Scenario 3: Edward and Karen Browning
Edward and Karen have brought you several forms and filled out their Intake form. Ed retired
and started to receive retirement income in January 2015 from the Oakwood Corporation. He
did not receive any distributions from the retirement plan prior to his retirement and he did
not select a joint survivor annuity for these payments.
He also receives some Social Security retirement benefits and is covered for healthcare
through Medicare.
Karen worked part-time for Limited Brands in 2015. She was not offered health care coverage
through her employer and did not obtain health insurance through any other option in 2015.
Christopher also did not have health insurance in 2015.
Karen also started teaching Yoga classes this year at a local fitness center. She goes directly to
the fitness center from her job at Limited Brands 2 days a week to teach the classes. She
received a 1099-MISC from the fitness center for her work there. She hopes to eventually
grow this business into her main source of income and also has a couple of individual clients
who paid her $500 in cash in 2015. She has a notebook which she used to keep track of her
mileage:
- 4200 miles from home to Limited Brands
- 640 miles from Limited Brands to fitness center
- 230 miles from private clients to home
- 1500 miles from fitness center to home
Total mileage on her car in 2015 was 13,000 and she placed the car in service September 14,
2014. They have a second car that Edward drives. Both cars are available for personal use.
Karen also has records for her expenses:
- Advertising $300
- Supplies $250
- Certification Training: $500
- Yoga clothing $200
Edward and Karen have been married for 25 years. They have always filed their tax return
together and plan to do so again this year. They own their home and have a mortgage.
Karen says she left the statement at home but that they donated $750 to their church in 2015
and donated items to Goodwill valued at $20.
Christopher graduated from high school in 2015 and spent three months in the Fall
volunteering with a local social services agency. He just started taking classes in January 2015
in a nursing program. Karen says they took a distribution from Edward’s Roth IRA account in
December 2015 to pay the first tuition payment which was paid in the middle of January of
2016.
Edward pulls out a statement he received from his broker and says he is not sure what all the
numbers are but that they did sell a couple of investments last year to do a nice Spring Break
trip with Christopher and some of his friends and their parents and to pay off some bills. He
adds that he did bring last year’s tax return with him because the person who helped them
with their taxes last year said there was something that might be able to carry-over to this
year.
Using the following forms, complete a return for the Brownings.
Ed’s birthdate: 05/17/1948
Karen’s birthdate: 07/13/1961
Christopher’s birthdate: 04/29/1997
On a MFJ return the same person should be listed first every year.
When entering forms in a MFJ return, make sure to click on either
Taxpayer or Spouse at the top to indicate whose form this is.
Information from the SSA-1099 is entered on 1040 Wkt 1 in Tax Wise.
Code Q in box 7 indicates this is a Roth IRA distribution which is not
taxable but must still be entered on the return.
Since there is an amount in box 9b (Total Employee Contributions) and Box
2a (Taxable Amount) is blank we need to use the “Simplified Method” to
determine how much of this distribution is taxable. See 4012 page D-24 for
the Simplified Method Worksheet which is at the bottom of the 1099-R
screen in Tax Wise. Once completed Tax Wise will put the taxable amount
on 1040 line 16b for you.
Self-Employment Income
Nonemployee Compensation from a 1099-MISC is generally considered self-employment income and is
reported on Schedule C-EZ or Schedule C . Link from the line for Gross Receipts to a 1099-MISC to enter this
income. If a taxpayer also has cash income, link from the line for Gross Receipts to a Scratch Pad where the
Cash Income can be detailed. Tax Wise will add them together.
2015 Auto Information
Auto placed in service September 14, 2014
Standard mileage rate used
Edward also has a car and both cars are available for personal use
2015 Mileage:
From home to Limited Brands:
From Limited Brands to A-1 Fitness:
From Limited Brands to private clients:
From A-1 Fitness & private clients to home:
Business Expenses
Advertising
Supplies
Certification Training
Yoga clothing
$300
$250
$500
$200
4200
640
230
1800
See 4012 page F-12 for a chart
explaining what mileage is
deductible as a business expense
Not all business expenses listed are
necessarily deductible. Instructions for
Schedule C on the IRS website
(www.irs.gov) is a good resource.
Itemized Deductions
Schedule A (Itemized Deductions) commonly includes excess medical expenses, state and local income taxes,
mortgage interest, real estate taxes and charitable contributions. If these are greater than the Standard
Deduction for the filing status used Tax Wise will put the larger amount on 1040 page 2 line 40
Mortgage interest (box 1) is entered on line 10 of Sch A in Tax Wise. Real estate taxes are entered
on line 6 of Sch A.
Medical expenses and charitable contributions are entered in the A Detail form in Tax Wise and
carried over to the Schedulen A by Tax Wise. If a taxpayer has their medical expenses enter them
on A Detail even if they may not use Sch A. This will enable them to get any medical deductions
they may qualify for on the Ohio tax return.
Dividend and Interest Income
pg 1
Form 1099-DIV
1a
1b
2a
2b
2c
2d
3
4
5
6
7
8
9
10
11
12
13
14
2015 Dividends & Distributions
Total Ordinary Dividends
Qualified Dividends
Total Capital Gains Distribution
Unrecaptured 1250 Gain
Section 1202 Gain
Collectibles (28%) Gain
Nondividend Distributions
Federal Income Tax Withheld
Investment Expenses
Foreign Tax Paid
Foreign Country
State
State ID No.
State Tax Withheld
Form 1099-INT
1 Interest Income
2 Early Withdrawal Penalty
3
4
5
6
7
8 Tax-Exempt Interest
9
10
325.00
300.00
75.00
0.00
0.00
0.00
0.00
0.00
0.00
15.00
0.00
0.00
0.00
0.00
0.00
Dividend income is normally reported on an
investment brokerage statement. Formats
vary so read the statement closely. Use the
Dividend Stmt in Tax Wise to enter the
information and it should flow correctly to
Schedule B. Refer to 4012 page D-11
Foreign Tax Paid can be entered
directly on line 64 on 1040 Pg 2
0.00
2015 Interest Income
95.00
25.00
0.00
0.00
0.00
0.00
150.00
0.00
Interest income is entered on the
Interest Stmt in Tax Wise. See 4012
page D-9
Tax-exempt interest would be
entered as a separate line on the
Interest Stmt in Tax Wise. Box 1 or 3
Amount should be 0; NAEOB should
be E and the amount should be
entered under NAEOB amount. See
4012 page D-9
Capital Gains
CHASE INVESTMENTS
2015 Statement
pg 2
Form 1099-B
2015 Proceeds from Broker and Barter Exchange
Transactions
Short-term transactions for which basis is reported to the IRS
Report on Form 8949 with Box A checked and/or Schedule D Part I
Carolina Co. Common Stock
Action
1a Date of Sale
1b Date of Acquisition
1e Quantity Sold
2a Sales Price
3
Cost or Other Basis
Gain/Loss
Form 1099-B
Sale
3/15/2015
10/25/2014
300.00
2973.00
1875.00
1098.00
2015 Proceeds from Broker and Barter Exchange
Transactions
Long-term transactions for which basis is not reported to the IRS
Report on Form 8949 with Box E checked and/or Schedule D Part II
Market Match Growth Fund
Action
1a Date of Sale
1b Date of Acquisition
1e Quantity Sold
2a Sales Price
3
Cost or Other Basis
Gain/Loss
Sale
10/15/2015
3/1/2003
150.00
2478.00
1962.00
516.00
For purposes of our exercise, using Tax Wise Practice Lab, you can go to Sch D page 1
and type in the amounts for the Short-Term Gain in Line 1A and the amounts of the
Long-Term Gain in line 9. In the real-world Tax Wise there is a form called Cap Gn
Wkt where you can enter all capital gains and it will put the amounts on the correct
lines of the Sch D page 1. See the handout on entering Capital Gains.
This form indicates there is a carry-over Long-Term loss of $450 from the prior tax
year that can be used to offset some of the Long-term capital gain on this year’s
return. This amount is entered on line 14 of Sch D page 1
US Schedule D
Worksheet for Capital Loss Carryovers or Sale of Your Home
Edward & Karen Browning
1 Amount from 1040, line 41
Loss shown on Schedule D, line 21 as a positive
2 amount
3 Combine lines 1 and 2
4 Smaller, line 2 or line 3
Loss shown on Schedule D, line 7 as a positive
5 amount
6 Gain, if any, shown on Schedule D, line 15
7 Add lines 4 and 6
8 Short-term capital loss carryover:
Subtract line 7 from line 5. If 0 or less,
enter 0.
Loss shown on Schedule D, line 15 as positive
9 amount
Gain, if any, shown on Schedule D,
10 line 7
Subtract line 5 from line 4. If 0 or less,
11 enter 0
12 Add lines 10 and 11
Long-term capital loss carryover Subtract line 12
13 from line 9
2014
SSN: 316-XX-XXXX
34,372
3,000
37,372
3,000
3,000
3,450
0
3,000
3,000
450