Prepare in good form a 2012 tax return on the cash basis and all needed supporting schedules for the taxpayer described below. Assume the taxpayer has all the needed documentation for the items listed.
Arnold Arnoldson SS # 123-45-6789 lives at 1230 Cockle Street, Reno, NV 89557. Arnold lives with his 6 year-old son Benny, SS# 234-56-7890. Benny spends ten months each year with Arnold and two months each year with Susan Arnoldson, SS# 890-23-4513, his mother, and Arnold’s ex-wife. Arnold is a CPA and has a job with the State of Nevada Tax Department and earned $67,000 in wages for 2012. $9,000 of federal tax was withheld from his pay. Arnold’s mom, Leona Arnoldson SS# 345-67-8901, and his former mother-in-law, Shari Jones SS# 567-89-0122, share an apartment in Reno that Arnold pays for. He provides more than 50% of the support for the two elderly women. Arnold also pays more than 50% of the support for Leona’s father Ephraim Luce, SS# 876-54-3210, who lives in a nursing home. Ephraim was a very successful artist and still earns $4,000 per year for his intricate painted wooden carvings of big-horn sheep.
Arnold also runs his own tax preparation business at 12 Main St., Virginia City NV 89406, as a single member LLC. His cash receipts from the business totaled $33,000 for 2012. He also is owed $1,700 from a client that refused to pay for his services. His expenses were as follows: rent $7,000, utilities $3,750, part-time help $6,200, entertainment of clients at his country club $2,500, travel to conferences $570, insurance $1,100, and office supplies of $540. He also purchased tax software for $350 and a new computer for $1,800 during 2012. He paid $6,000 in estimated 2012 federal income taxes during the year. Arnold also took a graduate course at UNR in taxation during the fall 2012 semester and paid $300 in tuition and $120 for the course textbook. One of Arnold’s clients was being audited by the IRS. Arnold paid the IRS agent $1,000 in cash to “take care of” the problem. Since the office needed painting and a painter Arnold knows needed his taxes done, Arnold bought the paint for $200 and then traded his tax prep services for the painter’s services. The fair value of the services exchanged was $750. Arnold sold some business office furniture he acquired in 2007 for $5,000 for $1,500 on 11/10/12. He used MACRS half-year convention to depreciate the furniture.
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Arnold likes to trade stock and bonds and had the following trades during 2012. He sold 300 shares of GE for $31.59 per share on 10/17/12. He had purchased the GE as part of a 600 share lot on 6/10/01 for $39.40 per share. He purchased 1,000 shares of Disney on 12/15/12 for $19.10 per share. He also sold on 12/2/12 two acres of land in Reno for $136,000, acquired from his Dad when his father died on 5/15/11. His Dad had paid $32,000 for the land on 4/10/79. The land was appraised for $106,000 in May of 2011. Arnold also received a gift from his Aunt Alice on 3/16/11 of an antique gold watch that was purchased in 1949 for $200. The watch fetched $700 on 1/1/12 when he sold it to a pawn shop in town.
Arnold earned the following in investment income for 2012: Interest from Wells Fargo Bank $1,972, interest on State of Nevada Bonds $3,500, interest from a NV Energy corporate bond of $2,500, qualified dividends from GE of $1,306, a long-term capital gains distribution of $1,550 from Fidelity Natural Resource Fund, money market fund dividends of $4,132, and $30 of interest from a loan to Bill Allen, a personal friend.
Arnold owns his home on Cockle Street and it is his primary residence. He paid mortgage interest of $11,535 during the year. He paid $4,700 of real estate taxes, $1,000 of sales taxes, and $525 of personal property taxes during the year. He had $14,500 of medical expenses as follows: Arnold $2,700, Benny $1,250, Leona $5,000 and Shari $5,550. He made charitable contributions of $1,500 to UNR and $350 to the American Red Cross.
The final divorce decree between Arnold and Susan requires Arnold to pay alimony of $600 per month until the earlier of June 2015 or When Susan dies or remarries. He is also obligated to pay Susan $400 child support for each month that Benny is staying with Susan each year.
On August 12, 2012 there was a windstorm in Reno that blew down a big tree onto the roof of Arnold’s Cockle Street house. The roof of the house was damaged and cost $6,750 to repair. The removal of the tree was $400 and the planting of another tree was $710. The new tree was nothing near as big as the tree that was lost. In fact, the landscaper told Arnold it would cost $2,500 to replace the tree that was destroyed by the storm. Arnold collected $4,300 from the insurance company for his loss.
Arnold also owns a rental property at 555 9th Street in Reno that he rents to a student. He received $7,000 in rent during 2012 and had the following expenses: Insurance $1,300, maintenance $850, real estate taxes $2,300, mortgage interest $3,200 and depreciation of $500.
