Individual Tax Return Project
Section 001
Due FRIDAY, OCTOBER 19, BY END OF CLASS (2:20 PM)
PLEASE REMEMBER THAT YOU ARE TO COMPLETE A 2018 FEDERAL INCOME TAX RETURN FOR THIS
PROJECT
OVERVIEW
In the following pages, you will find all the information necessary to complete a 2018 U.S. Individual
Income Tax Return for Ron & Tammy Swanson. While this assignment is not designed to be tricky, it
may be difficult for many students, and it will most certainly require a significant input of your time. The
purpose of this project is twofold. First, your ability to examine the receipts, disbursements, and
situations of taxpayers, identify the relevant tax issues, and determine the appropriate tax treatment, as
covered explicitly in the text, lectures, and homework, will be gauged. Second, completion of the
project will require you to use forms and publications from the Internal Revenue Service to actually
prepare the documents the taxpayer would be required to submit.
GUIDELINES AND INSTRUCTIONS
You can work individually or form groups of 2-4 people to work on this project. You may choose your
own groups, and it is solely your own responsibility to ensure that you turn in a completed project. I
would strongly encourage you to work in groups for this project as it will likely result in a better work
product. You will only need to turn in one project per group.
Students must individually (within your own group only) complete the midterm project using resources
from http://www.irs.gov, lecture notes, tax texts, etc. As this is a project, and not a homework
assignment, I will be providing a little less guidance in office hours, etc. for students, although I will
strive to point everyone in the right direction.
For the entire project, students must assume that the taxpayers are interested in the tax-minimizing
legal position. You can ignore alternative minimum tax (AMT) for the entirety of this project.
IRS forms and instructions are designed to be read, understood, and followed by taxpayers without
significant accounting backgrounds. While it may be challenging at first, upper-level accounting
students should be able to read the instructions for each form and figure out how to complete the
project. IRS Publication 17 is a very good resource and is the most appropriate authoritative reference
for completion of the project. I also encourage you to look up the instructions (line-by-line) by searching
for the form name followed by “instructions” using a search engine. Please note that instructions are
not currently available for the Form 1040 and Schedules 1-6; since this is the case, I have also provided a
spreadsheet that matches the 2017 line numbers to the 2018 forms so that you can use the 2017
instructions currently available online.
You are not allowed to use any tax return software to complete this project. I have not provided
supporting documents like W-2s and 1099s. This exclusion will make use of a software package more
difficult and unlikely to generate a correct return. Understanding how the numbers on a return interact
is a valuable skill to have early in any accounting career, and especially in tax, so to gain these skills, you
will need to complete this project without the assistance of any software.
The only submission required for grading is a complete 2018 U.S. Individual Income Tax Return, which at
minimum will consist of the following forms (submit in following order):
–Form 1040-V
–Form 1040 (and Schedules 1, 3, 4, & 6)
–Form 1040, Schedule A
–Form 1040, Schedule B
–Form 1040, Schedule C
–Form 1040, Schedule D
–Form 1040, Schedule E
–Form 1040, Schedule SE
Depending on the tax treatment for some items determined to be appropriate by the preparer, Forms
2441, 4562, 8889, and/or Form 8949 may also be required. Submit these forms as needed in this order
following the required forms. Each form submitted for grading must be COMPLETELY filled out. For
uniformity, I require that the forms be TYPED and printed, that any line with an entry of -0- be left
blank, and negative numbers should be indicated in parentheses. Please round all numbers to the
nearest whole dollar and omit “00” in the cents column.
Since the final 2018 forms have not yet been released, you can find all of the forms you will need
(adapted for 2018 use) on Blackboard in the “2018 Forms” folder.
This is a group assignment, so you may only work with students inside your own group. For your final
submission, you MUST staple a cover sheet (template provided on Blackboard) to the entire return
with each group member’s name, PUID, and section clearly printed and easily visible.
Good luck!
Check Figures:
Form 1040, Line 1: 102,201 Form 1040, Line 7: 199,850
Form 1040, Line 9: 22,000 Form 1040, Line 16: 33,124
Schedule 1, Line 27: 7,418 Schedule 4, Line 57: 14,836
Scenario:
You are a tax accountant at the respected accounting firm Purdue, Krannert, and Rawls LLP (“PKR”) and
the preparer for Ron and Tammy Swanson’s 2018 federal income tax return. PKR’s information is as
follows: EIN: 56-9291122; Address: 403 West State Street, West Lafayette, Indiana 47907; Phone
number: 765-867-5309. Since you have agreed upon a flat fee of $3,600 for completing this return in
2019, be sure to complete the paid preparer’s information on the tax return. Also note that Ron and
Tammy want to allow you to discuss this return with the IRS if needed.
You need to complete only the 2018 federal income tax return for Ron and Tammy Swanson (no state
tax return). Ignore the requirement to attach form(s) W-2 to the second page of the Form 1040, as this
will be done by your administrative assistant when the return is processed to give to your client.
Ron W. Swanson (Age 55) and his wife Tammy S. Swanson (Age 46) live in Indianapolis, Indiana with two
children: April (Daughter, Age 16) and Andy (Son, Age 9). Both children qualify as dependents of Ron and
Tammy (qualifying children) for federal income tax purposes. Neither Ron nor Tammy can be claimed as
a dependent on another’s return, and neither would like to contribute to the Presidential Election
Campaign Fund. Ron and Tammy have no carryovers from the prior year. The Swansons did not have a
financial interest in or signature authority over a foreign financial account at any time in 2018. They also
did not receive any distributions (or were grantors of or transferors to) a foreign trust in 2018.
Ron’s older brother, Jimmy (Age 60), lost his job in 2018 and came to live with the Swansons in January.
Ron’s sister pays for the majority of the support for Jimmy, and Jimmy earned $5,500 from a part-time
job in 2018.
The entire Swanson family was covered by minimum essential health insurance during each month in
2018.
The Swansons provided the following information:
• Social Security Numbers:
o Ron: 999-29-9999
o Tammy: 999-44-4444
o April: 996-22-2073
o Andy: 996-23-3073
o Jimmy: 987-44-2210
• Address:
o 6515 Carrollton Avenue, Indianapolis, Indiana 46220
1. In 2018, Ron was a director of recreation working for Broad Ripple Parks. His wages were
$102,201, with $33,124 in federal taxes withheld and $3,233 in state taxes withheld. Since
Tammy works as a self-employed realtor, Ron adjusted his federal withholding to be abnormally
high.
2. Tammy is a self-employed architect in the Indianapolis area and runs this enterprise as Fountain
Square Architects LLC (“FSA LLC”). FSA LLC is conducted as a sole proprietorship with Tammy
being the sole owner. FSA LLC started business on January 1, 2016 and is located at 653 Virginia
Avenue, Indianapolis, Indiana 46203. The EIN for the business is 57-3939394, and the NAICS
code is 541310. The financial information provided by Tammy on this business (cash method) is
enclosed at the end of the problem.
3. Ron and Tammy own a rental house located at 27 Summer St, Lubec, Maine 04652. The house (a
single-family residence) was rented for 365 days in 2018, and all assets related to the house are
fully depreciated as they have owned the property for 30 years and have not made substantial
improvements to the property in 17 years. The financial information provided by Ron on this
rental property (cash method) is enclosed at the end of the problem (Peacock House Rental
Property). Assume the income from this property is Qualified Business Income.
4. Tammy received disability benefits totaling $10,000 in 2018 from a plan that she purchased with
after-tax dollars.
5. The Swansons jointly received the following interest and dividend payments in 2018:
a. Ordinary Dividends from Knope Corporation: $233
b. Ordinary Dividends from Pawnee Corporation: $899
c. Qualified Dividends from Eagleton Corporation: $1,000
d. Interest from Navy Federal Credit Union: $975 ($1,100 interest with $125 early
withdrawal penalty
e. Interest from the City of West Lafayette bonds: $1,050
f. Interest from Bank of America: $60
6. Ron has a self-managed equities account and made two trades during 2018. Neither of these
stocks qualify as §1244 Small Business stock. Note: You do not need to complete the Qualified
Dividends and Capital Gain Tax Worksheet, but it may help you some in calculating tax liability.
a. He purchased 1,000 shares of Pawnee Corporation stock on January 7, 2018 for $30.75
per share ($30,750 total cost, no commissions). He sold all 1,000 shares on December
12, 2018 for $30.58 per share net of commissions ($30,580 total proceeds less
commissions). The cost basis for this sale was reported to the IRS.
b. Ron’s last trade was the purchase of 10 shares of Krannert Corporation stock on March
19, 2018 for $510.00 per share ($5,100 total cost, no commissions). He sold this stock on
December 20, 2018 for $110.00 per share ($1,100 total proceeds less commissions). The
basis of this stock was reported to the IRS.
7. Ron and Tammy paid personal property taxes of $128 on Ron’s 2002 Buick Park Avenue Ultra
and $1,097 on Tammy’s 2018 Audi SQ5. Both are their personal vehicles (no business use).
8. In 2018, Ron and Tammy incurred the following unreimbursed medical expenses (all paid out of
pocket):
a. Doctor’s office visits for April and Andy: $7,323
b. Elective cosmetic surgery – rhinoplasty (nose job) for Ron: $7,551
c. LASIK eye surgery for Tammy: $7,880
d. Prescription eyeglasses and contacts for Ron and Tammy: $360
e. Prescription drugs for Ron, Tammy, and April: $1,222
9. Andy attended daycare in 2018 at The Broad Ripple Conservatory for Gifted Children (EIN #53-
7556555) at 820 E 67th Street, Indianapolis, Indiana 46220. The total fees paid for Andy amount
to $2,400 for 2018. Neither Ron nor Tammy received dependent care benefits from an employer
in 2018.
10. Tammy made one estimated payment of state income tax of $1,000 on June 15, 2018. Ron and
Tammy have paid over 90% of their current year tax liability, so there is no underpayment
penalty.
11. Ron and Tammy own their house, which is their principal residence, but have a mortgage on the
property ($295,724 loan balance). In 2018, they paid $4,541 in real estate taxes on the property
and $9,425 in interest (reported on a Form 1098). The fair market value of the house is
$680,000.
12. Ron contributed $1,100 (after-tax dollars) to a Health Savings Account (with family coverage) for
2018. The Swansons made no disbursements from this account in 2018. This contribution
qualifies as an above-the-line deduction since it was not made through an employer.
13. Additionally, Ron and Tammy made the following charitable contributions in 2018:
a. $9,000 cash donation to The Salvation Army (a qualified charity)
b. $6,000 cash donation to a family in need
c. $300 cash donation to the Leslie Knope for Senate political campaign
14. The Swansons replaced some appliances in their house in 2018. Tammy donated her old
appliances valued at $250 to Habitat for Humanity (a qualified charity) in 2018. She originally
paid $4,200 for these appliances. A receipt was provided, and no goods or services were
rendered by the non-profit in exchange for this donation. Nothing from this replacement
qualifies for a Residential Energy Tax Credit.
15. Ron contributed $4,000 to a traditional IRA in 2018 (not through an employer). You can assume
this is fully deductible as an above the line deduction.
16. Be sure to calculate the tax by using the schedules attached at the back of the project (round
the tax to the nearest dollar).
FOUNTAIN SQUARE ARCHITECTS LLC INFORMATION
Tammy reported the following information for Fountain Square Architects’ business activities (FSA LLC
uses the cash method of accounting):
Revenues:
Real Estate Commissions $502,775
Total revenue $502,775
Expenses:
Advertising $ 1,590
Wages 148,848
Employee Benefits 28,000
Insurance-professional 32,000
Office building rent 48,500
Vehicle lease 34,320
Utilities 21,750
Depreciation 4,847
Meals 700
Supplies 24,000
Taxes and licenses 39,220
Legal and professional fees 13,350
Repairs and maintenance 1,000
Total Expenses $398,125
FSA LLC purchased and placed in service the following fixed assets (assume no fixed assets were in
service prior to 2018):
Item Depreciable Life Date Purchased Amount
MacBook Pro Computer 5.0 December 1 $2,200
iPad 5.0 January 2 $600
Office Furniture 7.0 January 7 $30,000
FSA LLC does not want to claim any bonus depreciation or Section 179 expensing on any of these assets.
While you typically would need to do so in practice, you do not have to attach the election out of bonus
depreciation to this return. The depreciation included in the profit & loss statement above represents
the correct amount for tax depreciation.
FSA LLC filed Forms 1099 for payments made to contractors when required to do so.
PEACOCK HOUSE RENTAL PROPERTY INFORMATION
Ron reported the following information for the Peacock House rental property:
Revenues:
Rental Income $18,400
Total revenue $18,400
Expenses:
Insurance $4,400
Commissions $1,080
Repairs $1,120
Cleaning & Maintenance $2,000
Taxes $4,800
Total Expenses $13,400
Ron and Tammy were not required to file any Forms 1099 for this property as separate payments to
repair contractors did not exceed $600.
2018 Tax Credit for Qualifying Child under age 17: $2,000
2018 Tax Credit for Other Qualifying Dependents: $500