INDIVIDUAL PRACTICE SET #1
GERALD AND MOIRA RYAN
INDIVIDUAL FEDERAL INCOME TAX RETURN
2014 ANNUAL EDITION
ALL DATES RELATE TO YEAR 2014 UNLESS STATED OTHERWISE
1.0 INTRODUCTION:
You have been employed to complete the Federal income tax return of Gerald and Moira. Ryan for 2014. The Ryans have provided you with original copies of all third party documents filed with the IRS, such as W-2’s, 1099’s, and K-1’s. They have also provided you with adequate written documentation to substantiate all transactions mentioned in this case. Lastly, they have.provided you with copies of their 2013 Federal and Kansas income tax returns.
1.1 Taxpayer Biographical Information:
Biographical data relating to the Ryans are as follows:
· Gerald Padraig Ryan, SSN 499-45-4939, Born March 17, 1953. Employed as a freight railroad conductor by BNSF Corporation prior to his retirement on October 31.
· Moira Sullivan Ryan, SSN 455-49-9090. Born January 29, 1962. Sole owner and full-time manager of Moira’s Horticultural Creations, an unincorporated florist shop operating in Newton, Kansas.
· They have been married for 24 years. They reside at 501 Main Street, Newton, Kansas 67114. Their daytime telephone number is (316)555-1776.
1.2 Persons Supported by the Ryans:
The Ryans have the following single children:
· Michael John Ryan, SSN 455-40-1000. Born August 2, 1993. Full-time student at Creighton University, Omaha, Nebraska before graduating in May. Matriculated as a full-time medical student at St. Louis University in St. Louis, Missouri since August. Of his total support, the Ryans provided 45 percent, Michael provided 40 percent and the balance came from other sources. Michael’s sole income consisted of wages and tips aggregating $3,800 earned as a waiter. He lived with the Ryans during the summer months only.
· Kelly Marie Ryan, SSN 455-30-8220. Born June 2, 1995. Part-time student at Christendom College in Fort Royal, Virginia. The Ryans provided 70 percent of her support. Her income consisted solely of $8,000 earned from a part-time job as a computer analyst. She did not live with the Ryans for any part of 2014.
· Oliver Plunkett Ryan, SSN 455-30-3030. Born December 12, 1999. Full-time student at St. Michael’s Catholic High School. The Ryans provided 100 percent of his support. He earned no income. He lived with the Ryans throughout the entire year.
The Ryans also supported the following persons:
· Jane O’Dea Sullivan, mother of Moira, SSN 252-45-5059. Widow. Born February 7, 1933. Resided in Benson, Arizona prior to her death on November 3. The Ryans provided 65 percent of her total support. Her sole income consisted of $1,100 of interest and dividends and $5,600 of Social Security benefits.
· John Wilson Amner, cousin of Gerald, SSN 780-45-6700. Widower. Born January 19, 1954. Resides in Arkansas City, Kansas. The Ryans provided 60 percent of his total support. His sole income consisted of $8,800 of disability income paid by the State of Kansas.
1.3 Taxpayer Filing Information:
The following tax filing information relates to the Ryans:
· The Ryans wish to file as married filing jointly on their 2014 Federal income tax return.
· Neither Gerald nor Moira wish to contribute to the Presidential Election Campaign Fund.
· The Ryans are calendar year taxpayers.
· The Ryans follow the cash receipts method except that Moira’s Horticultural Creations accounts for sales, inventory purchases, and cost of goods sold on the accrual basis.
· Both Gerald and Moira desire that any tax overpayment be refunded rather than credited to their 2015 Federal tax return.
1.4 Data Relating to 2013 Federal and Kansas Income Tax Returns:
The following data were reported on the 2013 Federal and Kansas income tax returns filed by the Ryans:
· The Ryans filed as married filing jointly on their 2013 Federal and Kansas income tax returns.
· The Ryans reported a tax liability of $13,400 on their 2013 Federal income tax return. They received a check in the amount of $2,560 from the U.S. Treasury as a refund on their Federal return on July 17.
• The Ryans reported a tax liability of $3,486 in their 2013 Kansas income tax return. They received a check in the amount of $710 from the Kansas Department of Revenue as a refund on their 2013 Kansas tax return on June 19. The Ryans did deduct all Kansas income taxes on Schedule A on their 2013 Federal income tax return. The Ryans reported a net short-term capital loss carryforward of $1,250 on their 2013 Federal tax return. • The Ryans reported no other carryforwards on their 2013 Federal income tax return. 2.0 INCOME SOURCES
2.1 Salary Income:
As stated in Section 1.1 above, Gerald was employed as a freight train railroad conductor by BNSF Corporation prior to his retirement on October 31. His Form W-2 as filed by BNSF Corporation is attached. (BNSF Corporation operates the Burlington Northern Santa Fe Railway.)
2.2 Retirement Income:
Gerald received the following retirement income:
• Monthly Railroad Retirement benefits. His Form RRB-1099 as filed by the Social Security Administration is attached. • Distributions from a profit-sharing pension plan he participated in as an employee of BNSF Corporation. His Form 1099-R as filed by the First Bank of Albuquerque, the Trustee of the pension fund, is attached. • Distributions from an annuity paid by Aeterna Insurance. His Form 1099-R as filed By Aeterna is attached. He began receiving this annuity on July 1. He purchased the Annuity from Aeterna Insurance in 1997 for $26,000. • A lump-sum distribution from a traditional IRA plan. His Form 1099-R as filed by The First National Bank in St. Louis is attached. • Gerald owns no other retirement or deferred compensation account.
2.3 Income from Trade of Business:
A. As stated in Section 1.1 above, Moira was sole owner and manager of Moira’s Horticultural Creations, an unincorporated floral shop. The shop is located at 1234 Utah Street, Newton, Kansas 67114. She accounts for all transactions on the cash receipts method except that sales, inventory purchases, and cost of goods sold are accounted for on the accrual basis. She also accounts for inventory on a lower of cost or market basis. She is at-risk for all losses. Her Employer Identification Number (EIN) is 86-3548975. The applicable business code is 453110.
B. The following cash receipts were posted to the general account:
· Cash sales $143,000
· Credit sales 395,900
· Of all credit sales in 2014, $1,045 proved uncollectible as of the end of 2014.
C. The Following cash payments were posted to the general cash account:
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Purchase of cut flowers for resale |
$101,580 |
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Purchase of potted plants for resale |
100,820 |
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• |
Supplies |
22,500 |
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Utilities |
12,000 |
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• |
Rent |
20,000 |
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• |
Payment of business loan |
44,000 |
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• |
Interest on business loan |
7,600 |
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• |
Insurance |
6,500 |
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• |
Accounting and tax preparation services |
1,800 |
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• |
Advertising |
6,700 |
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• |
Automotive expenses |
2,000 |
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• |
Repairs 1,000 |
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• |
Contribution to Moira’s Keough plan |
4,000 |
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• |
Entertainment expenses |
1,600 |
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Meals |
700 |
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• |
State licensing fee |
575 |
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|
(including fine of $125 for late payment) |
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D. The following cash payments were posted to the payroll account:
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• |
Gross employee wages |
73,000 |
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• |
FICA (employer portion) |
4,658 |
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• |
Medicare taxes (employer portion) |
1,270 |
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• |
Federal unemployment tax |
820 |
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• |
State unemployment tax |
290 |
E. Moira’s Horticultural Creations had no unpaid expenses as of December 31, 2013. F. Beginning and ending inventory balances are summarized as follows:
Category
Beginning Balance Ending Balance
Cut flowers $2,000 $9,000 Potted plants 3,500 4,400
G. During 2014 Moira’s Horticultural Creations purchased and placed into service the following assets:
Description Date Placed Business of Property: into Service: Purchase Price: Use: Horticultural 8/19/14 $80,000 100% Structure Computer System 9/15/14 27,000 100% Office Furniture 2/22/14 30,000 100%
Section 179 election was claimed on the Horticultural Structure and the Computer System but only 50% on the Office Furniture.
H. Depreciable property that Moira’s Horticultural Creations purchased and placed into service prior to 2014 consisted of the following:
Description Date Placed Adjusted Basis when Business of Property: into Service: Placed into Service: Use: Computer system 9/26/11 $6,600 100% Computer printer 10/14/11 1,780 100% Office furniture 4/04/12 29,300 100% Cutting equipment 7/08/13 3,000 100%
I. Moira’s Horticultural Creations also operates a delivery van that it placed into service on April 16, 2011. Automotive use consisted exclusively of the use of the delivery van. The van was driven a total of 12,000 miles in 2014. Moira’s Horticultural Creations has a written policy prohibiting the personal use of business-owned vehicles. Written documentation also exists justifying business use of all business-owned vehicles. Moira’s Horticultural Creations has always used the automatic mileage method. Business use has always been 100 percent.
2.4 Dividends Received:
The Ryans received the following cash dividends or corporate distributions from each source as indicated:
· The Ryans hold interests in several mutual funds through their account with the stock brokerage firm of Joseph Schwartz and Associates. Their substitute Form 1099-DIV as filed by Joseph Schwartz is attached.
· The Ryans owned 1,200 shares of stock in First National Bank of Newton as of December 31, 2009. Their substitute Form 1099-DIV as filed by First National Bank of Newton is attached.
2.5 Interest Received:
A. The Ryans received a Form 1099-INT as filed by each of the following sources:
o First National Bank of Newton
o Central Kansas Savings and Loan
Each Form 1099-INT is attached.
B. The annual statement from Joseph Schwartz, as mentioned in Section 2.4 above lists
interest of $500 on Kansas General Obligation Bonds. Schwartz was not required to report this amount on the substitute Form 1099-DIV that it filed with the IRS.
2.6 Sale of Corporate Stock:
The Ryans sold the following shares of common stock in privately held corporations:
