Reference no: EM13918213

1. Prepare the 2014 Form 1040 and all other required Federal forms and schedules for Brett Simons. The returns should be prepared taking the maximum tax benefit allowable into consideration. Round all amounts to whole dollars.

2. Do not prepare tax returns for any other individuals mentioned in the problem.

3. The ages provided in the problem are determined as of 12/31/14.

4. Student must not use tax software. Prepare return using 2014 tax forms provided or found at www.irs.gov.

5. Important Requirement! Any and all amounts excluded from income or deductions either limited or not taken must be identified. All calculations used in the determination of the components of taxable income or tax liability must be provided. This requirement should be provided in a separate file (Word or Excel) and must be submitted with the completed tax return.

6. Brett Simon's tax return must be saved as a PDF file and submitted to the relevant assignment link at Unit 7 (in addition to the documents required by #5 and #8 of this document). This assignment is subject to the 10% late submission discount.

7. Page 1 of this document (with your name inserted) must be returned as part of your submission; points will be deducted if it is not attached.

Facts:

Brett, age 45, is single and resides at 123 Main Street, West Haven, CT 06516. His social security number is 123-45-6788. Brett has two children, Alec (age 17) and Grace (age 10), and their social security #'s are 049-52-5472 and 045-23-5432 respectively. Brett's mother, Donna Simons (age 70, social security #048-68-5874) lives at 50 Benton Street, West Haven, CT. Donna receives Social Security income of $12,000 per year, $5,000 in part-time wages, and Brett pays his mother $100 per week to watch Grace after school (36 weeks). Brett does not want to designate $3 to the Presidential Election Campaign fund.

On New Year's Eve 2010, Brett's wife Susan, was tragically killed in an automobile accident caused by a drunk driver. Brett survived the accident sustaining a broken leg and arm. He filed a lawsuit with respect to his injuries which was settled in 2013 awarding compensatory damages of $30,000 and punitive damages of $10,000.

Brett was the named beneficiary of Susan's $150,000 life insurance policy. Brett was given the option by Liberty Mutual to either receive the entire proceeds as one payment in 2011 or to receive $33,000 per year for five years. Brett chose to receive the proceeds in installments, the fourth of which was received in February, 2014.

Due to the loss of his wife, Brett decided that he should work from home. In December of 2013, he retired from his job as a Waterbury police officer and started his own security company on January 1, 2014. He continued to work part-time for the Police Department in 2014. His W-2 from the Waterbury Police Department (EIN 06-1234567) reported the following: wages $12,000, federal income taxes withheld $2,500, and Connecticut income taxes withheld $900. WPD withheld the proper amounts of social security and medicare taxes from Brett's pay during the year. Brett was not a participant in WPD's retirement plan.

Brett's business "Safe & Secure" (taxpayer I.D. #06-7654321) opened for business on January 1st. He uses the cash method of accounting and materially participates in the operation of this business. Brett uses his finished basement as his office. It has a separate entrance for clients and occupies approximately 600 of the 3,000 total square footage of his home. The home cost $400,000 at acquisition (1/1/2008 and does not include cost of land). Brett rents all necessary office furniture and equipment however repairs to the walls and painting were required to make it client ready. The total cost for the wall repairs and painting was $3,000.

Revenue and expenses for Safe & Secure for the year were as follows:

Security services Revenue
$70,000
Alarm monitoring services Revenue
$15,000
Equipment rent expense
$8,000
Business insurance expense
$600
Advertising expense
$900
Legal expenses
$500
Wages paid to his employee
$11,000
Payroll taxes paid on employee wages
$900
Office Supplies Expense
$1,600
Liability Insurance Expense
$400

Brett received the following interest and dividend income in 2014 (he did not have any interest in a foreign account or trust):

Interest

Dividends
Webster Bank
$800
UTC Corporation**
$2,200
Waterbury Credit Union
$200
Ace Corporation**
$400
Multistate Municipal Bonds
$900
Walmart**
$500

Non-Qualified dividends

On November 1, 2005, Brett and Susan invested in Ace Corporation by purchasing 100 shares at $60/share. Concerned about the future of the company, he sold the shares at $40/share on February 1, 2014. Brett received a Form 1099-B from his investment company that reported the sale and basis of the stock sold.

Prior to meeting Susan, Brett was married to Elaine, (social security #321-54-6789). Pursuant to their divorce agreement, Brett is required to make monthly alimony payments of $400 to Elaine. Brett faithfully makes each month's payment.

Alec graduated high school in June and decided to study chemistry at a state university. He received an academic scholarship of $10,000 towards his first year tuition expenses of $18,000. In addition, he took a student loan for $6,000 to pay for room and board. Brett paid the balance of Alec's tuition costs from Brett's savings account.

Brett paid (and can substantiate) the following during the year:

Health insurance premiums for Brett and kids (paid during 2014)
$6,800
Interest on personal credit card
$400
Dental expenses (Grace's braces)
$6,000

"Lifestyle" lift for Donna
$6,500
Mortgage interest (Main St) (Total mortgage < 1,000,000)
$8,800
Real estate taxes (Main St)
$2,000
Mortgage interest (Donna's home)
$1,000
Property taxes (assessed on car's value)
$450
Utilities for residence
$6,500
Homeowner's insurance
$900
Contributions to church
$700
Used furniture donated to Goodwill (FMV) (Cost = 1,000)
$800
Cost of one dinner ticket to attend a fundraiser for the "Republican National Committee"; value of a comparable dinner = $50

$475

Brett did not keep mileage records for medical or charitable contribution deduction purposes.

In 2014, Brett paid a balance of $1,000 with his 2013 Connecticut income tax return. He also made state estimated tax payments totaling $1,200 ($300 on each of the following dates 4/15/14, 06/15/14, 09/15/14 and 01/15/15).

In 2014, Brett made federal estimated tax payments totaling $6,000 ($1,500 on each of the following dates 4/15/14, 06/15/14, 09/15/14 and 01/15/15).

In the event he is due a refund of tax, Brett would like to apply all of his overpayment to his 2015 tax liability.