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Individual Tax Return Team ACCT 351: Federal Tax Law Instruction: Complete the 2020 federal income tax return for Ethan and Cora Brown. You may assume the Browns have substantiated all expenses that qualify for tax deductions and tax credits In preparing their tax return, you may use Form 1040, Schedules (e.g., 1, 2, 3, A, B, C, D and/or E), Form 2441, 4562, 8582, 8863, 8949, 8995 and other forms if necessary. You have two options: 1) You may use a hard copy of Form 1040 and other necessary forms for 2019 available at the IRS website and fill out by hand. 2) You may use a tax software to do your team project. Ignore the requirement to attach the form(s) W-2 to the front page of the Form 1040. If required information is missing, use reasonable assumptions to fill in the gaps. The due date for this team project is on Tuesday, December 1, 2020 by 11:59 pm (PST). You must submit a copy of the completed tax return on the due date via a Dropbox folder in our class Beachboard. You may turn in your team project before the due date if you want. Write your team name and team members’ name on a cover page. Tax forms should be assembled in the correct order. You may include supporting evidence to your calculations. Note: Regarding the tax software, you may download “TaxAct” tax software from Connect. If you prefer using other tax software, that is fine with me. Family Information: Husband Ethan Brown SSN 598-94-2583 Birthday: 8/21/1960 Wife Cora Brown SSN 301-52-2942 Birthday: 4/15/1966 Home address 461 Golden Ave, Long Beach, CA 90802 Son HenryBrown SSN 614-42-5871 Birthday: 2/08/1999 Daughter Sarah Brown SSN 658-98-7480 Birthday: 6/13/2009 Facts: 1. Cora Brown earned gross wages of $100,000 from Microsoft Corp. Her 2020 Form W-2 shows that $15,000 has been withheld from her paycheck for payment of federal income taxes. 2. Ethan Brown also received Social Security benefits of $10,000 in 2020. 3. Ethan Brown owns a used bookstore in Long Beach called Story Books. It is a sole proprietorship located at 2 Pine Ave, Long Beach, CA 90802. Its income and associated expenses for the year ending December 31, 2020, are the following: Gross Income $ 495,000 Less: Cost of Goods Sold (312,000) Gross Profit 183,000 Automobile Expense (5,200) Depreciation Expense ? Office Expense (48,000) Supplies Expense (1,800) Meals Expense (2,000) Entertainment Expense (2,400) Utilities Expense (3,600) Salaries and Wages (80,000) FICA tax Expense (6,120) Total Expense (?) Net Income/(Loss) $ ? On January 1, 2020, Story Books purchased and place in service a new delivery van for $64,000. The van’s weight does not exceed 6,000 pounds. Furthermore, it purchased bookcases (7-year property) for $20,000, and computers (5-year property) for $7,000 on March 1, 2020. Assume Story Books does not have any depreciable assets other than the new assets placed in service for 2020. It elected to use MACRS. Story Books elected out of bonus depreciation and elected not to claim section 179. 4. Interest income consists of the following: Citibank $ 700 US Bank $ 340 Wells Forgo 500 City of Long Beach $ 120 5. Dividend income consists of the following: Pfizer $ 3,200 (Qualified amount $ 3,200) Factset $ 7,900 (Qualified amount $4,000) 6. Cora Brown is previously divorced (in 2010) from Max Young (SSN 453-87-5402), and she had one child with him. In 2020, she made alimony payments totaling $13,000 to him along with child support payments of $7,000. She does not claim this child as a dependent. 7. The Browns own a house at 242 6th street, Seal Beach, CA, 90740. They purchased this house on January 1, 2014, for $500,000. 80% of the purchase price was related to the house, and the remaining 20% was related to the land Starting from January 1, 2014, they have converted it to a rental property and rented it to Bill James. In 2020, its rental report showed the following: Rental Income $ 36,000 Interest expense (mortgage) (15,000) Repair expense (700) Property tax expense (3,000) Utilities Expense (100) Depreciation Expense (?) Total Expense (?) Net Income/(Loss) $ ? 8. The Browns also had invested in several flow-through entities (they have not actively participated in the activities). In 2020, the results from these flow-through entities were as follows: Socal Brewers (Limited Partnership) $ 18,000 Rolling Sushi (S-corp) ($ 19,800) 9. In 2016, Ethan Brown purchased an annuity from MyLife for $90,000. Monthly payments of $1,000 on the annuity started on January 15, 2020 and will continue for a total of 15 years. 10. On October 1, 2012, the Browns bought a house as their primary personal residence for $350,000. It is located at 1531 Olympic Ave, Placentia, CA 92870. They had lived in this house as primary residence until they moved to Long Beach. They sold it on February 1, 2020 for $600,000 and incurred a commission fee of $50,000. 11. Ethan Brown made the following stock sales: Shares/Stock name Purchase Date Sale Date Sales Price Purchase Price 150 shares of GM 2/15/2020 6/12/2020 $4,000 7,000 300 shares of Google 5/12/2015 9/25/2020 $19,000 12,000 100 shares of Starbucks 8/30/2012 10/13/2020 $3,000 6,000 500 shares of Microsoft 7/11/2020 11/30/2020 $5,000 4,000 12. In 2020, Cora Brown made an IRA contribution of $5,500 13. Unreimbursed qualifying medical expenses for the family in 2020 were as follows: Doctor visits $ 3,000 X-lays $ 1,050 Prescription medication 920 Glasses/Contact lenses 800 Dentist visits 700 14. Taxes paid in 2020 (in addition to other taxes discussed previously) were as follows: State income taxes $ 6,800 Real property taxes $ 3,700 Automobile license fees (based on its year) 900 15. Mortgage interest paid in 2020 (in addition to other mortgage interests discussed previously) was $18,360 on their personal residence. Assume the outstanding principal on this mortgage is 500,000. 16. Cash charitable contributions made in 2020 were as follows: UNICEF $ 6,100 Red Cross $ 1,400 17. The Browns incurred child care expenses for their daughter, Sarah, of $14,000 in 2020 in order for them to work. These expenses were paid to Sherry Ton (SSN: 482-93-0923), who lives at 4532, main Street, Long Beach, CA 90223. 18. Henry Brown is a full-time college student as a fourth-year student. He was studying at Boston University in the United States, He earned no income while he was studying. The Browns paid his tuition of $8,000 for 2020. The Browns claim a tax credit for this qualified education expense. 19. The Browns made an estimated tax payment of 2,000 (in total) for the year. This amount reflects all four quarters’ estimated tax payment for their sole proprietorship. 20. The Browns claim both Henry and Sarah as their qualified child.