Tax Returns

 

This is a group assignment. Do NOT share OR discuss your work with other teams. The
assignment is due at the beginning of class on the date indicated above. Please have one group
member email me your final deliverable, which should include:
1. PDF of 2018 tax return + client memo (labelled, for example: “Group1_PS1”)
2. Excel of 2018 tax return workpaper (labelled, for example: “Group1_PS1_wp”)
Part 1: Tax return preparation (35 points)
 You have been engaged to prepare the 2018 federal income tax return for Bob and
Melissa Grant.
 Your tax form submission should include: Form 1040, Schedules 1, 4, A, B, D, E,
and Forms 4684 and 8949 as applicable. You will come across many items on the tax
return we have not talked about in class; if we have not covered it in class, and it is not
included in the information below, you do not need to address it on this assignment.
 Your solution should contain a detailed Excel workpaper that calculates the tax due
or refunded with the return and calculated in the form of the tax formula (see Ch. 4
lecture slides). The calculation should be well labeled and EASY to follow. This
presentation will be factored into your grade. Do NOT include any references or citations
on your workpaper.
 You may complete the return by hand (neatly) or typed using 2018 forms found on
Canvas or the IRS website.
 Use the following assumptions in preparing the return:
o Use all opportunities under law to minimize the 2018 federal income tax.
o Use whole dollars when preparing the tax return.
o Do not prepare a state income tax return.
o Ignore alternative minimum tax.
o If required information is missing, use reasonable assumptions to fill in the gaps.
Part 2: Client memo (5 points)
 Complete a letter to the client regarding tax planning advice. Identify and explain two
reasonable tax planning items the family could use to minimize their tax liability
and/or maximize their wealth. All items would be implemented in future years and do
not impact the current tax return.
o This memo should not exceed one single-spaced page.
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BOB AND MELISSA GRANT
INDIVIDUAL FEDERAL INCOME TAX RETURN
Bob (age 43, SSN #987‐45‐1234) and Melissa Grant (age 43, SSN #494‐37‐4893) are married and live in
Lexington, Kentucky. The Grants would like to file a joint tax return for the year. The Grants’ mailing
address is 95 Hickory Road, Lexington, Kentucky 40502.
The Grants have two children Jared (SSN #412‐32‐5690), age 23, and Alese (SSN #412‐32‐6940), age 12.
Jared is unmarried and in his fifth year of full‐time higher education. He works part‐time to help with
some of his living expenses and earned $2,300 in gross income during the year. The Grant’s provided
support for Jared including paying for rent, books, tuition, food, clothes, etc. The Grant’s also provide
financial support to Bob’s grandfather (85 years old), Michael Sr., who is widowed and lives alone.
Michael Sr.’s Social Security number is 982‐21‐5543. He has no income and the Grant’s provide 100
percent of his support.
Bob Grant’s Forms W‐2 provided the following wages and withholding for the year:

Melissa Grant’s Form W‐2 provided the following wages and withholding for the year:

All applicable and appropriate payroll taxes were withheld by the Grants’ respective employers. All of
the Grant family was covered by minimum essential health insurance during each month in 2018. The
insurance was provided by Bob’s primary employer, National Storage.
The Grants also received the following during the year:
Interest income from First Colorado Bank $ 195
Interest income from City of Denver, CO Bond $ 450
Interest income from U.S. Treasury Bond $ 720
Interest income from Colorado State School Board Bond $ 150
Dividend income from General Mills $ 600
Dividend income from Sysco Corporation $ 225
Dividend income from Tyco Security $ 380
Dividend income from J.M. Smucker, Inc. $ 525

3
Melissa received the following payments as a result of a lawsuit she filed for damages sustained
in a car accident:
 Medical Expenses for physical injuries $6,500
 Emotional Distress (from having been physically injured) $17,300
 Punitive Damages $30,000
Total $53,800
The Grants also received a 1099‐B relating to their investment in 2,000 shares of GE stock, which they
purchased on October 7th, 2010 for $45,000 and sold on January 3, 2018 for $60,000.
Eight years ago, Melissa purchased an annuity contract for $88,000. She received her first annuity
payment on January 1, 2018. The annuity will pay Melissa $15,000 per year for ten years (beginning
with this year). The $15,000 payment was reported to Melissa on Form 1099‐R for the current year (box
7 contained an entry of “7” on the form).
The Grants own a condominium located at 990 El Mar, Unit A, Lexington, Kentucky 40502. They first
rented out the condominium on October 1, 2018. The revenue and expenses from the rental unit from
October through December are as follows:
Rental revenue $3,600
HOA fee expense 300
Property taxes paid 225
Utilities expense 350
On January 3, 2018, the Grants sold their prior principal residence. They purchased that residence in
2011 and had lived there full‐time until they sold it this year. They originally purchased the home for
$310,000. The Grant family has never claimed any tax depreciation (nor were they allowed to) on the
home. The sales price of the home was $700,000. The home is located at 45 East Entrada Trail,
Lexington Kentucky 40502.
Melissa works out at a gym located at the photography studio. The gym is owned and operated by the
studio and is available to all employees. The gym is offered at no cost to employees but is worth $750
for the year.
Melissa also photographs local weddings as a side business, which she runs as a sole proprietorship.
Assume that this business is a qualified trade or business. She reports the following information for
these business activities:

4
Melissa entered a contest sponsored by a radio station and won 5 tickets to the touring Broadway‐style
production of Wholesome. The value of the tickets was $200 each. Melissa took her friends from work
to the production.
The Grants took two trips to Atlantic City. While on the first trip they lost $800 gambling, but on the
second trip they won $600.
The Grants 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 Grants paid or incurred the following expenses during the year:
Dentist/Orthodontist (unreimbursed by insurance) $ 4,250
Doctor fees (unreimbursed by insurance) $ 625

During the year, Bob paid $16,600 in alimony and child support payments to a former spouse, Natalie
(SSN #568‐72‐8787), whom he divorced in 2014. When his daughter Wendy (SSN #568‐72‐666), who
lives with her mother full‐time, reaches the age of 18 the payments will drop to $5,600.
In addition, Bob drove 6,750 miles commuting to work and Melissa drove 8,230 miles commuting to
work. The Grants also drove 465 miles in total to receive medical treatment at a hospital in April.
The Grants have represented to you that they maintained careful logs to support their respective
mileage.
The Grants’ personal residence was burglarized on October 1. The Grants had the following personal‐
use property stolen: