Question

1. Note: This problem is for the 2018 tax year.

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 Presidential 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 accounting and maintains no inventory. His revenues and expenses for 2018 are as follows:

Sales revenue	$740,000
Cost of goods sold (based on purchases for the year)	405,000
Salary expense	88,000
Rent expense	30,000
Utilities	8,000
Telephone	6,500
Advertising	4,000
Bad debts	5,000
Depreciation*	21,000
Health insurance**	26,000
Accounting and legal fees	7,000
Supplies	1,000

*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.	$10,000
Wren, Inc.	2,000
Interest income:
First National Bank	11,000
Second City Bank	2,500
County of Santa Fe, NM bonds	17,000

During the year, Devon and his sole proprietorship had the following property transactions:

1. Sold Blue, Inc. stock for $45,000 on March 12, 2018. He had purchased the stock on September 5, 2015, for $50,000.
2. 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.
3. 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.
4. On July 15, 2018, Devon sold one-half of the Green, Inc. stock for $40,000.
5. 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.
6. 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.
7. 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)	$9,500
Property taxes on residence	5,800
State income taxes	4,000
Charitable contributions	10,000
Mortgage interest on residence (First National Bank)	9,900
Sales taxes paid	5,000

During the year, Devon makes estimated Federal income tax payments of $35,000.

Required:

Compute Devon's lowest net tax payable or refund due for 2018 by providing the information requested for Forms 1040, 4562, 8824, and 8949 as well as Schedules A, B, D, SE. Assume that he makes any available elections that will reduce the tax.

• Make realistic assumptions about any missing data.
• If an amount is zero, enter "0".
• Enter all amounts as positive numbers.
• It may be necessary to provide information regarding the other schedules and forms before completing the requested information for Form 1040.
• Devon's qualified dividends and capital gains rate is 15%.

When computing the tax liability, do not round your immediate calculations. If required round your final answers to the nearest dollar.

Answer 1

Answer:-

Given that

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

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