Assignment

Instructions:

Complete the 2015 federal income tax return for Carter and Stella Johnson. Ignore the requirement to attach the form(s) W-2 to the front page of the Form 1040.  If required information is missing, use reasonable assumptions to fill in the gaps.

Carter and Stella Johnson live in Lexington, South Carolina.  The Johnson have two children: Kenneth (age 6) and Sandy (age 10).  Both children live with Carter and Stella. In addition to their children, the Johnsons are taking care of Matthew, age 11. Matthew is the child of Stella's best friend, Tammy. Matthew has been living with the Johnson family since January 2015. The Johnson provided the following information:

• Kenneth's social security number is 589-24-8432
• Sandy's social security number is 599-74-8733
• Matthew social security number is 589-67-4532
• Carter social security number is 250-89-4567
• Stella's social security number is 259-09-8967
• The Johnson's current mailing address is 543 West Chase Road, Lexington, South Carolina 29401

Carter and Stella pay the Bethel Academy $18,200 to care for Kenneth ($7,800), Sandy ($5,200) and Matthew ($5,200) while they are working. In addition to these payments, Carter pays his ex-wife $25,000 in alimony each year and $10,500 in child support for their son.

Carter is computer programmer for General Electric Company.  Stella is a pediatrician who has her own practice.

Carter provides the following W-2 information.

The above amounts do not reflect any income items described below.  Carter's employer withheld all payroll taxes it was required to withhold.  The entire Johnson family was covered by minimum essential health insurance during each month in 2015.  The insurance was provided by Carter's employer, General Electric.

Stella reported the following information related to her practice (She uses the cash method of accounting):

Revenues:
                  Insurance billings received                                $549,650
                  Credit and cash receipts                                   450,920
                  Total revenue                                                  $1,000,570
Expenses:
                  Advertising                                                     $6,570
                  Insurance-professional                                     15,250
                  Office building rent                                           60,000
                  Printer leases                                                   7,550
                  Travel (overnight for conferences)                      5,350
                  Meals and entertainment                                   3,750
                  Wages                                                            465,750
                  Taxes and licenses                                           55,750
                  Employee health insurance                                48,250
                  Employee benefit programs                               15,375
                  Utilities                                                                                                          
                  Office supplies                                                  25,890
                  Legal and professional fees                                8,950
                  Total Expenses                                                 $ 764,185

Stella drove 2,660 business miles related to her practice and she has documentation to verify her mileage. She drove a 2012 BMW midsize SUV she purchased on September 1, 2014 for all of her business mileage. She drove the vehicle a total of 16,728 miles during the year for all purposes. She has access to another vehicle for personal purposes. Stella filed Forms 1099 for payments made to contractors when required to do so.

Stella made the following capital expenditures for her business in 2015:

Stella sold the following business assets:

On January 3, 2015, the Johnson sold their prior principal residence.  They purchased that residence in 2009 and had lived there full-time until they sold it this year.  They originally purchased the home for $310,000.  The Johnson family has never claimed any tax depreciation (nor were they allowed to) on the home.  The sales price of the home was $405,000.  The home is located at 1920 Spring Lake Road, Lexington, South Carolina 29401.

The Johnson family purchased (and moved into) their current residence at 543 West Chase Road, Lexington, South Carolina 29401 in late January of 2015.  The new residence is 2,000 square feet.  The purchase price of the residence was $500,000 (building value was $350,000 and the lot value was $150,000).  The mortgage on the new home was $300,000.  Expenses relating to the home on West Chase road were as follows:

Mortgage interest                             $15,550
LOC interest expense                        $7,549
Property taxes                                  $10,750
Utilities                                             $3,000
Insurance                                         $2,000

The Johnson family also owns a rental home. They purchased the home in 2012 for $185,500. The home was rented all year. The rental income received was $25,250. The following expenses were incurred related to the rental home:

Mortgage interest                      $9,750
Property taxes                          $3,650
Insurance                                 $2,950
Yard maintenance                      $1,050
Repairs                                     $3,280

Stella owns 20 acres of vacant ground within the city limits of Lexington.  Stella acquired the land as a gift from her parents on July 1, 2007.  The land was valued at $4,000 per acre on the date of the gift.  Her parents purchased the land in 1991 at a price of $500 per acre.  Stella has held this land as an investment since she received it.  On December 20, 2015 Stella sold this land to a development company that plans to develop the 20 acres (Stella and the development company are not related parties) for $45,000.

The Johnson received the following investment income for the year:

Lexington City School Bonds                     $3,500
Richland County School Bonds                   $1,050
SCANA Inc.                                              $1,750
Bank of America                                       $850
Duke Energy Bonds                                  $450
U.S. Treasury Bonds                                 $350
Qualified Dividend-General Mills                   $675
Qualified Dividend-Apple Corp                     $1,050
Qualified Dividend- Wal-Mart                       $1,500
Qualified Dividend-Sysco                            $250

The Johnson's had the following activity in their brokerage account during the year (all transactions were reported on a Form 1099-B.

• Sold 2,000 shares of GE Stock on 1/23/2015 for $65,000. Purchased shares on 10/10/2007 for $45,000.
• Sold 3,000 shares of Sysco stock on 4/28/2015 for $22,356. Purchased shares on 10/01/2013 for $17,560.
• Sold 300 shares of Duke Energy stock on 6/15/2015 for $5,750. Purchased shares on 11/01/2011 for $7,250

The Johnson have a long-term capital loss carryover of $7,560.The Johnson did not own, control, or manage any foreign bank accounts nor were they a grantor or beneficiary of a foreign trust during the tax year.

The Johnson paid the following expenses during the year (in addition to the personal residence-related items listed above):

Dentist (unreimbursed by insurance)                                $ 500
Doctors (unreimbursed by insurance)                               $1,750
Prescriptions (unreimbursed by insurance)                        $ 425
Vehicle property tax based upon value                             $ 3,550
Contribution to First Baptist Church                                $12,500
Contribution to Salvation Army                                       $1,560
Contribution to neighborhood bake sale                           $450
Contribution United Way                                                $800
Membership dues paid to sorority                                   $550

The Johnson also donated a painting to the First Baptist Church. The painting will hang in the vestibule of the church for others to admire. The value of the painting at the time of the donation was $20,000. The Johnson purchased the painting five years ago for $10,500.

Stella is a 15% owner in an advertising agency named Lincoln Investment Industries (Lincoln) (EIN 20-3456888).  Core is a Subchapter S corporation.  The company reported ordinary business income for the year of $385,500.  Stella received a K-1 from Lincoln reporting her allocation of this business income. Stella acquired the stock several years ago.  Her basis in the stock before considering her 2015 income allocation was $125,000.  Stella is a passive owner with respect to this entity.

Carter is also a 25% owner in James Computer Programming LLC (JCP) (EIN 24-3568980).  JCP is a Subchapter S corporation.  The company reported an ordinary business loss for the year of ($137,500).  Carter received a K-1 from JCP reporting his allocation of this business loss. Carter acquired the stock several years ago.  His basis in the stock before considering his 2015 loss allocation was $56,500.  Carter is a passive owner with respect to this entity.

Other Information

The Johnson made timely federal estimated tax payments for 2015 as follows:

April 15, 2015                          $12,250
June 15, 2015                          $12,250
September 15, 2015                 $12,250
January 15, 2015                      $12,250

The Johnson want to contribute to the Presidential Election Campaign. The Johnson would like to receive a refund (if any) of tax they may have overpaid for the year.  Their preferred method of receiving the refund is by check.