Individual practice set #1 gerald and moira ryan individual federal

INDIVIDUAL PRACTICE SET #1

GERALD AND MOIRA RYAN

INDIVIDUAL FEDERAL INCOME TAX RETURN

2014 ANNUAL EDITION

ALL DATES RELATE TO YEAR 2014 UNLESS STATED OTHERWISE

1.0 INTRODUCTION:

You have been employed to complete the Federal income tax return of Gerald and Moira. Ryan for 2014. The Ryans have provided you with original copies of all third party documents filed with the IRS, such as W-2’s, 1099’s, and K-1’s. They have also provided you with adequate written documentation to substantiate all transactions mentioned in this case. Lastly, they have.provided you with copies of their 2013 Federal and Kansas income tax returns.

1.1            Taxpayer Biographical Information:

Biographical data relating to the Ryans are as follows:

·                   Gerald Padraig Ryan, SSN 499-45-4939, Born March 17, 1953. Employed as a freight railroad conductor by BNSF Corporation prior to his retirement on October 31.

·                   Moira Sullivan Ryan, SSN 455-49-9090. Born January 29, 1962. Sole owner and full-time manager of Moira’s Horticultural Creations, an unincorporated florist shop operating in Newton, Kansas.

·                   They have been married for 24 years. They reside at 501 Main Street, Newton, Kansas 67114. Their daytime telephone number is (316)555-1776.

1.2 Persons Supported by the Ryans:

The Ryans have the following single children:

·                   Michael John Ryan, SSN 455-40-1000. Born August 2, 1993. Full-time student at Creighton University, Omaha, Nebraska before graduating in May. Matriculated as a full-time medical student at St. Louis University in St. Louis, Missouri since August. Of his total support, the Ryans provided 45 percent, Michael provided 40 percent and the balance came from other sources. Michael’s sole income consisted of wages and tips aggregating $3,800 earned as a waiter. He lived with the Ryans during the summer months only.

·                     Kelly Marie Ryan, SSN 455-30-8220. Born June 2, 1995. Part-time student at Christendom College in Fort Royal, Virginia. The Ryans provided 70 percent of her support. Her income consisted solely of $8,000 earned from a part-time job as a computer analyst. She did not live with the Ryans for any part of 2014.

·         Oliver Plunkett Ryan, SSN 455-30-3030. Born December 12, 1999. Full-time student at St. Michael’s Catholic High School. The Ryans provided 100 percent of his support. He earned no income. He lived with the Ryans throughout the entire year.

The Ryans also supported the following persons:

·                     Jane O’Dea Sullivan, mother of Moira, SSN 252-45-5059. Widow. Born February 7, 1933. Resided in Benson, Arizona prior to her death on November 3. The Ryans provided 65 percent of her total support. Her sole income consisted of $1,100 of interest and dividends and $5,600 of Social Security benefits.

·            John Wilson Amner, cousin of Gerald, SSN 780-45-6700. Widower. Born January 19, 1954. Resides in Arkansas City, Kansas. The Ryans provided 60 percent of his total support. His sole income consisted of $8,800 of disability income paid by the State of Kansas.

1.3                      Taxpayer Filing Information:

The following tax filing information relates to the Ryans:

·            The Ryans wish to file as married filing jointly on their 2014 Federal income tax return.

·                     Neither Gerald nor Moira wish to contribute to the Presidential Election Campaign Fund.

·            The Ryans are calendar year taxpayers.

·            The Ryans follow the cash receipts method except that Moira’s Horticultural Creations accounts for sales, inventory purchases, and cost of goods sold on the accrual basis.

·         Both Gerald and Moira desire that any tax overpayment be refunded rather than credited to their 2015 Federal tax return.

1.4 Data Relating to 2013 Federal and Kansas Income Tax Returns:

The following data were reported on the 2013 Federal and Kansas income tax returns filed by the Ryans:

·      The Ryans filed as married filing jointly on their 2013 Federal and Kansas income tax returns.

·            The Ryans reported a tax liability of $13,400 on their 2013 Federal income tax return. They received a check in the amount of $2,560 from the U.S. Treasury as a refund on their Federal return on July 17.

• The Ryans reported a tax liability of $3,486 in their 2013 Kansas income tax return. They received a check in the amount of $710 from the Kansas Department of Revenue as a refund on their 2013 Kansas tax return on June 19. The Ryans did deduct all Kansas income taxes on Schedule A on their 2013 Federal income tax return. The Ryans reported a net short-term capital loss carryforward of $1,250 on their 2013 Federal tax return. • The Ryans reported no other carryforwards on their 2013 Federal income tax return. 2.0 INCOME SOURCES

2.1 Salary Income:

As stated in Section 1.1 above, Gerald was employed as a freight train railroad conductor by BNSF Corporation prior to his retirement on October 31. His Form W-2 as filed by BNSF Corporation is attached. (BNSF Corporation operates the Burlington Northern Santa Fe Railway.)

2.2 Retirement Income:

Gerald received the following retirement income:

• Monthly Railroad Retirement benefits. His Form RRB-1099 as filed by the Social Security Administration is attached. • Distributions from a profit-sharing pension plan he participated in as an employee of BNSF Corporation. His Form 1099-R as filed by the First Bank of Albuquerque, the Trustee of the pension fund, is attached. • Distributions from an annuity paid by Aeterna Insurance. His Form 1099-R as filed By Aeterna is attached. He began receiving this annuity on July 1. He purchased the Annuity from Aeterna Insurance in 1997 for $26,000. • A lump-sum distribution from a traditional IRA plan. His Form 1099-R as filed by The First National Bank in St. Louis is attached. • Gerald owns no other retirement or deferred compensation account.

 

2.3            Income from Trade of Business:

A.     As stated in Section 1.1 above, Moira was sole owner and manager of Moira’s Horticultural Creations, an unincorporated floral shop. The shop is located at 1234 Utah Street, Newton, Kansas 67114. She accounts for all transactions on the cash receipts method except that sales, inventory purchases, and cost of goods sold are accounted for on the accrual basis. She also accounts for inventory on a lower of cost or market basis. She is at-risk for all losses. Her Employer Identification Number (EIN) is 86-3548975. The applicable business code is 453110.

B.     The following cash receipts were posted to the general account:

·            Cash sales                                                     $143,000

·            Credit sales                                                    395,900

·           Of all credit sales in 2014, $1,045 proved uncollectible as of the end of 2014.

C.    The Following cash payments were posted to the general cash account:

Purchase of cut flowers for resale

$101,580

Purchase of potted plants for resale

100,820

Supplies

22,500

Utilities

12,000

Rent

20,000

Payment of business loan

44,000

Interest on business loan

7,600

Insurance

6,500

Accounting and tax preparation services

1,800

Advertising

6,700

Automotive expenses

2,000

Repairs

1,000

 

Contribution to Moira’s Keough plan

4,000

Entertainment expenses

1,600

Meals

700

State licensing fee

575

 

(including fine of $125 for late payment)

 

 

D.          The following cash payments were posted to the payroll account:

Gross employee wages

73,000

FICA (employer portion)

4,658

Medicare taxes (employer portion)

1,270

Federal unemployment tax

820

State unemployment tax

290

 

E. Moira’s Horticultural Creations had no unpaid expenses as of December 31, 2013. F. Beginning and ending inventory balances are summarized as follows:

Category

Beginning Balance Ending Balance

Cut flowers $2,000 $9,000 Potted plants 3,500 4,400

G. During 2014 Moira’s Horticultural Creations purchased and placed into service the following assets:

Description Date Placed Business of Property: into Service: Purchase Price: Use: Horticultural 8/19/14 $80,000 100% Structure Computer System 9/15/14 27,000 100% Office Furniture 2/22/14 30,000 100%

Section 179 election was claimed on the Horticultural Structure and the Computer System but only 50% on the Office Furniture.

H. Depreciable property that Moira’s Horticultural Creations purchased and placed into service prior to 2014 consisted of the following:

Description Date Placed Adjusted Basis when Business of Property: into Service: Placed into Service: Use: Computer system 9/26/11 $6,600 100% Computer printer 10/14/11 1,780 100% Office furniture 4/04/12 29,300 100% Cutting equipment 7/08/13 3,000 100%

I. Moira’s Horticultural Creations also operates a delivery van that it placed into service on April 16, 2011. Automotive use consisted exclusively of the use of the delivery van. The van was driven a total of 12,000 miles in 2014. Moira’s Horticultural Creations has a written policy prohibiting the personal use of business-owned vehicles. Written documentation also exists justifying business use of all business-owned vehicles. Moira’s Horticultural Creations has always used the automatic mileage method. Business use has always been 100 percent.

2.4        Dividends Received:

The Ryans received the following cash dividends or corporate distributions from each source as indicated:

·              The Ryans hold interests in several mutual funds through their account with the stock brokerage firm of Joseph Schwartz and Associates. Their substitute Form 1099-DIV as filed by Joseph Schwartz is attached.

·        The Ryans owned 1,200 shares of stock in First National Bank of Newton as of December 31, 2009. Their substitute Form 1099-DIV as filed by First National Bank of Newton is attached.

2.5 Interest Received:

A.                The Ryans received a Form 1099-INT as filed by each of the following sources:

o First National Bank of Newton

o Central Kansas Savings and Loan

Each Form 1099-INT is attached.

B.                                                                              The annual statement from Joseph Schwartz, as mentioned in Section 2.4 above lists

interest of $500 on Kansas General Obligation Bonds. Schwartz was not required to report this amount on the substitute Form 1099-DIV that it filed with the IRS.

2.6 Sale of Corporate Stock:

The Ryans sold the following shares of common stock in privately held corporations:

*The executor of Jane Sullivan’s estate does not intend to elect the alternate valuation method.

All stocks listed above were held by the Ryans for investment purposes. None was purchased directly from the corporation involved, nor was any held in a brokerage company account.

A. Gerald owns a 20 percent interest in Central Kansas Oilfield, Inc., a subchapter S Corporation. Although Gerald attends annual shareholder meetings, he does not participate in the management or operation of this corporation. His K-1 filed by Central Kansas Oilfield, Inc. is attached. His adjusted basis in his stock in Central Kansas Oilfield, Inc. as of December 31, 2011 was $90,000. Central Kansas Oilfield, Inc. does not have any working interests in any oil and natural gas properties.

B. The Ryans received the following: • An inheritance from Moira’s mother consisting of the stock in Novara Corporation listed in Section 2.6 above and $55,000 in cash. • A trip to Ireland worth $3,800 as a retirement gift from Gerald’s brother, Fred. • Royalty income consisting of $300 paid to Gerald for his autobiographical story entitled “My Life on the Atchison, Topeka and Santa Fe” published in Trains Magazine. The magazine publisher was not required to file a Form 1099-MISC with the IRS. • Gerald was named the “Outstanding Railroader of the Year” by his local of the United Transportation Union. He received a check for $1,000 as part of this award. Moira promptly spent the money.

3.0 EXPENSES: 3.1 Medical Expenses: The Ryans paid the following medical-related expenses:

• Medical insurance premium on Moira $4,800 • Doctors bills for Moira 1,600 • Nonprescription sleeping drugs for Moira 200 • Funeral expenses for Moira’s mother 6,500

A. Mortgage interest on the home in Newton as reported on Form 1098 from the Bank of Newton as attached.

B. The Ryans also paid the following loan-related charges from their personal checking account:

• Interest charged on their VISA charge account $2,100 • Principal paid to VISA 9,000 • Interest on loan to buy boat (collateral used was their home) 1.900* • Principal on boat loan 3,700* • Interest on loan to buy automobile (loan was secured) 4,400** • Principal on automobile loan 1,700** • Interest on loan used to buy stock in First National Bank of Newton 2,400*** • Principal on loan to buy stock in First National Bank of Newton 10.800***

* Payment was to Home Savings and Loan of Newton ** Payment was to First Kansas Bank Corporation *** Payment was to Joseph Schwartz

A. The Ryans paid the following expenses from their own personal checking account:

• Property taxes on Newton home $3,100 • Personal property tax on boat 200 • Automobile license fee 75 • Fee to secure Nebraska fishing license 40

B. The Ryans made the following deposits with the Kansas Department of Revenue for their Kansas income tax liability from their own personal checking account on the dates indicated:

• January 18, 2014 $200 • April 15, 2014 250 • June 15, 2014 250 • September 15, 2014 250 • January 17, 2015 400

The Ryans made cash payments to the following organizations: • United Way $4,000 • St. Michael Catholic Church 3,000 • Muscular Dystrophy Association 1,100 • Leukemia Society of America 900

A. The Ryans paid the following educational expenses for the benefit of their children:

• In the case of Michael John Ryan, the Ryans paid $4,000 for tuition and required fees and $2,400 for room and board. Direct payment was made to Creighton University. Michael financed his studies as a medical student at St. Louis University through personal asset liquidation and by borrowing $5,000 from a student loan program. • In the case of Kelly Marie Ryan, the Ryans paid $3,000 for tuition and required fees and $2,200 for general living expenses. Payment was made to Kelly rather than Christendom College

A. The Ryans made the following cash payments from their personal checking account:

• Gerald’s union dues $600 • Contribution to Republican Party of Kansas 2,000 • Safe deposit box for stock certificates 50 • Attorney fees to successfully defend Kelly Against charge of drunk driving 7,200

The Ryans made the following deposits with the United States Treasury for their Federal income tax liability from their own personal checking account on the dates Indicated:

• April 15, 2014 $1,250 • June 15, 2014 1,250 • September 15, 2014 1,250 • January 17, 2015 1,250

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