mprehensive Tax Return A????1Tax Year 2014

John and Ruth Kaiser, husband and wife, reside at 2168 Eagle Court, Rocklin, CA 95677.
1. John is a computer consultant who specializes in installing software systems. John deals mainly
with city and county governments and school districts. Currently, John has contracts with Placer
and El Dorado Counties which pay him an annual retainer to be on call as needed and he works
on a per job basis for other entities. As noted below (see item 3), he conducts his consulting
business from an office in his home.
2. Ruth is a teacher employed by the Rocklin School District. She has been completing classes
offered by CSU--Sacramento leading to a Master of Arts in Education. In driving to work and
school, Ruth uses the family Audi.
3. The Kaisers constructed their residence on Eagle Court in 2012 at a cost of $520,000. They had
acquired the lot from a grandparent several years before for an additional $20,000. Of the 3,200
square feet of livable space, one-fourth (25%) is used as John's office. Besides the interest on the
home mortgage and property taxes (see item 18 below), residential expenses for 2014 are as
follows:
Utilities $4,200
Security system annual service fee 600
Homeowner's insurance 800
New computer (100% business) 2,200
John's office furniture (e.g., desk, chairs, drafting tables) was expensed previously under A????1 179
when acquired. On May 16, 2014, however, he bought a new Xerox copier for $850.
4. In August of 2013, John purchased a BMW that he uses exclusively for business. No trade-in was
involved and part of the purchase price of $45,000 was financed. For 2013, he did not choose to
claim any A????1179 expensing or additional first year depreciation. Under the actual operating cost
method, he uses 200% declining-balance with half-year convention. His expenses relating to the
BMW for 2014 are as follows:
Item Amount
Gasoline $2,400
Oil and lubrication 120
Auto insurance 1,400
Interest on car loan 1,200
Repairs (not under warranty) 520
Personal property tax on BMW 610
During 2014, John drove the BMW 18,000 miles.

5. Except for the work he does for Placer and El Dorado Counties, John's consulting usually
requires overnight stays. On a typical trip, he drives to the work location and stays at a motel until
the assignment is complete. In addition to the auto expense previously noted (see item 4), his
business travel expenses for 2014 are summarized below:
Item Amount
Meals $7,400
Lodging 8,200
Laundry 310
Parking 205
6. To maintain good relations with his clients for whom he does work, John gives fruit baskets at
Christmas. Each basket cost $23 plus wrapping ($2) and shipping ($4), making the total $29. On
December 19, 2014, John charged the fruit baskets order of $609 (21 baskets at $29 each) to his
Visa credit card. [The Visa bill was paid in January 2015.]
7. Placer and El Dorado Counties pay John an annual retainer of $8,000 and $12,000,
respectively. The retainers for a year are to be paid by December 31 of that year. For budgetary
reasons, however, El Dorado delayed its 2013 payment until February 2014. All other retainers
were paid on schedule.
8. One private client, Jim Beaver, retained John to install a computer software program for
investment tracking. When John presented Jim with an invoice for $6,000, Jim offered John a
choice: cash or a Jeep Wrangler (2005, V-6) listed for sale at $7,999. The blue book value of a '05
Jeep Wrangler ranges from $3,675 to $7,925. John needed a car for his daughters, so he accepted
the Jeep.
9. Expenses incurred by Ruth during 2014 in pursuing the M.S. in Education are as follows:
Tuition (spring and fall 2014) $7,100
Books, lab supplies, computer software 940
Campus parking 230
Mileage driven is 1,040 miles driven evenly throughout the year. For tax purposes, the Kaisers use
the standard mileage method for the Audi which was purchased on June 15, 2012.
10. For several years, Ruth has not been pleased with her job with the Rocklin School District.
Although the fringe benefits are good (see items 18 and 19 below), her salary is too low. In 2014,
therefore, she retained the services of a professional recruitment agency. After considerable
effort and multiple job interviews, she received several attractive job offers. When the school
district learned of her job search, Ruth was promised greater responsibilities and potential
salary enhancements so she decided against any change. The job search effort cost Ruth $2,275.
11. In the summer of 2013 while on a family outing, the Kaisers had an auto accident. Although
it was the other driver's fault, the Kaisers had to file a claim with their own insurance company
(State Farm) for the repairs on the Audi. They were charged the $1,000 deductible and were
unable to deduct any of this amount on their income tax return due to the 10%-of-AGI floor. In

2014, State Farm was able to collect from the other driver's carrier, and the Kaisers recovered
the $1,000 deductible.
12. In late 2014, the Kaisers were audited by the California Franchise Tax Board. The agent
checked their state income tax returns for tax years 2011, 2012, and 2013. She assessed
deficiencies of $420 for 2012 and $310 for 2013. For year 2011, she accepted the return and made
no change. The Kaisers agreed to the assessments and immediately mailed a check for $781 to the
state in payment of the assessments and interest.
13. For several years Ruth's parents, Rudi and Paula Dietrich, have been living with the Kaisers.
Since they meet the dependency requirements, the Kaisers have claimed the parents on their tax
returns. On December 30, 2013, Paula suffered a stroke, was taken to Memorial Hospital, and
died in the ICU on January 2, 2014. In February 2014, John received and paid a bill from
Memorial for $9,400 ($5,100 of which related to 2013). The Kaisers also paid for Paula's funeral
expenses of $4,900. Paula owned her own cemetery lot.
14. Because Rudi (Ruth's father) is physically handicapped and must use a wheelchair, John had
some changes made to portions of the Eagle Court residence in 2014. A contractor was hired to
add ramps to entrances, lower certain counters, widen several hallways, and add guardrails to the
bathroom facilities. The contractor charged $6,000 for the job. A reasonable estimate made by a
professional appraiser (not related or friends of the Kaisers) is that the capital improvements
increased the value of the residence by $3,000.
15. Several years ago, Ruth took out life insurance policies on the lives of her parents. The policies,
face amount of $50,000 each, are issued by Met Life and designate Ruth as the owner and
beneficiary. After the death of her mother in 2014, Met Life paid Ruth $50,000. Ruth had
previously paid premiums of $18,200 on the policy. In 2014, Ruth paid Met Life $1,400 in
premiums on her father's policy.
16. The Kaisers have a $4,000 excess long-term capital loss carryover from 2013. Their property
transactions for 2014 are summarized below:
Date Date Cost or Sale
Property Sold Acquired Sold Other
Basis Price
Lot in Yuba City 2/3/07 6/2/14 Inherited $13,100
1,000 shares of JNJ
Corporation
common 8/10/06 5/20/14 Gift 14,000
600 shares of PG
Corporation
common 12/2/11 11/30/14 $11,000 12,000
Motorcycle 4/25/10 9/2/14 $8,500 2,200
John inherited the Yuba City lot from his grandmother, Ellie, who died in 2007. Ellie had paid
$2,000 for the property in 1949, and it was worth $9,000 when she died. In the prior year (2006),
Ellie had given John 1,000 shares of JNJ stock. The shares had cost Ellie $30,000 in 2004 and
were worth $24,000 on the date of the gift. The JNJ Corporation declared a 2-for-1 stock split in
early 2008. For sentimental reasons, John wanted to keep half of the JNJ stock. The motorcycle
was JohnA????1s and he decided to accept a neighbor's unsolicited offer to buy. John's broker, a cousin
on his mother's side of the family, did not charge him a commission on the sale of the JNJ and PG

stocks.
17. Besides the items already noted, the Kaisers had the following receipts during 2014:
Item Amount
John's consulting fees but not including items 7 and 8 above $72,000
Ruth's salary 42,000
Interest income
City of Lincoln, CA bonds $2,400
General Electric bonds 800
Bank of America Certificate of Deposit 1,100 4,300
Qualified Dividends
JNJ Corporation common $ 400
PG Corporation common 600 1,000
Income tax refunds (for tax year 2013)
Federal $1,500
California 290 1,790
18. In addition to the items already mentioned, the Kaisers had the following expenditures
for 2014:
For medical purposes, all the Kaisers have qualifying medical coverage through Ruth's policy
available through the Rocklin School District. No contribution from the employee is required, no
co-payer deductible features are involved, and spouse and children are included. Other
dependents (e.g., parents) and dental bills are excluded from coverage.
Item Amount
Dental (orthodontist) $1,400
Property taxes on personal residence 4,000
Personal property tax on Audi (since the amount is not significant and all can be
deducted as an itemized deduction ignore allocation to Form2106 and use all as
an tax itemized deduction).
580
Interest on home mortgage 4,800
Work-related expenses (see item 19) 8,750
Tax return preparation fee (one-half of the
preparer's time was devoted to John's business activities)
900
Payment of church pledge (includes $600 left over
from 2013 pledge)
3,000
College donations (see item 20) 2,000

19. Professional dues, journals, and license fees (teaching and business) are as follows:
John contributed $8,000 to an H.R. 10 (Keogh) plan that he established several years ago. The
administrator of the plan is DKP Trust Company. Ruth is covered by a non-contributory
retirement plan that the Rocklin School District maintains for its employees.
20. Ruth and John attended California State University--Sacramento and belong to the alumni
association. They sent each athletic department $1,000 (for a total of $2,000) to give them
preferred seating at home football games. The charge for seating preference does not include the
cost of the tickets for games.
21. The Kaisers have three daughters who live with them. Karla (age 20) and Krystal (age 18) are
high school graduates and have part-time jobs earning $9,000 and $8,000, respectively. As they
are saving most of their earnings for college, both receive almost all of their support from their
parents. Keri (age 17) is a full-time student and does not work.

22. Ruth's Form W-2 from her employer shows withholding of $4,368 for Federal income tax and
$1,536 for state income tax. The Kaisers made the required quarterly estimated payments of
$12,800 ($3,200 each quarter) to the U.S. Treasury and $1,600 ($400 each quarter) to the state
of California.
23. Social Security numbers for the parties involved are as follows:
Name Soc. Sec. Number Birth date
Ruth Kaiser 426-81-7492 02/02/1968
John Kaiser 426-53-5261 01/01/1967
Rudi Dietrich 425-89-6494 05/05/1946
Paula Dietrich 425-74-5213 06/06/1947
Karla Kaiser 427-52-3162 03/03/1994
Krystal Kaiser 427-43-2485 04/04/1996
Keri Kaiser 427-37-4533 07/07/1997
24. The Kaisers estimate that their total on-line purchases amounted to $2,500 during 2014
(no item cost $1,000 or more). Of that amount, they did not pay California (or any other state)
sales tax on $2,000 of their purchases.
Item Ruth John
Dues $150 $300
Journals 75 100
Licenses 125 -0-

Prepare Federal and California joint returns (with appropriate schedules) for the
Kaisers for 2014. In doing this, make the following assumptions:
? The principal business code for John is 541510.
? The Kaisers itemized their deductions from AGI for tax year 2013. In making the
choice between deducting state and local sales taxes and state income taxes, they
selected state income taxes. The amount of 2013 itemized deductions were high
enough that you received the entire benefit of the state income tax itemized
deduction compared to the standard deduction which makes their refund taxable.
? The Kaisers drove 700 miles for medical (e.g., doctor and dentist visits, hospital
trips) purposes and 280 miles for charitable (e.g., canvassing for annual church
pledges) purposes in 2014. The family Audi was used in both cases.
?All mileage driven by John and Ruth was done evenly throughout 2014.
? If a refund is due, they want it sent to them.
? They do not want to contribute to the Presidential Election Campaign Fund