1. Prepare the 2012 Form 1040 and all other required Federal forms and schedules for Brett Simons. The returns should be prepared taking the maximum tax benefit allowable into consideration. Round all amounts to whole dollars.
2. Do not prepare tax returns for any other individuals mentioned in the problem.
3. The ages provided in the problem are determined as of 12/31/12.
4. Student must not use tax software. Prepare return using 2012 tax forms provided or found at www.irs.gov.
5. Important Requirement! Any and all amounts excluded from income or deductions either limited or not taken must be identified. All calculations used in the determination of the components of taxable income or tax liability must be provided. This requirement should be provided in a separate file (Word or Excel) and must be submitted with the completed tax return.
6. Brett Simon's tax return must be saved as a PDF file and submitted to the relevant assignment link at Unit 7 (in addition to the documents required by #5 and #8 of this document). This assignment is subject to the 10% late submission discount.
7. Page 1 of this document (with your name inserted) must be returned as part of your submission; points will be deducted if it is not attached.
Facts:
Brett, age 45, is single and resides at 123 Main Street, West Haven, CT 06516. His social security number is 123-45-6789. Brett has two children, Kyle (age 17) and Grace (age 10), and their social security #'s are 049-52-5472 and 045-23-5432 respectively. Brett's mother, Donna Simons (age 70, social security #048-68-5874) lives at 50 Benton Street, West Haven, CT and receives more than ½ her support from Brett. In addition to her pension ($100 per month), Brett pays his mother $75 per week to watch Grace after school (36 weeks). Brett does not want to designate $3 to the Presidential Election Campaign fund.
On New Year's Eve 2010, Brett's wife and Grace's mother Susan, was tragically killed in an automobile accident caused by a drunk driver. Brett survived the accident sustaining a broken leg and arm. He filed a lawsuit with respect to his injuries which was settled in 2012 awarding compensatory damages of $15,000 and punitive damages of $35,000.
Brett was the named beneficiary of Susan's $150,000 life insurance policy. Brett was given the option by Liberty Mutual to either receive the entire proceeds as one payment in 2012 or to receive $32,000 per year for five years. Brett chose to receive the proceeds in installments, the first of which was received in February, 2012.
Due to the loss of his wife, Brett decided that he should work from home. In September, he retired from his job as a Waterbury police officer and started his own security company. His W-2 from the Waterbury Police Department (EIN 06-1234567) reported the following: wages $40,000, federal income taxes withheld $10,000, and Connecticut income taxes withheld $2,500. WPD withheld the proper amounts of social security and medicare taxes from Brett's pay during the year. Brett was a participant in WPD's retirement plan.
In 2009 Brett returned to school to pursue a master's degree in Criminal Justice. During 2012, Brett took advantage of WPD's educational assistance program and submitted billing statements totaling $3,000 for qualified tuition expenses. WPD made the payments directly to the university in 2012.
Brett's business "Safe & Secure" (taxpayer I.D. #06-7654321) opened for business on September 1st. He uses the cash method of accounting and materially participates in the operation of this business. Brett uses his finished basement as his office. It has a separate entrance for clients and occupies approximately 500 of the 3,000 total square footage of his home. The home cost $400,000 at acquisition (12/01/2000 and does not include cost of land). Brett rents all necessary office furniture and equipment however repairs to the walls and painting were required to make it client ready. The total cost for the repairs and painting was $2,000.