·      You have been engaged to prepare the 2015 federal income tax return for Bob and Melissa Grant.

·      Your tax form submission should include: Form 1040, Schedules A, B, D, E, and Forms 4684 and 8949 as applicable. You will come across many items on the tax return we have not talked about in class; if we have not covered it in class, and it is not included in the information below, you do not need to address it on this assignment.

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·      Your solution should contain a detailed workpaper that calculates the tax due or refunded with the return and calculated in the form of the tax formula (see Ch. 4 lecture slides). The calculation should be well labeled and EASY to follow. This presentation will be factored into your grade. Do NOT include any references or citations on your workpaper.


·      You may complete the return by hand (neatly) or typed using 2015 forms found on Blackboard or the IRS website. You may complete the form using software, one version of which is available in the ACELAB.

o   Note – ACELAB software is for the 2014 tax year; if you choose to use this method, you do not need to override the automatically calculated 2014 information, but your workpaper must detail each line item that will differ between the 2014 form generated and the 2015 forms).


·      Use the following assumptions in preparing the return:

o   The general method of accounting used by the Grants is the cash method.

o   Use all opportunities under law to minimize the 2015 federal income tax.

o   Use whole dollars when preparing the tax return.

o   Do not prepare a state income tax return.

o   Ignore the Line 45 calculation for alternative minimum tax.

o   If required information is missing, use reasonable assumptions to fill in the gaps.


Client memo (5 points)

·      Complete a letter to the client regarding tax planning advice. Identify and explain two reasonable tax planning items the family could use to minimize their tax liability and/or maximize their wealth. All items would be implemented in future years and do not impact the current tax return.





Bob (age 43, SSN #987-45-1234) and Melissa Grant (age 43, SSN #494-37-4893) are married and live in Lexington, Kentucky.  The Grants would like to file a joint tax return for the year. The Grants’ mailing address is 95 Hickory Road, Lexington, Kentucky 40502.


The Grants have two children Jared (SSN #412-32-5690), age 18, and Alese (SSN #412-32-6940), age 12.   Jared is still in high school and works part time as a waiter and earns about $2,000 a year. The Grant’s also provide financial support to Bob’s aged (85 years) grandfather, Michael Sr., who is widowed and lives alone. Michael Sr.’s Social Security number is 982-21-5543. He has no income and the Grant’s provide 100 percent of his support.


Bob Grant’s Forms W-2 provided the following wages and withholding for the year:



Gross Wages

Federal Income Tax Withholding

State Income Tax Withholding

National Storage




Lexington Little League





Melissa Grant’s Form W-2 provided the following wages and withholding for the year:



Gross Wages

Federal Income Tax Withholding

State Income Tax Withholding

Jensen Photography






All applicable and appropriate payroll taxes were withheld by the Grants’ respective employers.  All of the Grant family was covered by minimum essential health insurance during each month in 2015.  The insurance was provided by Bob’s primary employer, National Storage.


The Grants also received the following during the year:


Interest income from First Kentucky Bank                                                                  $     130

Interest income from City of Lexington, KY Bond                                                                      $     450

Interest income from U.S. Treasury Bond                                                                    $     675

Interest income from Nevada State School Board Bond                                                      $     150

Dividend income from General Mills                                                                              $     400

Dividend income from Sysco Corporation                                                                   $     250

Dividend income from Tyco Security                                                                               $     350

Dividend income from J.M. Smucker, Inc.                                                                    $     525

Workers’ compensation payments to Bob                                                                 $  4,350

Life insurance proceeds on the death of Bob’s mother                                     $45,000

Cash gift from Melissa’s father                                                                                           $  8,500

Disability payments received by Bob on account of injury                              $  3,500


Melissa received the following payments as a result of a lawsuit she filed for damages sustained in a car accident:

·       Medical Expenses for physical injuries                                                                       $2,500

·       Emotional Distress (from having been physically injured)          $12,000

·       Punitive Damages                                                                                                   $10,000

                                    Total                                                                                                                                    $24,500

The Grants also received a 1099-B relating to their investment in 2,000 shares of GE stock, which they purchased on October 7th, 2008 for $45,000 and sold on January 3, 2015 for $50,000.


Eight years ago, Melissa purchased an annuity contract for $88,000.  She received her first annuity payment on January 1, 2015.  The annuity will pay Melissa $15,000 per year for ten years (beginning with this year).  The $15,000 payment was reported to Melissa on Form 1099-R for the current year (box 7 contained an entry of “7” on the form).


The Grants own a condominium located at 990 El Mar, Unit A, Lexington, Kentucky 40502. They first rented out the condominium on October 1, 2015. The revenue and expenses from the rental unit from October through December are as follows:


                                    Rental revenue                                                      $3,600

                                    HOA fee expense                                      300

                                    Property taxes paid                               225

                                    Utilities expense                                     350


On January 3, 2015, the Grants sold their prior principal residence.  They purchased that residence in 2009 and had lived there full-time until they sold it this year.  They originally purchased the home for $310,000.  The Grant family has never claimed any tax depreciation (nor were they allowed to) on the home.  The sales price of the home was $405,000.  The home is located at 45 East Entrada Trail, Lexington Kentucky 40502.


Melissa works out at a gym located at the photography studio. The gym is owned and operated by the studio and is available to all employees. The gym is offered at no cost to employees but is worth $500 for the year.


Melissa entered a contest sponsored by a radio station and won 10 tickets to the touring Broadway-style production of Wholesome. The value of the tickets was $200 each. Melissa took her friends from work to the production.


The Grants took two trips to Atlantic City. While on the first trip they lost $800 gambling, but on the second trip they won $1,200.


The Grants did not own, control or manage any foreign bank accounts nor were they a grantor or beneficiary of a foreign trust during the tax year.


The Grants paid or incurred the following expenses during the year:


Dentist/Orthodontist (unreimbursed by insurance)                                            $10,500

Doctor fees (unreimbursed by insurance)                                                                   $      625

Prescriptions (unreimbursed by insurance)                                                              $      380

KY state tax payment made on 4/15/15 for 2014 tax return liability       $   1,350

Real property taxes on residence                                                                                     $   1,800

Vehicle registration fee based upon age of vehicle                                              $      250

Mortgage interest on principal residence                                                                  $   8,560

Interest paid on borrowed money to purchase the City of

Lexington, KY municipal bonds                                                                         $      400

Interest paid on borrowed money to purchase

U.S. Treasury bonds                                                                                                  $     240

Contribution to the Red Cross                                                                                             $  1,000

Contribution to Senator Rick Hartley’s Re-election Campaign                     $  2,500

Contribution to First Baptist Church of Kentucky                                                                     $  6,000

Fee paid to Jones & Company, CPAs for tax preparation                                                    $     200


During the year, Bob paid $21,600 in alimony and child support payments to a former spouse, Natalie (SSN #568-72-8787). When his daughter Wendy (SSN #568-72-666), who lives with her mother full-time, reaches the age of 18 the payments will drop to $11,600.


In addition, Bob drove 6,750 miles commuting to work and Melissa drove 8,230 miles commuting to work.  The Grants also drove 465 miles in total to receive medical treatment at a hospital in April. 

The Grants have represented to you that they maintained careful logs to support their respective mileage.


The Grants’ personal residence was burglarized on October 1.  The theft occurred during the day while both the Grants were at work and their children were at school.  The Grants had the following personal-use property stolen:



Purchase Date

Fair Value on Date of Theft

Tax Basis of Item

Insurance Reimbursement Received

Laptop computer and Printer















2007 Honda Pilot











The Grants want to contribute to the Presidential Election Campaign.  The Grants would like to receive a refund (if any) of any tax they may have overpaid for the year.  Their preferred method of receiving the refund is by check.

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