Posted: January 25th, 2021
Use only the following forms: Form 1040 + Schedule A, Sch B, Sch C, Sch SE, Form 4684, & Tax Computation Worksheet.
The following facts are available to help prepare Kelly and Chanelle Chambers U. S. Federal Individual Income Tax Return for their 2014 tax year.
Kelly and Chanelle Chambers, ages 47 and 45, are married and live at***** Durant, Oklahoma, 74701. Kelly’s Social Security number is *****¬93-9483 and Chanelle’s is###-##-####
The Chambers have two children: Emma, age 24, and Chet, age 19. Their Social Security numbers are###-##-####and###-##-#### ***** Emma is a single college student and earned $8,000 during the summer. Kelly and Chanelle help Emma through school by paying for her room, board, and tuition. Emma lives at home during the summer. Chet is also single, has a physical handicap (but is not permanently disabled) and lives at home. He attends a local university on a full-time basis and earned $4,000 working part-time for a marketing firm. In sum, Kelly and Chanelle provide more than 50% of both Emma’s and Chet’s total support for the year. If required, both children will file their own tax returns.
Kelly is a commercial pilot for a small regional airline, Westward Travels. His salary is $220,000, from which $63,000 of federal income tax and $15,000 of state income tax were withheld. Kelly also pays premiums for health, disability, and life insurance: $2,000 of the premium was for health insurance, $250 for disability, and $400 for life insurance.
Kelly’s father passed away during the year. Kelly and Chanelle received $150,000 from the life insurance policy. Neither Kelly nor Chanelle paid any of the premiums.
Chet’s physician recommended that he see a physical therapist to help with his disability. Kelly paid the therapist $10,000 during the year because their insurance would not cover the bills. Kelly also paid $2,000 in dentist expenses for the family and $400 for eyeglasses for Emma. They have no medical mileage and no medical insurance reimbursements.
On October 17, 2014, Kelly and Chanelle went to the Choctaw Casino in Broken Bow, Oklahoma and won $16,000 at the blackjack table. The next night, they lost $10,000 at the slot machines. They have receipts for both their wins and losses.
Kelly and Chanelle gave $3,000 cash to the First Church of Durant, OK during the year. They also had the following other income and expenses:
● Real estate taxes on their personal residence $8,900
● Property taxes on cars (determined by value) $700
● Alimony to Kelly’s ex-spouse (Wilma Wright###-##-#### $6,000
● Home mortgage interest $16,000
● Personal Credit card finance charges $4,300
● Tax return preparation fees ($600 is allocable to Chanelle’s business) $1,200
● Sales tax on major purchases during the year $6,300
● Interest income from a Bank of Durant savings account $900
● Interest income from City of Durant Bonds $800
● Dividend income (Qualified and Ordinary) from 3M stock $600
Chanelle owns Chamber Networks (EIN 74-1234567), a cash-basis sole proprietorship that does network consulting. The business premises are located at***** Durant, Oklahoma, 74701. During the year, Chanelle’s gross revenues were $155,000. She incurred the following expenses in her business:
● Insurance $900
● Rent payments $8,500
● Telephone/cable expense $1,450
● Utility expense $1,500
● Software rental $5,400
● Journals and magazines $150
● Training seminars $1,250
● Supplies $1,100
● Donations to a national political campaign fund $700
● Estimated federal income tax payments $26,400
● Estimated state income tax payment $8,000
In her office, she has computer equipment of $10,000 and office furniture and fixtures of $15,000, all of which was purchased in November 1, 2012. She elected to depreciation these assets rather than immediately expensing them under Section 179 or using bonus depreciation.
Kelly and Chanelle’s home was burglarized during the year on June 4, 2014. The burglar stole an entertainment system (purchased April 10, 2011; FMV $10,000; cost $12,000), an antique diamond ring and pendant (purchased April 20, 2001; FMV $22,000; cost $15,000), and a painting (purchased April 30, 2009; FMV $10,000; cost $3,000). The insurance company pays $1,000 for the entertainment system, $3,000 for the jewelry, and $400 for the painting.
Complete Form 1040 and accompanying schedules for Kelly and Chanelle’s federal income tax return for 2014 year. Use all rates, deductions, personal exemptions and dependency exemptions that are applicable for 2014. Ignore any Alternative Minimum Tax, Additional Medicare Tax, Net Investment Income Tax, credits and penalties.
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