Tax Return Assignment
Use the following information to complete Marie Jacobson’s 2014 federal income tax return.
If information is missing, use reasonable assumptions to fill in the gaps and please
document for me those assumptions in a cover memo and refer to the applicable IRS
Schedule or Form number.
Any required forms, schedules, and instructions can be found at the IRS Web site
( The instructions can be helpful in completing the forms. The following is a
list of forms and schedules that you may need in addition to the Form 1040: Form 8949;
2106; 4562; 4684; 8582; schedules A; B; C; D; E; SE and worksheets: child tax credit;
qualified dividends & capital gain tax worksheet.



Marie Jacobson is single and has two children from her previous marriage. Laura lives with
Marie, and Marie provides more than half of her support. Jimmy lives with his father, Ben
(Jimmy lived with Ben for all of 2014). Ben provides more than half of Jimmy’s support.
Marie pays “alimony” of $400 per month to Ben. The payments are to continue until Jimmy
reaches age 18, when they will be reduced to $150. Marie provides you with the following
additional information:
She uses the cash method of accounting and a calendar year for reporting.
She wishes to contribute to the presidential election campaign.
Marie lives at 14020 West Grove Ave, Denver, CO 84102.
Marie’s birthday is May 31, 1977.
Laura’s birthday is October 5, 2005.
Jimmy’s birthday is December 1, 2003.
Marie’s Social Security number is 007-16-4727.
Laura’s Social Security number is 005-61-7232.
Jimmy’s Social Security number is 004-23-3419.
Ben’s Social Security number is 006-45-6333.
She does not have any foreign bank accounts or trusts.


Marie is employed as an architect with Banner Consultants, Inc. Banner’s federal employer
identification number is 79-1234466. Marie’s pay stubs indicate that she had $7,230
withheld in federal taxes, $4,987 in state taxes, $4,495 in Social Security taxes, and $1,051
in Medicare taxes. Marie earned salary of $70,000 (before subtracting her 401(k) and
flexible spending plan contributions). She contributed $7,000 to her 401(k) account, and
she contributed $3,600 to her flexible spending account. These are before tax deductions.


Banner has an extensive fringe benefits program for its employees. Banner paid $397 of
whole life insurance premiums to cover Marie’s personal whole life insurance policy. Banner

also paid health club dues of $900 to a nearby health club on Marie ‘s behalf.


Taking advantage of Banner’s educational assistance program, during the fall Marie
enrolled in two graduate architecture classes at a local college. Banner paid her tuition,
fees, and other course-related costs of $2,300.


Marie received free parking in the company’s security garage that would normally cost
$200 per month.


Marie manages the creative design program for Banner. In recognition of her superior
service during the year, Marie was awarded the Architect Conference Creative Design
Award on December 15. The cash award was $500.


On January 15, 2014, Marie ‘s father died. From her father’s estate, she received stock
valued at $30,000 (his basis was $12,000) and her father’s house valued at $90,000 (his
basis in the house was $55,000).


Marie owns several other investments and in February 2015 received a statement from her
brokerage firm reporting the interest and dividends earned on the investments for 2014.
1099 Dividends and Distributions
General Electric Company Gross Qualified
Minnesota State Bonds
Gross Interest
Oracle, Inc. Bonds
Gross Interest
Denver Library Bonds
Gross Interest
Central Bank – this is her
Gross Interest
bank account for her real
(earned in her
estate business (Schedule Schedule C)
C) see #23. below


In addition to the investments discussed above, Marie owns 1,000 shares of Pioneer
Restoration Company common stock. Pioneer Restoration Company is organized as an S
corporation (a conduit entity) and has 100,000 shares outstanding (S corp. ID number 454567890). Pioneer Restoration Company reported taxable income of $200,000 and paid a
distribution of $1.00 per share during the current year. Marie tells you that Pioneer typically
does not send out its K-1 reports. However, its preliminary report (which should be the final
report) has been consistent with the K-1 for many years. Marie does not materially
participate in Pioneer Restoration Company’s activities.
Preliminary K-1 Information

Pioneer Restoration
Pioneer Restoration

Distribution to
shareholder (not
taxable to Marie)
Ordinary income [1% of




Marie received a Form 1099-B from her broker for the sale of the following securities
during 2014. The adjusted basis amounts were reported to the IRS (this is important
for Form 8949 reporting purposes).
Sale Date Purchase Date Sales
Commission Her Basis
Paid on Sale
Colorado State bonds
Mission Corporation (300 11/1/14

In addition to the taxes withheld from her salary, she also made timely estimated
federal tax payments of $175 per quarter and timely estimated state income tax
payments of $150 for the first three quarters. The $150 fourth-quarter state payment
was made on December 28, 2014. Marie would like to receive a refund for any
overpayment. Note: you are not required to show a state tax return but remember
that state income tax payments are deductible on Marie’s federal tax return as an
itemized deduction.


Because of her busy work schedule, Marie was unable to provide her accountant
with the tax documents necessary for filing her prior year’s 2013 state and federal
income tax returns by the due date (April 17, 2014). In filing her extension on April
17, 2014, she made a federal tax payment of $750. Her return was eventually filed
on June 25, 2014. In August 2014, she received a federal refund of $180 and a state
tax refund of $60. Her itemized deductions for the prior year 2013 were $12,430.


Marie decided to rent the house she inherited from her father. She found a renter for
the house on August 1. The monthly rent is $400, and the lease agreement is for one
year. The lease requires the tenant to pay the first and last months’ rent and a $400
security deposit. The security deposit is to be returned at the end of the lease if the
property is in good condition. On August 1, Marie received $1,200 from the tenant
per the terms of the lease agreement. In November, the plumbing froze and several
pipes burst. The tenant had the repairs made and paid the $300 bill. In December, he
reduced his rental payment to $100 to compensate for the plumbing repairs. Marie
provides you with the following additional information for the rental in 2014.
Property taxes
Other maintenance expenses

Insurance expense
Management fee
Depreciation (to be computed)


The rental property is located at 123 Fenton Street, Denver, CO 80473. Local
practice is to allocate 12 percent of the fair market value of the property to the land.
(See #7.) Marie makes all decisions with respect to the property.


Marie paid $2,050 in real estate taxes on her principal residence. The real estate tax is
used to pay for town schools and other municipal services.


Marie drives a 2013 Honda Civic. Her car registration fee (based on the car year) is $50
and covers the period 1/1/14 through 12/31/14. In addition, she paid $280 in property tax
(shown as owners tax on the car registration form) to the state based on the book value of
the car.


Marie incurred the following unreimbursed medical costs:
Prescription drugs
Over-the-counter drugs
Emergency room charges
LASIK eye surgery


On March 1, Marie took advantage of low interest rates and refinanced her $75,000 home
mortgage with her original lender. The new home loan is for 15 years. She paid $215 in
closing costs and $1,500 in discount points (prepaid interest) to obtain the loan. The house
is worth $155,000, and Marie ‘s basis in the house is $90,000. As part of the refinancing
arrangement, she also obtained a $10,000 home-equity loan. She used the proceeds from
the home-equity loan to reduce the balance due on her credit cards. Marie received several
Form 1098 statements from her bank for interest paid by her in 2014. Details appear below.
Primary home mortgage
Home-equity loan
Credit cards
Car loan


Here are the Form 1098 statements that she received from her bank:
1098 Mortgage Interest Statement

Fritz Bank of Colorado
Southeast Bank of Colorado

Mortgage Interest
Home-equity loan



On May 14, 2014, Marie contributed clothing to the Salvation Army. The original cost of the
clothing was $740. She has substantiation valuing the donation at $360. The Salvation
Army is located at 247 Fieldstone Road, Denver, CO 80440. In addition, she made the
following cash contributions and received a statement from each of the following
organizations acknowledging her contribution:
Jasper College
Samaritan House (homeless shelter)
Local Chamber of Commerce
First Presbyterian Church
Mile-Hi United Way


On April 1, 2014, Marie ‘s house was robbed. She apparently interrupted the burglar
because all that is missing is an antique brooch she inherited from her grandmother (June
12, 2006) and $300 in cash. Unfortunately, she didn’t have a separate rider on her
insurance policy covering the jewelry. Therefore, the insurance company reimbursed her
only $500 for the brooch. Her basis in the brooch was $6,000, and its fair market value was
$7,500. Her insurance policy also limits to $100 the amount of cash that can be claimed in
a theft.


Marie sells real estate in the evening and on weekends. She runs her business from a
rental office she shares with several other realtors (832 East 3rd Ave, Denver, CO 80207).
The name of her business is Jacobson Real Estate and the federal identification number is
05-8799561. Her business code is 531210. Marie has been operating in a business-like
way since 2008 and has always shown a profit. She had the following income and
expenses from her business:
Commissions earned
Real estate license

She has used her Honda Civic in her business since July 1, 2014. During 2014, she
properly documented 6,000 business miles (1,000 miles each month). The total
mileage on her car (i.e., business- and personal-use miles) during the year was
15,000 miles (including 200 miles commuting to and from the real estate office). In
2014, Marie elects to use the standard mileage method to calculate her car

expenses. She spent $45 on tolls and $135 on parking related to the real estate


Marie ‘s company has an accountable expense reimbursement plan for employees from
which Marie receives $12,000 for the following expenses:
Car rentals
She also paid for office supplies for her work at Banner Company that she was not
reimbursed for amounting to $830.


During 2014, Marie paid $295 for professional subscriptions and $325 for a local CPA to
prepare her 2013 tax return.