Sole Proprietorship Tax Return

ACC421 OL01 (Submit soft pdf version to the assignment folder)

Tax Software Assignment # 3 – Tax Return Problem

Joseph Green, age 46 and born 1/1/1972, is single. He lives at 3520 Base Lane, Tuscon,
AZ 85701. His Social Security number is 406-11-1112. Joseph wants $3 to go to the
Presidential Election Campaign Fund.

Joseph’s wife, Becky, passed away in June 2017. Joseph’s son, Gilbert, who is age 16,
resides with Joseph. Gilbert’s Social Security number is 405-45-6788.

Joseph owns a sole proprietorship for which he uses the accrual method of accounting
and maintains no inventory. His revenues and expenses for 2019 are as follows:

Sales revenue $675,000

Cost of goods sold (based on purchases for the year) 355,000

Salary expense 80,000

Rent expense 25,000

Utilities 10,000

Telephone 5,500

Advertising 6,500

Bad debts 4,000

Depreciation * 15,000

Health insurance ** 20,000

Legal and professional fees 6,000

Supplies 1,000

* New office equipment ($15,000) placed in service 1/1/19; Joseph chose to use immediate expensing 179 election
** $15,000 for employees benefit plan and $5,000 for Joseph

Other income received by Joseph includes the following:

Dividend income (qualified dividends):

Gator, Inc. $8,000

Wrap, Inc. 2,000

Interest income:

Fifth First Bank 8,000

Third Bank 1,500

City of Tuscon, AZ bonds 12,000

During the year, Joseph and his sole proprietorship had the following property
transactions:

1. Sold Biff, Inc. stock for $40,000 on March 12, 2019. He had purchased the stock on
September 5, 2016, for $50,000.

2. Received an inheritance of $200,000 from his uncle, Jerry. Joseph used $125,000 to
purchase Gabriel, Inc. stock on May 15, 2019, and invested $75,000 in Gold, Inc. stock on
May 30, 2019.

3. Received Orange, Inc. stock worth $10,000 as a gift from his aunt, Jane, on June 17, 2019.
Her adjusted basis for the stock was $6,000. No gift taxes were paid on the transfer. Jane

had purchased the stock on April 1, 2012. Joseph sold the stock on July 1, 2019, for
$25,000.

4. On July 15, 2019, Joseph sold one-half of the Gabriel, Inc. stock for $40,000.
5. Joseph was notified on August 1, 2019, that Yellow, Inc. stock he purchased from a

colleague on September 1, 2018, for $42,500 had become worthless. While he perceived
that the investment was risky, he did not anticipate that the corporation would declare
bankruptcy.

6. On August 15, 2019, Joseph received a parcel of land in Phoenix worth $210,000 in
exchange for a parcel of land he owned in Tucson. Because the Tucson parcel was worth
$235,000, he also received $25,000 cash. Joseph’s adjusted basis for the Tucson parcel
was $210,000. He originally purchased it on September 18, 2015.

7. On December 1, 2019, Joseph sold the condominium in which he had been living for the
past 21 years (2859 Smallhouse Lane, Tuscon, AZ 85701) and moved into a rented
townhouse. The sales price was $465,000, selling expenses were $28,500, and
repair/maintenance expenses for not previously properly maintaining the property
were $9,400. Joseph purchased the condominium for $200,000.

Joseph’s potential itemized deductions, exclusive of the aforementioned information, are
as follows:

Medical expenses (before the 7.5% floor) $ 9,000

Property taxes on residence 6,000

State income taxes 3,000

Charitable contributions 8,000

Mortgage interest on residence 12,000

Sales taxes paid 4,500

During the year, Joseph makes estimated Federal income tax payments of $32,000
(payments of $8,000 were made on April 15, 2019, June 15, 2019, September 15, 2019
and December 15, 2019).

THIS RETURN IS FOR 2019 – TAX LAWS IN EFFECT FOR 2019 WILL APPLY

Compute Joseph’s lowest net tax payable or refund due for 2019 assuming that he makes
any available elections that will reduce the tax. The tax forms required for your
computations are Forms 1040 (and Schedules 1-3), 4562, 8995, 8949 and 8824 and
Schedules A, B, C, D, and SE. You are required to complete the 2019 Federal tax return
using 2019 Intuit ProConnect Tax Software. You are required to submit the filing copy of
the return in pdf format in D2L (courses) using the link under the assignments tab.