivered to the buyers. One portrait was delivered to CEO who promised payment within 30 days; payment was never received and company went bankrupt. Karen will never be paid for that painting. The final 2 portraits were delivered in late 2014 and payment for both were received in early 2015. In December 2014, Karen accepted $3200 as payment for a portrait to be done in 2015. Although she did not like the arrangement, the customer said the prepayment was motivated by anticipated cash-flow considerations. Must report: 2013: 3 portraits *$3200= $9600 2014: 11 portraits *$3200= $35,200 2015: 1 Portrait * $3200= $3200 Total for 2014 to report= $48,000 5) Karen total cost for painting supplies in 2014 was $3010 (canvases, brushes, oil paints, smocks, palettes, etc) 6.) For convenience and security reasons, Karen prefers to work at home. ¼ of the 4,000 square-foot living area is devoted to karen’s studio (1,000) -Browns built home at cost of $350,000 on lot previously acquired for $100,000 and moved in June 15, 2011 -business use: depreciation is based on MACRS (mid-month convention) applicable to a 39-year nonresidential realty. Residence expenses for 2014: Utilities: $4200 Molly Maid cleaning service: $2800 Service fee for home security system: $1600 Removal of stains from studio flooring: $1,100 Homeowners insurance: $970 Repairs to studio skylight $340 7. Feb 4, 2002 Dave bought sugarcane farm near Magnolia: LaBeaux Place : $30,000 Early 2014, Houston real estate offered him $250,000 for LaBeaux Place Dave exchanged LaBeaux Place for several vacant lots on Padre Island (TX) worth $240,000 and cash of $10000 Exchange took place on June 20,2014 8. Dave purchased land near Beaumont (TX) for $18,200 auction held on April 17,1989 “ Block 46” Dave transferred the property to TDC on June 28,0214 for $180,000 On De

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