Tax returns

Tax returns Instructions: Please complete the 2014 federal income tax return for Jesse and Kennedy Reagan. 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. Jesse (age 43) and Kennedy Reagan (age 43) are married and live in Lexington, Kentucky. The Reagans have twin children Katelyn, age 15, and Bruce, age 15. The Reagans would like to file a joint tax return for the year. The following information relates to the Reagans’ tax year: • Jesse’s Social Security number is 789-54-1234 • Kennedy’s Social Security number is 944-73-4321 • Katelyn’s Social Security number is 421-23-5960 • Bruce’s Social Security number is 421-23-6904 • The Reagans’ mailing address is 95 Hickory Road, Lexington, Kentucky 40502. • Katelyn and Bruce are tax dependents for federal tax purposes Kennedy is a photographer. For the first two months of the year, she was employed by Jensen Photography. However, she resigned her position with Jensen Photography to start her own company called Wild Horse Photography (WHP). WHP is conducted as a sole proprietorship with Kennedy being the sole owner. WHP started business on January 1, 2014 and is located at 1515 West Industrial Road Lexington, Kentucky 40502 (EIN 20-1213147). Jesse Reagan’s Forms W-2 provided the following wages and withholding for the year: Employer Gross Wages Federal Income Tax State Income Tax Withholding Withholding National Storage $66,200 $8,000 $3,750 Lexington Little League $2,710 0 0 Kennedy Reagan’s Form W-2 provided the following wages and withholding for the year: Employer Gross Wages Federal Income Tax State Income Tax Withholding Withholding Jensen Photography $24,500 $2,450 $1,225 All applicable and appropriate payroll taxes were withheld by the Reagans’ respective employers. All of the Reagan family was covered by minimum essential health insurance during each month in 2014. The insurance was provided by Jesse’s primary employer, National Storage. The Reagans also received the following during the year: 1 $2,500 $12,000 $10,000 $24,500 Jesse and Kennedy Reagan | Tax Return #2 Interest income from First Kentucky Bank $130 Interest income from City of Lexington, KY Bond $450 Interest income from U.S. Treasury Bond $675 Interest income from Nevada State School Board Bond $150 Workers’ compensation payments to Jesse $4,350 Disability payments received by Jesse on account of injury $3,500 • National Storage paid 100% of the premiums on the policy and included the premium payments in Jesse’s taxable wages Kennedy received the following payments as a result of a lawsuit she filed for damages sustained in a car accident: • Medical Expenses for physical injuries • Emotional Distress (from having been physically injured) • Punitive Damages Total Eight years ago, Kennedy purchased an annuity contract for $88,000. She received her first annuity payment on January 1, 2014. The annuity will pay Kennedy $15,000 per year for ten years (beginning with this year). The $15,000 payment was reported to Kennedy on Form 1099-R for the current year (box 7 contained an entry of “7” on the form). The Reagans 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 Reagans paid or incurred the following expenses during the year: Dentist/Orthodontist (unreimbursed by insurance) $ 10,500 Doctor fees (unreimbursed by insurance) $ 625 Prescriptions (unreimbursed by insurance) $ 380 KY state tax payment made on 4/15/14 for 2013 tax return liability $ 1,350 Real property taxes on residence $ 1,800 Vehicle registration fee based upon age of vehicle $ 250 Mortgage interest on principal residence $ 8,560 Interest paid on borrowed money to purchase the City of Lexington, KY municipal bonds $ 400 Interest paid on borrowed money to purchase U.S. Treasury bonds $ 240 Contribution to the Red Cross $ 1,000 Contribution to Senator Rick Hartley’s Re-election Campaign $ 2,500 Contribution to First Baptist Church of Kentucky $ 6,000 Fee paid to Jones & Company, CPAs for tax preparation $ 200 In addition, Jesse drove 6,750 miles commuting to work and Kennedy drove 870 miles commuting to work at Jensen Photography and 5,230 miles commuting from her WHP office to various off-site photo shoots. The Reagans have represented to you that they maintained careful logs to support their respective mileage. 2 Jesse and Kennedy Reagan | Tax Return #2 The Reagans drove 465 miles in total to receive medical treatment at a hospital in April. The Reagans’ personal residence was burglarized on October 1. The theft occurred during the day while both the Reagans were at work and their children were at school. The Reagans had the following personal-use property stolen: Item Purchase Date Fair Value on Tax Basis of Item Insurance Date of Theft Reimbursement Received Laptop computer 09/01/2014 3,000 3,000 500 and Printer Rifle 03/01/2012 2,000 2,500 500 TV/Projector 03/01/2012 5,000 13,000 1,000 2007 Honda Pilot 07/01/2013 4,000 6,500 500 Total 14,000 25,000 2,500 Kennedy reported the following information for WHP’s business activities (WHP uses the cash method of accounting): Revenues: Credit card receipts $352,000 Cash receipts 648,000 Total revenue $1,000,000 Expenses: Advertising $5,450 Insurance-professional 15,750 Office building rent 62,000 Equipment leases 6,050 Travel 14,200 Meals and entertainment 2,975 Wages 498,725 Taxes and licenses 44,875 Employee health insurance 42,000 Employee benefit programs 14,500 Utilities 37,425 Supplies 18,900 Legal and professional fees 15,550 Repairs and maintenance 10,000 Total Expenses $ 788,400 WHP purchased and placed in service the following fixed assets: Item Date Purchased Amount Laptop computers March 1 $20,500 Printers June 1 $6,500 Office furniture October 10 $19,000 3 Jesse and Kennedy Reagan | Tax Return #2 WHP does not want to claim any bonus depreciation or Section 179 expensing on any of these assets. Kennedy worked part-time on WHP business activities until she finished his employment with WTE early in the year. Kennedy worked full-time on WHP business activities for the rest of the year. WHP filed Forms 1099 for payments made to contractors when required to do so. The Reagans want to contribute to the Presidential Election Campaign. The Reagans would like to receive a refund (if any) of any tax they may have overpaid for the year. Their preferred method of receiving the refund is by check. Required: Complete the 2014 tax return for the taxpayer above on blank forms downloaded from the Internal Revenue Service website, irs.gov in your own handwriting preferably in pencil to facilitate changes while you are working on the return if necessary. You are free to use Microsoft Excel however, you are prohibited from using any tax preparation software to complete your return. It is important to learn how numbers flow from page to page of the return. In addition, please submit a list (typewritten in Microsoft Word is preferred) of all numeric entries that are carried from one page (or form) to another including the dollar amount of the item, the line number and form the numeric item is coming from and the line number and form the numeric item is being carried to. For example: Item Description Carried from Carried to Amount Adjusted Gross Income 1040 Line 37 1040 Line 38 $X,XXX