Taxation question:
Fact Pattern for tax year 2015
Ken Arias (SS# 122-55-6666) & Casey Arias (SS# 222-33-4444) are married with a 23 year old daughter, Kim (SS#344-44-5555), who lives with them and is a full-time student-at FDU. They provide her full support.
Their address is 12 Mary Street, Florham Park, NJ 07932 .
Casey is a CPA and sole proprietor for the CPA work she does throughout the year.
Casey earned $100,000 providing CPA services throughout the year. She had the following expenses and uses the cash basis method of accounting.
Advertising 1,500
Office supplies 3,000
In addition to the $100,000, Casey provided year-end tax planning CPA services to Chris Smith for $2,500 and told him to make the check payable to her daughter as her daughter needed to buy books for school.
Casey received the check on 12/31, the check was dated 12/28 but Kim did not cash the check until January 3rd of the following year. Note: Don't worry about calculating self-employment (SE) tax. The deduction for AGI of 1/2 the tax is $6,924 on Line 27.
Casey gave a loan to her nephew, Zach, on 1/1/15 for $1,000 with no interest so he could pay for his books for school. The AFR rate for the full tax year was 3%. Zach had $200 of net investment income for the year.
Unfortunately Casey 's aunt Christine passed away during the year. Christine left her the following in her will:
Cash of $10,000
Personal car that Christine had purchased 2/1/12 for $25,000 and it currently has a FMV of $10,000.
Casey sold the car she inherited on 7/15/15 for $11,000.
Casey invested in the $10,000 she inherited along with her existing savings and earned the following during the year in her HSBC account. The following was reported on her 1099 from HSBC:
Interest income - $200
Tax-exempt NJ muni bonds - $500
Sale of 100 shares Google stock (bought 3/1/14 - $5,000, sold 9/2/15 - $15,000) Sale of 50 shares Toys R Us stock (bought 12/1/14 - $20,000, sold 8/1/15 - $2,000)
Casey also held stock that she bought on 3/1/13,which she didn't sell, in Apple, which appreciated in value at the end of the year by $5,000
Ken & Casey paid total real estate taxes during the year of $15,000, state income taxes of $10,000 and mortgage interest of $9,000.
Ken received a Schedule K-1 from a partnership he is invested in (see attached) .
Assignment
Prepare Ken & Casey 's Form 1040 tax return (use tax year 2015 forms) up to Line 43 ''Taxable Income" only and all necessary schedules & forms . DO NOT CALCULATE TAX LIABILITY.
For any items not reflected on the return, explain why on a separate sheet of paper.
BONUS: What is Ken's tax basis in the partnership? Show all calculations.