Prepare the appropriate tax forms and schedules with the following information.
Karl F. and Jeanne S. Wheat are married and live at 13071 Forestview Drive, Columbia, MO 65201. Karl is a self-employed insurance claims adjuster (business activity code 524290), and Jeanne is a dietitian for the local school district.
1. Karl represents several national casualty insurance companies on a contract basis. He is paid a retainer and receives additional compensation if the claims for the year exceed a specified number. As an independent contractor, he is responsible for whatever expenses he incurs. Karl works out of an office near his home. The office is located at 1202 Brentwood Avenue. He shares Suite 326 with a financial consultant, and operating expenses are divided equally between them. The suite has a common waiting room with a receptionist furnished and paid by the landlord. Karl’s one-half share of the 2011 expenses he paid is listed below.
Office rent
$11,600
Utilities (includes telephone and fax)
4,300
Replacement of waiting room furniture on April 22
3,600
Renters’ insurance (covers personal liability, casualty, and theft)
1,400
Office expense (supplies and postage meter)
740
New Toshiba copier (less trade-in on old machine) on February 7
300
Waiting room coffee service (catered)
280
Waiting room magazine subscriptions
90
For his own business use, Karl purchased a laptop computer for $2,100 on June 17 and a Nikon camera for $1,200 on February 5. Except for his vehicle (see item 2), Karl uses the § 179 write-offoption whenever possible.
Every year around Christmas, Karl receives cards from various car repair facilities (including dealerships), expressing thanks for the business referrals and enclosing cash. Karl has no arrangement, contractual or otherwise, that requires any compensation for the referrals he makes. Concerned about the legality of such “gifts,” Karl had previously consulted an attorney about the matter. Without passing judgment on the status of the payors, the attorney found that Karl’s acceptance of the payments does not violate state or local law. Karl sincerely believes that the payments he receives have no effect on the referrals he makes. During December 2011, Karl received cards containing $7,200. One card containing $900, however, was delayed in the mail and was not received by Karl until January 4, 2012.
The Wheats have two sons who live with them: Trace and Trevor. Both are full-time students. Trace is an accomplished singer and made $4,200 during the year performing at special events (e.g., weddings, anniversaries, and civic functions). Trace deposits his earnings in a savings account intended to help cover future college expenses.
The Form W–2 Jeanne receives from her employer reflects wages of $32,000. Appropriate amounts for Social Security and Medicare taxes were deducted. Income tax with-holdings were $1,320 for Federal and $1,056 for state. The Wheats made quarterly tax payments of $2,200 for Federal and $600 for state on each of the following dates: April 15, 2011; June 15, 2011; September 15, 2011; and January 15, 2012. Relevant Social Security numbers are provided below.
Name
Social Security Number
Birth Date
Karl F. Wheat
111–11–1111
06/06/1969
Jeanne S. Wheat
123–45–6781
08/14/1970
Gene Isaacson
123–45–6784
03/12/1934
Trace Wheat
123–45–6788
09/13/1993
Trevor Wheat
123–45–6789
07/20/1991
