Reference no: EM13176350

You also have several forms 1099 that report income received by the Quandts in 2011:

	Interest (form 1099-INT)	M & T Bank	$ 219.00
	State income tax refund (form 1099-G)	New York State (2010 return)	182.00

The Quandts account for all of these amounts on the cash basis. On their 2010 form 1040, the Quandts claimed $15,652.00 in itemized deductions, including $4,217.00 in New York State income taxes.

William Quandt inherited $66,500.00 in cash on July 7, 2011 from an aunt who died on February 5, 2011. They used $64,414.00 of the money as down payment on an apartment building located at 443 Cayuga Drive, Williamsville, NY 14221. They purchased the building on September 22, 2011 and immediately advertised it for rent. They have taken personal charge of the management of the rental property. The first tenants moved in on November 1, 2011. The building was fully occupied by January 1, 2012 and has remained so ever since. The Quandts received $1,650.00 in rental income in 2011. The Quandts' payment on the purchase of the rental property was computed as follows:

	Charges to buyers
		Purchase price			$ 250,000.00
		Real estate taxes paid by sellers:
			Town of Amherst-calendar year (101 days)		1,010.00
			Village of Williamsville-calendar year (101 days)		404.00
					251,414.00
	Credits to buyers
		Mortgage loan from M & T Bank			187,000.00
	Net cash due from buyers:				$ 64,414.00

The value of the land at 443 Cayuga Drive is estimated to be $30,000.00.

William Quandt has owned his hardware store since 2006. He worked 2,380 hours at the store in 2011. He accounts for its income and expenses on the accrual basis. An analysis of the checking account of the business shows the following:

	Balance, January 1, 2011				$    527.00
	Receipts:
		Cash register receipts			162,787.00
		Collections on account			83,252.00
					246,566.00
	Disbursements:
		Inventory purchases		$ 115,244.00
		Utilities		4,221.00
		Telephone		1,024.00
		Store supplies		2,427.00
		Advertising		5,885.00
		Salaries		43,500.00
		Payroll taxes		4,268.00
		Employee fringe benefits		2,633.00
		Insurance premium		7,200.00
		Store rent		14,400.00
		Withdrawals		45,000.00
					245,802.00
	Balance, December 31, 2011				$   764.00

The name and address of the business is:

Quandt Hardware

4193 Sheridan Drive

Amherst, NY 14226

Its employer ID number is 16-8126745. The insurance premium of $7,200.00 is for a comprehensive three-year business policy. The term of the policy is from January 1, 2011 to December 31, 2013. The store's inventory on January 1, 2011, valued at FIFO cost was $16,053.00. Its inventory on December 31, 2011, using the same valuation method, was $8,167.00. The store had $22,148.00 in accounts receivable on January 1, 2011 and $24,353.00 in accounts receivable on December 31, 2011. Receivables of $548.00 were written off as uncollectible in 2011. The store had no accounts payable or accrued and unpaid expenses on January 1, 2011 or December 31, 2011. None of the store's advertising expense, salaries, fringe benefits, or rent were paid to William Quandt or any member of his family in 2011. None of the employee fringe benefits were contributions to pension or profit-sharing plans.

William furnished his business in 2006 with store furniture and fixtures costing $50,000.00, and with office equipment costing $10,000.00. The store furniture and fixtures are 7-year personalty. The office equipment is 5-year personalty. None of it is listed property under Code §280, and none of its basis is attributable to §263A costs. The Quandts did not elect §179 expensing or straight-line depreciation for the property when it was placed in service in 2006. As of January 1, 2011, the Quandts had claimed $38,845.00 in depreciation on the store furniture and fixtures and $9,424.00 on the office equipment.

Linda Quandt traveled to two journalism conventions in 2011. The first was held in San Francisco on July 9 through 11. The second took place in New York City on November 8 through 10. Linda incurred the following expenses in connection with these conventions:

	Location	San Francisco, CA				New York, NY
	Registration fee		$ 200.00				$ 175.00
	Air fare		420.00				120.00
	Hotel		385.00				365.00
	Meals		220.00				240.00
			$ 1,225.00				$ 900.00

Linda received $1,225.00 from her employer in August. This was in reimbursement for the San Francisco trip under an accountable plan after Linda had made an adequate accounting. The reimbursement is not reported on Linda's W-2. She was not reimbursed for the New York City trip.

The Quandts also made the following payments in 2011:

	265 Audubon Drive:
		Mortgage interest (reported on form 1098)	$ 3,815.00
		Town of Amherst real estate tax	4,128.00
	443 Cayuga Drive:
		Mortgage interest (reported on form 1098)	3,022.00
		Advertising	145.00
		Water bill	344.00
		Cleaning and maintenance	224.00
	Charitable contributions paid in cash (all under $250.00)		2,445.00
	Safe deposit box rental		80.00
	Trade associations (William)		265.00
	Trade journals and periodicals (William)		170.00
	Union dues (Linda)		730.00
	News periodical subscriptions (Linda)		430.00
	Estimated Federal income taxes paid for 2011		10,000.00
	Estimated New York State income taxes paid for 2011		2,175.00

The Quandts had no passive activities in any year prior to 2011. They both wish to designate $3 of their taxes to go to the Presidential Election Campaign Fund. Prepare the Quandts' 2011 joint Federal income tax return. Use the ProSystems software located in the computer lab (Rich Hall room 322). Identify yourself by entering your name where the program asks for "Client ID." Alsowrite your name in the upper right corner of form 1040.