Wade (SS# ***-**-****) and Maddy (SS# ***-**-****) Brown are married and file a joint income tax return. Their address is***** Melrose, Florida. They have a six-year old child, Linda (SS# ***-**-****) who is a full-time first-grader and they provide 100% of her support. Wade is employed as a steelworker, and Maddy operates a small, unincorporated tee-shirt printing business (EIN 59-1234567, Business Identification Code 541130). She rents a small office at 1313 Mockingbird Lane, Lowell, Florida. Wade and Maddy come to your office to have their 2013 federal income tax return completed. They provide you with the following information:
1. Information from the following documents (available from my web courses page):
Wade’s 2013 W-2: Salary Income $26,750 Federal Income Tax Withheld: $3,000
1099-Int from Ocean Trust Savings Bank: Interest Income: $750
1099-Int from State of Florida Water District bonds: Interest Income: $500
1099-Div from Sterling International Stock: Dividend Income: $1,000
2. Maddy's business generated gross receipts of $225,000 in 2013. During 2013, she wrote checks for $141,030 related to her business. Maddy uses the cash method of accounting and she keeps a separate bank account for her business. She has provided you with an excel spreadsheet which includes a schedule of the expenditures she made out of her business checking account, as well as a list of her assets with prior years’ depreciation already computed.
3. Additional business-related information:
• She received $7,100 on October 11, 2013, from the sale of an old printing machine (the machine was purchased in September 2010).
4. Maddy began her tee-shirt printing business in 2010 and purchased several assets during that year. She did not elect Section 179 expensing at that time because her business was just beginning (with little cash inflow) and her accountant advised her that it would be better to stretch out the deductions over the depreciable lives of the assets. She did not make any capital purchases during 2011 or 2012. The assets, purchased in 2010, are used 100% for business and have been depreciated using MACRS.
5. In May 2013, Maddy purchased an office building and land used exclusively for the business. She paid a total of $65,000 with $15,000 being allocated to the land. She has been making $1,410/month payments since May 2013. Of the total payments made during the year, $900/ month was for interest.
6. In March 2013, she purchased a new printing machine for $22,000 cash.
7. Wade’s father died during the year. Wade and Maddy collected the $100,000 face value from a life insurance policy on Wade’s father.
8. The Brown’s itemized deductions totaled $21,600 for 2013 (do not prepare Schedule A).
9. During the year, the Brown’s sold the following capital assets:
Asset Acquired Sold Selling price Adjusted Basis
A stock 2-15-13 8-13-13 9,100 14,500
B stock 3-2-06 7-7-13 23,400 22,600
C stock 6-8-08 4-10-13 8,000 11,000
D Stock 2-17-07 12-7-13 7,200 6,000
E Stock 5-11-13 10-11-13 6,200 3,500
Sail boat 12-3-07 3-3-13 3,500 9,000
Note1: The C stock was sold to Maddy’s brother.
Note2: The sail boat was used for personal recreation.
Note3: For Form 8949:All stock sales are category C – Not reported on 1099-B
Required:
Prepare the Brown's 2013 federal income tax return. They have asked you to minimize their tax liability to the extent legally possible. Round numbers to the nearest dollar. Clearly state any assumptions made in completing the tax return. Include the depreciation supporting schedule and any other supporting schedules needed. The following 2013 tax forms are required:
• Form 1040: U.S. Individual Income Tax Return
• Schedule C: Profit or Loss from Business
• Schedule D: Capital Gains and Losses
• Form 8949: Sales and other Dispositions of Capital Assets (associates with Schedule D)
• Schedule SE: Self-Employment Taxes
• Form 4562: Depreciation and Amortization (remember to include a supporting schedule)
Use the Tax Tables and the qualified dividend and capital gain worksheet to figure the tax on line 44 of Form 1040. This form is found on page 43 of the instructions to Form 1040.
