THIS RETURN IS FOR 2019 – TAX LAWS IN EFFECT FOR 2019 WILL APPLY Compute Joseph’s lowest net tax payable or refund due for 2019 assuming that he makes any available elections that will reduce the tax. The tax forms required for your computations are Forms 1040 (and Schedules 1-3), 4562, 8995, 8949 and 8824 and Schedules A, B, C, D, and SE.
Joseph Green, age 46 and born 1/1/1972, is single. He lives at 3520 Base Lane, Tuscon, AZ 85701. His Social Security number is 406-11-1112. Joseph wants $3 to go to the Presidential Election Campaign Fund.
Joseph’s wife, Becky, passed away in June 2017. Joseph’s son, Gilbert, who is age 16, resides with Joseph. Gilbert’s Social Security number is 405-45-6788. J
oseph owns a sole proprietorship for which he uses the accrual method of accounting and maintains no inventory. His revenues and expenses for 2019 are as follows:
Sales revenue $675,000
Cost of goods sold (based on purchases for the year) 355,000
Salary expense 80,000
Rent expense 25,000
Telephone 5,500 A
Bad debts 4,000
Depreciation * 15,000
Health insurance ** 20,000
Legal and professional fees 6,000
* New office equipment ($15,000) placed in service 1/1/19; Joseph chose to use immediate expensing 179 election
** $15,000 for employees benefit plan and $5,000 for Joseph
Other income received by Joseph includes the following:
Dividend income (qualified dividends):
Gator, Inc. $8,000
Wrap, Inc. 2,000
Fifth First Bank 8,000
Third Bank 1,500 C
ity of Tuscon, AZ bonds 12,000
During the year, Joseph and his sole proprietorship had the following property transactions:
1. Sold Biff, Inc. stock for $40,000 on March 12, 2019. He had purchased the stock on September 5, 2016, for $50,000.
2. Received an inheritance of $200,000 from his uncle, Jerry. Joseph used $125,000 to purchase Gabriel, Inc. stock on May 15, 2019, and invested $75,000 in Gold, Inc. stock on May 30, 2019.
3. Received Orange, Inc. stock worth $10,000 as a gift from his aunt, Jane, on June 17, 2019. Her adjusted basis for the stock was $6,000. No gift taxes were paid on the transfer. Jane had purchased the stock on April 1, 2012. Joseph sold the stock on July 1, 2019, for $25,000.
4. On July 15, 2019, Joseph sold one-half of the Gabriel, Inc. stock for $40,000.
5. Joseph was notified on August 1, 2019, that Yellow, Inc. stock he purchased from a colleague on September 1, 2018, for $42,500 had become worthless. While he perceived that the investment was risky, he did not anticipate that the corporation would declare bankruptcy.
6. On August 15, 2019, Joseph received a parcel of land in Phoenix worth $210,000 in exchange for a parcel of land he owned in Tucson. Because the Tucson parcel was worth $235,000, he also received $25,000 cash. Joseph’s adjusted basis for the Tucson parcel was $210,000. He originally purchased it on September 18, 2015.
7. On December 1, 2019, Joseph sold the condominium in which he had been living for the past 21 years (2859 Smallhouse Lane, Tuscon, AZ 85701) and moved into a rented townhouse. The sales price was $465,000, selling expenses were $28,500, and repair/maintenance expenses for not previously properly maintaining the property were $9,400. Joseph purchased the condominium for $200,000.
Joseph’s potential itemized deductions, exclusive of the aforementioned information, are as follows:
Medical expenses (before the 7.5% floor) $ 9,000
Property taxes on residence 6,000
State income taxes 3,000
Charitable contributions 8,000
Mortgage interest on residence 12,000
Sales taxes paid 4,500
During the year, Joseph makes estimated Federal income tax payments of $32,000 (payments of $8,000 were made on April 15, 2019, June 15, 2019, September 15, 2019 and December 15, 2019).