Question

Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His Social Security number is 111-11-1112. Devon does not want $3 to go to the Presi-dential Election Campaign Fund. Devon’s wife, Ariane, passed away in 2014. Devon’s son, Tom, who is age 18, resides with Devon. Tom’s Social Security number is 123-45-6788. Devon owns a sole proprietorship for which he uses the accrual method of account-ing and maintains no inventory. His revenues and expenses for 2018 are as follows: Sales revenue
Cost of goods sold (based on purchases for the year) Salary expense Rent expense
Utilities
Telephone Advertising
Bad debts Depreciation* Health insurance**
Accounting and legal fees Supplies
* New office equipment ($21,000); Devon uses the immediate expense election. ** $18,000 for employees and $8,000 for Devon.
Other income received by Devon includes the following: Dividend income (qualified dividends): Swan, Inc.
Wren, Inc.
Interest income: First National Bank
Second City Bank County of Santa Fe, NM bonds
$740,000 405,000 88,000 30,000 8,000 6,500 4,000 5,000
21,000 26,000 7,000 1,000
Tax Computation Problem 15-35
$10,000 2,000
11,000 2,500
17,000
During the year, Devon and his sole proprietorship had the following property transactions: a. Sold Blue, Inc. stock for $45,000 on March 12, 2018. He had purchased the stock on September 5, 2015, for $50,000.
b. Received an inheritance of $300,000 from his uncle, Henry. Devon used $200,000 to purchase Green, Inc. stock on May 15, 2018, and invested $100,000 in Gold, Inc. stock on May 30, 2018.
c. Received Orange, Inc. stock worth $9,500 as a gift from his aunt, Jane, on June 17, 2018. Her adjusted basis for the stock was $5,000. No gift taxes were paid on the transfer. Jane had purchased the stock on April 1, 2012. Devon sold the stock on July 1, 2018, for $22,000.
d. On July 15, 2018, Devon sold one-half of the Green, Inc. stock for $40,000.

e. Devon was notified on August 1, 2018, that Yellow, Inc. stock he purchased from a colleague on September 1, 2017, for $52,500 had become worthless. While he perceived that the investment was risky, he did not anticipate that the corporation would declare bankruptcy.
f. On August 15, 2018, Devon received a parcel of land in Phoenix worth $220,000 in exchange for a parcel of land he owned in Tucson. Because the Tucson parcel was worth $245,000, he also received $25,000 cash. Devon’s adjusted basis for the Tucson parcel was $210,000. He originally purchased it on September 18, 2015.
g. On December 1, 2018, Devon sold the condominium in which he had been living for the past 20 years (1844 Lighthouse Lane, Albuquerque, NM 87131) and moved into a rented townhouse. The sales price was $480,000, selling expenses were $28,500, and repair expenses related to the sale were $9,400. Devon purchased the condominium for $180,000.
Devon’s potential itemized deductions, exclusive of the aforementioned information, are as follows:
Medical expenses (before the 7.5% floor) Property taxes on residence
State income taxes Charitable contributions
Mortgage interest on residence (First National Bank) Sales taxes paid
$ 9,500 5,800 4,000
10,000 9,900 5,000
During the year, Devon makes estimated Federal income tax payments of $35,000. Compute Devon’s lowest net tax payable or refund due for 2018 assuming that
he makes any available elections that will reduce the tax. If you use tax forms for your computations, you will need Forms 1040, 4562, 8824, and 8949 and Schedules A, B, C, D, and SE.

Answer 1

Given that the following information about

Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque,

Compute total income and tax liabilitv: Particulars Amount $146,500 $12,000 $13,500 $3,000 9,216 $8,000 $151,784 Business income Dividend income Interest income Capital loss Self-employment deduction Self-employed deduction of health insurance Adjusted gross income Less Itemized deductions Personal and dependancy deduction Taxable income $30,700 $7,900 $113,184 Computation of income tax Tax on taxable income Tax on Tax liability before credits and prepayments $21.509 $18,432 $39,941 income from self employment Less: Prepaid taxes Net tax refund for the year 2014 494

Compute of business income: Computation of D's business income Particulars Amount S740,000 $405,000 $335,000 Sales revenue Less: Cost of goods sold Gross profit Less: Expenses alary expense Rent expense Utilities expense Telephone Advertisin Bad debts Depreciation Emplovees health insurance Accounting and legal charges Supplies $88,000 $30,000 $8,000 $6,500 4,000 $5,000 $21,000 $18,000 7,000 $1,000 $188,500 $146,500 Net income

Compute net capital gain or loss: Computation of net capital gain/loss Particulars Amount $45,000 $50,000 $5,000 Amount realized on sale of stock Less: Adjusted basis Loss on sale $52,500 Loss on stock Y $57,500 Total long term capital loss Long term capital gains Gain on sale of O stock ($22,000 $5,000) $17,000 Gain on land of T value received Adjusted basis ($220,000 $25,000) $210,000 $35,000 Residence $21,500 $73,500 Total long term capital gain $16,000 Net capital gain