susan and James Bunker are married and live at 1231 N. Broad St., Mankato, MN 56001. James is 65 and Susan is 60. James is semi-retired; he continues to work at a part-time job. Susan is a sole-proprietor of a printing shop. Table A lists information on James’ wages, taxes withheld, estimated tax payments made by the couple and their respective social security numbers. James also received $9,000 in social security payments and $21,000 from a fully taxable pension. Information for Susan’s print shop is listed in Table B.
Fed Inc Tax Withheld $2,000
St Inc Tax Withheld $1,000
Estimated Tax Pmts-Fed $14,000
Estimated Tax Pmts-State $6,000
Table B Sole Proprietorship
Supplies expense 72,000
Acct. Fees 1,800
Payroll Tax** 2,800
Rent Expense 8,000
Auto Miles 3,000 miles
Depreciation Note 1
** Wages and payroll taxes were for part-time employees.
Note 1: Susan’s older printing equipment has been fully depreciated. On 5/24/10, Susan bought a new high-speed copier for $30,000. The copier qualified for first year bonus depreciation (50% in this case) and any remaining depreciation would be regular MACRS, double declining balance, for 5 years.
The taxpayers owned a rental property but it was sold during the year. The apartment house was bought in December 12th, 1999 for $120,000. $20,000 of the purchase price was allocable to the land. Other rental figures allocable to the property for the current year are shown in Table C. The apartment house was sold on 9/1/10 year for $145,000. The house was sold by Susan and James to Joe Williams on the installment basis. The buyer paid a $15,000 down payment and was required to make monthly payments of $1,024 over 20 years. For 2010, the partial amortization schedule for the installment contract was:
Payment Interest Princ.
September $15,000 $0 $15,000
October $1,024 $780 $244
November $1,024 $779 $245
December $1,024 $777 $246
Susan and James made some sales of other investment assets this year. Susan sold some shares received from her father as a gift a decade ago. Susan received 1,000 shares of US Package, Inc. inherited from her father on 10/22/02. The father’s basis in the stock was $6.50 per share and the fair market value of the date of his death was $9 per share. James purchased 1,000 shares of Robo, Inc. for $30.50 per share on 11/9/07 and sold them in 2010. The sale information on these securities is listed below. Other investment income items are listed in Table D.
Basis; Date Acquired
Sale Price; Date Sold
James inherited a painting from his father on 4/15/98 that he donated to a St. Louis County art museum on 5/20/10. His father paid $500 for the painting on 6/15/71 but the painting was appraised at $2,500 on his death. When James donated the painting to the museum, the museum’s appraiser estimated the value of the painting at $3,250. Other expenditures, which may or may not be deductible are listed in Table E.
Table C Apartment Table D
Rents $8,000 Interest- Wells Fargo Bank $2,000
Interest 7,000 Municipal Bond Interest from Muni Mutual Fund 1,500
Property Taxes 2,000
Insurance 800 Dividend – Robo 1,100
Misc Rent Exp. 1,000 Dividend – Ariba Mutual Fd. 450
Depreciation expense See above
Political Contributions 500
Cash to various charities 3,300
Real Estate Taxes (Residence) 2,700
Home Mortgage Interest 6,400
Tax Prep Fee 600
Auto loan interest 350
Misc. Investment Expenses 1,500
Prepare the couple’s 2010 tax return using TaxAct. When you print the return, use the PRINT RETURN OPTION (not print form) under the FILE menu. For those who missed the class where we covered installment sales, those are reported on Form 6251. The information is easy to enter once you locate the form in the program (don’t forget that this installment sale has gain taxed at potentially two rates). List the interest income from the contract separately on Schedule B.
Assume that the taxpayers’ withholding and estimated tax payments were based on 100% of last year’s tax and they shouldn’t have any penalty for underpayment of estimated tax (you will have to see how to suppress that if a penalty is calculated).