Aldo (SS# 123-45-6789) and Monica (SS# 987-65-4321) Montes are married and file a joint income tax return. They are both in their 30’s and have no children. Their address is 123 Happy Lane, Blissville, FL 32222. Aldo works as a Mechanic for the School Board, and Monica operates a cleaning service as a sole-proprietorship. (EIN 59-1234567, Business Identification Code 123456) She operates the business out of her home, however, she does not use any one room exclusively for the business. Aldo and Monica come to your office to have their 2013 individual federal income tax return completed. They provide you with the following information:
1. Copies of the following documents (available from my web courses page):
Aldo’s 2013 W-2
1099-Int from First National Bank
1099-Int from Local Credit Union
1099-Div from ABC Mutual Fund
2. Monica and Aldo own their home and have a mortgage on the property. Their total itemized deductions including their mortgage interest total $15,000.
3. During the year the Montes sold the following personal assets:
• Travel trailer that they used for personal vacations. They purchased it in 2008 for $14,000. They sold it through autotrader.com for $6,300.
• Land in Samsula, Florida that Monica had inherited from her mother in 2006. The FMV of the land at the time of her mother’s death was $35,000. They sold the land for $48,000.
• 250 shares of ABC Corp Stock for $5,100 which they had acquired in 2001 for $3,200.
• 100 shares of XYZ Corp Stock, which they sold to Monica’s brother for $4,500. They had purchased the stock in 2003 for $9,000.
Note: None of the above transactions were reported on Form 1099-B
4. Monica's business generated gross service receipts of $145,000, in 2013. Monica uses the cash method of accounting. She has provided you with an excel spreadsheet which includes a schedule of the expenditures she made out of her business checking account, as well as a list of her assets with prior years’ depreciation already computed.
5. Monica began her cleaning business in 2010 and purchased several assets during that year. She did not elect Sec 179 expensing at that time because her business was just beginning and her accountant advised her that it would be better to stretch out the deductions over the depreciable lives of the assets. She has been depreciating the assets purchased in 2010 using MACRS. She did not make any capital purchases during 2011, or 2012. The following assets, purchased in 2013, are used 100% for business:
Minivan purchased April, 2013, for $29,000 (5-year property, less than 6,000 lbs)
Industrial Vacuum Cleaner in Jan 2013, for $4,800 (7-year property)
6. The new minivan is used exclusively for the business. She financed the entire purchase price and has been making $485/month payments since May 2012. Of the total payments made during the year, $1,475 was for interest.
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