INDIVIDUAL TAX RETURN PROBLEM 4
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INDIVIDUAL TAX RETURN PROBLEM 4
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Required:
∙ Use the following information to complete Phillip and Claire Dunphy’s 2017 federal
income tax return. If any information is missing, use reasonable assumptions to fill
in the gaps. Ignore the alternative minimum tax for this problem.
∙ Any required forms, schedules, and instructions can be found at the IRS website
(www.irs.gov). The instructions can be helpful in completing the forms.
Facts:
1. Phillip and Claire are married and file a joint return. Phillip is self-employed as
a real estate agent, and Claire is a flight attendant. Phillip and Claire have three
dependent children. All three children live at home with Phillip and Claire for the
entire year.
The Dunphys provide you with the following additional information:
∙ The Dunphys do not want to contribute to the presidential election campaign.
∙ The Dunphys live at 3701 Brighton Avenue, Los Angeles, California 90018.
∙ Phillip’s birthday is 11/5/1971 and his Social Security number is 321-XX-5766.
∙ Claire’s birthday is 5/12/1974 and her Social Security number is 567-XX-1258.
∙ Haley’s birthday is 11/6/2005 and her Social Security number is 621-XX-7592.
∙ Alex’s birthday is 2/1/2007 and her Social Security number is 621-XX-8751.
∙ Luke’s birthday is 12/12/2011 and his Social Security number is 621-XX-9926.
∙ The Dunphys do not have any foreign bank accounts or trusts.
INDIVIDUAL TAX RETURN PROBLEM 4
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2. Claire is a flight attendant for Western American Airlines (WAA), where she earned
$57,000 in salary. WAA withheld federal income tax of $6,375, state income tax of
$1,800, Los Angeles city income tax of $675, Social Security tax of $3,600, and
Medicare tax of $825.
3. Phillip and Claire received $300 of interest from State Savings Bank on a joint
account. They also received a qualified dividend of $395 on jointly owned stock in
Xila Corporation.
C-6 Appendix C
4. Phillip’s full-time real estate business is named “Phillip Dunphy Realty.” His
business is located at 645 Grove Street, Los Angeles, California 90018, and his
employer identification number is 93-3488888. Phillip’s gross receipts during the
year were $730,000. Phillip uses the cash method of accounting for his business.
Phillip’s business expenses are as follows:
Advertising $ 5,000
Professional dues 800
Professional journals 200
Employee wages 48,000
Insurance on office contents 1,120
Accounting services 2,100
Miscellaneous office expense 500
Utilities and telephone 3,360
Payroll taxes 3,600
Depreciation To be calculated
On March 20, Phillip moved his business out of the old offices at 1103 Allium Lane
into a newly constructed and equipped office on Grove Street. Phillip sold the old
office building and all its furnishings. Phillip’s expenditures for the new office
building are as follows:
Date Acquired Asset Cost
| 3/20 3/20 3/20 4/1 6/1 |
Land Office building Furniture Computer system Artwork |
$ 300,000 2,500,000 200,000 350,000 150,000 |
Phillip computes his cost recovery allowance using MACRS. He would like to use
the §179 immediate expensing, but he has elected to not claim any bonus depreciation. Phillip has never claimed §179 or bonus depreciation before. The assets Phillip
INDIVIDUAL TAX RETURN PROBLEM 4
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sold on March 20 are as follows:
Phillip has never sold any assets relating to his business before this transaction.
5. The Dunphys sold 60 shares of Fizbo Corporation common stock on September 3
for $65 a share (minus a $50 total commission). The Dunphys purchased the stock
on November 8, 2016, for $90 a share. They also sold a painting for $13,000 on
March 1. Claire purchased the painting for $20,050 on September 1, 2010, as an
investment.
6. The Dunphys filed their 2016 federal, state, and local returns on April 13, 2017.
They paid the following additional 2016 taxes with their returns: federal income
taxes of $630, state income taxes of $250, and city income taxes of $75.
7. The Dunphys made timely estimated federal income tax payments of $17,000 each
quarter during 2017. They also made estimated state income tax payments of
Date Original Accumulated Depreciation
Acquired Asset Sales Price Cost as of Beginning of the Year
5/1/11 Office building $940,000 $900,000 $129,825
5/1/11 Land 200,000 100,000 0
7/1/11 Furniture 50,000 239,000 206,998
8/13/13 Furniture 10,000 324,000 222,782
4/12/14 Office equipment 100,000 120,000 67,524
5/13/15 Computers 30,000 50,000 10,000
Appendix C C-7
$1,000 each quarter and estimated city income tax payments of $300 each quarter.
The Dunphys made all fourth-quarter payments on December 31, 2017. They would
like to receive a refund for any overpayments.
8. Phillip and Claire have qualifying insurance for purposes of the Affordable Care
Act (ACA).
INDIVIDUAL TAX RETURN PROBLEM 4
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