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Discuss with your team the textbook problem #75 on page 320.
Complete the 2016 federal income tax return for the Diego’s with your team.
Your Learning Team, as their tax advisors, will prepare a 350- to 525-word memo (this is not APA formatting) directed to the Diego’s with an overview of their tax position for 2016 tax year. Include any supporting calculations if applicable. If you are not familiar with writing memos go to the Library area, click on Useful Resources, click on Grammar and Writing Guides. Finally, click on Information under Business Writing. Because this may be a client you deal with annually or more you can soften the business tone a little. Keep the purpose of your writing in mind. You can also find a basic memo format on the Internet.
Jordan (SSN 150-66-7788) and Diana (SSN 150-67-4321) Diego are a married couple who reside at 111 Coral Drive in Miami, FL 33156. They have one dependent daughter, Emily (SSN 155-88-4321), age 18, who lives at home.
Jordan is a manager at Big Box Corporation. His Form W-2 wages are $68,000 and federal income tax withheld is $8,300. The correct payroll taxes were withheld.
Diana worked at a local department store for the first half of the year. Her Form W-2 wages are $40,000 and federal income tax is $3,300. The correct payroll taxes were also withheld.
The Diego family paid $9,200 interest on their home mortgage (reported to them by the mortgage company on Form 1098). The Diego family also owns a vacation home in Breckenridge, Colorado, for which they paid $4,100 of mortgage interest. (This is qualified mortgage interest for a second home.)
The Diego family paid real estate taxes on their principal residence of $3,400, $2,000 of real estate taxes on their vacation home and $3,200 of sales taxes during the year.
The vacation home in Breckenridge was rented out for 120 days during the year for which they received $12,000 in rental income. Jordan and Diana made significant decisions such as approving new tenants while a local management company handled the day-to-day needs. The Diego family used it for 30 days for a personal vacation during the year. Other expenses for the year for this vacation home (excluding interest and taxes mentioned above) were: $700 for real estate management fees paid to a local agent who handles the rental of the property, insurance expense $2,200, repairs expense $500, and utilities expense $1,800. Their depreciation expense for the rental use of this property for the year is $1,455. They use the IRS formula for allocating interest and taxes.
The Diego family contributed $3,000 cash to their church and they have the necessary documentation for this contribution.
Jordan had the following employment-related expenses that were not reimbursed by his employer:
Jordan drove his BMW (which he purchased four years ago on November 18) a total of 12,000 miles during the year. He drove 4,800 miles while conducting business during the first half of the year. In July, the firm purchased several hybrid autos that the architects were then required to use for all business travel rather than their personal autos. These autos were kept at the firm's offices. Jordan used his personal auto for the three-mile commute to his office, a total of 1,500 miles for the entire year.
Jordan attended work-related conference in Los Angeles. He paid a registration fee of $400 and incurred costs of $450 for transportation, $625 for lodging, and $260 for meals. He was not reimbursed for these expenses.
In August, Diana quit her job and began a consulting business. The business code is 541990. She is operating the business under her own name and rented a small office at 1234 Coral Way, Coral Gables, FL 33146. Since Diana began her business so late in the year, her consulting income was only $8,000. She incurred the following expenses: $475 supplies, $210 telephone, $3,200 office rent, and $325 advertising. In addition, Diana drove her two-year old Lexus on business 750 miles to visit prospective and current clients. This car was also driven 7,000 miles for personal use. She materially participated in the business and did not make any payments that would require filing Form 1099.
Jordan was born on April 1, 1975; Diana was born May 1, 1976. They have health insurance for the entire family through Jordan's employer. They have no foreign accounts.
Based on the information presented above, prepare a Form 1040 (married filing jointly), Schedule A, Schedule C (or C-EZ), Schedule E, and Schedule SE using the forms available on the IRS Web site at www.irs.gov.