Assignment
Develop a 2019 individual tax return (with all required forms and supporting schedules) for Don and Megan Draper that is both professional in appearance and technically correct. You can access fill-in forms (in pdf format) on the IRS website (www.irs.gov) by clicking on “List All Current Forms & Instructions” on the right side of the homepage in the “Forms and Instructions” section. Next, perform a search for the specific forms and schedules you need. A search of “Form 1040” will result in a list that includes Form 1040 and all associated schedules and instructions for each. Make certain you use 2019 forms and schedules.
Interview Information
Don and Megan are calendar year, cash basis taxpayers who are married filing jointly with two dependent children, Sally and Bobby. The social security numbers and dates of birth for members of this family are as follows:
Social Security Number
Date of Birth
Don
111-11-1111
7/21/1982
Megan
222-22-2222
11/16/1986
Sally
333-33-3333
3/25/2009
Bobby
444-44-4444
02/26/2014
The Draper family resides at 3190 Laurel Farms Road, Murfreesboro, TN 37130.
An in-depth interview with Don and Megan, coupled with a review of all their documentation, reveals the following information for the current year:
1.Megan worked throughout the year for Shepard and Associates as a paralegal. Megan’s W-2 indicates gross wages of $42,750 and income tax withholding of $8,423. (You may omit the requirement to attach a copy of the W-2 to the tax return.)
2.Don’s extensive travel caused him to reconsider his career. He left the employment of Pegasus International as of 1/4/2019 and started his own business doing all types of computer-related work locally. He operates this business as a sole proprietorship (under the business name Quality IT Solutions) from the basement of his home. Don collected revenues of $198,650 and paid the following expenses related to this business:
Employee wage expense
$35,600
Payroll tax expense
7,600
Repairs and maintenance
9,654
Supplies expense
5,935
All these expenses pass the 12-month rule test for tax recognition in 2019. Additionally, Don fully documented business-related mileage of 1,254 miles that he put on his personal vehicle driving to various job sites. This is a service business, so Don had no cost of goods sold. He also elected to forego any deduction for the business use of his home (i.e. the home office deduction), and he opted to use the standard mileage rate to account for his business transportation expenses rather than his actual costs. (You may omit the requirement to complete Part IV of Schedule C.)
3.Don knew his decision to pursue self-employment had tax consequences, so he came to you earlier in the year to ask for your help. You advised him to make estimated tax payments on Form 1040-ES totaling $30,000 to prepay an estimate of his self-employment and income tax liability. Don followed your advice and made timely estimated tax payments by completing and filing Form 1040-ES throughout 2019.
4.Don and Megan received a Form 1099-INT from Bank of America indicating they earned a total of $642 in interest income on their joint savings account.
5.The Drapers sold 3000 shares of Quantum Corp stock for $4 per share on January 12, 2019. They originally paid $2.50 per share when they purchased the stock on September 20, 2002. This information was reported to the Drapers on Form 1099-B. Additionally, all information including basis was reported to the IRS. Therefore, Form 8949 is not required.
6.Don occasionally travels to Florida for work. When there, he always goes to the dog track. Don is a habitual loser at the track, but on his last trip, he laid odds on Ping Pong Bounce, a winning greyhound, and collected $2,000 at the track. Don keeps good records from his betting adventures and can support previous losses at the track of $550.
7.The Drapers also received a Form 1098 from Regions Bank indicating they paid a total of $15,261 in home mortgage interest. The loan qualified as acquisition debt, and the average outstanding principal balance of $310,000. They also paid $6,125 in real property taxes on this home and $2,700 interest on personal debt (i.e. a car loan and credit cards).
8.The Drapers gave $8,200 to the American Red Cross for disaster relief. The Red Cross is an organization officially recognized by the IRS as a nonprofit, tax exempt entity.
9.Don and Megan had no liability for Tennessee income tax, but they paid sales tax on all applicable, personal purchases. (Search for the “sales tax deduction calculator” on the IRS website, and use it to simplify the calculation of their deductible sales tax. Assume the Drapers had no additional large purchases that were subject to sales tax in 2019.)
10.The Draper family had a total of $15,555 in out-of-pocket medical expenses and $1,600 in tax return preparation fees to Don’s CPA.
11.The Drapers paid $3,000 in tuition and fees and $581 for books for Megan to attend classes at a qualified educational institution. Megan is working toward a Master’s degree on a part-time basis.
12.Don and Megan paid $2,900 for Sally’s care after school and when school was not in session and $6,100 for Bobby’s day care. The provider of this care is as follows: Happy Child Daycare (Fed ID # 12-3333333) 565 Greenleaf Lane, Murfreesboro, TN 37130.
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