David R. and Sherri N. Johnson [ages 45(1964) and 46(1963)]
are married and live Casper, WY 82609. David is consulting engineer,
while Betty is a paralegal. They file a joint return and use the cash basis for
tax purposes.

1. Trained as a mining engineer, David has developed
considerable expertise in the treatment and disposition of waste material. He
also is well versed in the various Federal

and state requirements for land reclamation projects. David
maintains a consulting practice through which he renders advice on these
matters. David’s business activity is 541990.Most of his clients are small and
medium size owners and operators located in Wyoming and contiguous states( e.g
Montana, Idaho, Utah). Characteristically, David is retained by a client on a
contract fee basis and is reimbursed for all out-of-pocket expenses. In
performing his service, David usually visits the job location and later submits
his recommendations in written report along with statement for his services and

David was paid the following amounts relating to the
consulting practice in 2012:

-Fees for services rendered $92,800

Airfare $8,200

Lodging $5,200

Meals $6,100

-Transportation (taxi,limo,rentals airports) $920

Expenses reimbursement $20,420

-Total received $113,220

2. The following fees for services rendered to mining
companies are not included in the receipts listed in item 1 above:

-Echo mining: Payment received January 2013; work done
December 2012 – $5100

-Sesa mining: Payment received January 2012; work done
December 2011 $4,400

-Cormorant Mining: No payment received; work done March 2012

David did not incur travel expenses in any of these
engagements ( i, e the work was done in his office). As Cormorant Mining is in
bankruptcy, David does not expect to collect any of this fee.

3. Other expenses paid by David in 2012 relating to his
practice are summarized below:

Advertising in trade journals $2,400

Office supplies(including drafting materials) $1,200

Contribution to H.R. 10(KEOGH) plan $9,000

State occupation license $300

Subscriptions to trade journals $240

Membership dues to trade associations $180

Landscape models(amount paid to a topographer for several
land reclamation projects) $3,200

Business phone and internet service $860

Premiums on medical insurance (covering self, spouse, and
dependants) $3,800

4. To save on rent and as a matter of convenience, David
maintains an office in the home. Twenty percent of the 3,000-square-foot living
area is devoted to the office. David inherited the home on Cody Way from his
father, who died on June 6, 2003, when it had fair market value of $400,000 of
which $40,000 was allocated to the land, and David began to using his home
office the same year. The Johnsons moved into the home in 2003.It is current
fair market value is $500,000 ($50,000 allocated to the land). County land
records reflect that David’s father bought the land in 1969 for $6,000 and
built the house in 1973 at cost of $60,000. David depreciates the business use
of his home using the MACRS, treating the home as a 39-year nonresidential
reality. Additional information regarding the property is listed below:

Property/Casualty insurance $2,300

Repairs and maintenance $2,900

Utilities $4,800

The property taxes and mortgage interest on the property
paid in 2012 are listed in item 15 below.

In addition to the repairs and maintenance noted above David
had office repainted at cost of $1,200. The furniture in the office, including
business equipment( e.g computer, fax, machine, copier), was properly expensed
in the year bought and has zero basis. However, on March 5, 2012, David
purchased a heavy-duty, fire-resistant file cabinet with security-vault
features for $ 4,800. He made the acquisition to safeguard and maintain the
privacy of client data. If possible, David prefers to avoid capitalizing and
depreciating the cabinet.

5. On February4, 2011, David purchased for $41,000
(including sales tax) for an Infiniti crossover SUV (gross weight under 6,000
pounds), which he uses 90% of the time for business. No trade-in was involved,
and he did not claim any section 179 expensing of the cost. Under the actual
operating cost method, he depreciates the SUV using MACRS (half-year
convention). {hint; see table 3 in the instruction to form 4562} His operating
expenses pertaining to the operation of the Infiniti for 2012 are as follows:

Gasoline $3,300

Oil changes and lubrication $120

Auto insurance $ 1,600

Repairs $240

Auto club dues $180

License and registration $60

During business use, David received three moving traffic
violations (total fines of $680) and incurred tolls and parking charges of
$440. The Infiniti was driven a total of 14,500 miles during 2012( mileage was
incurred evenly during the year).

6. Sherri is a licensed paralegal and is employed on
part-time basis by several local attorneys. She commuted to work ( using the
family Suburban) for a total of 813 miles and paid parking fees of $310. Her
earnings and job-related expenses are summarized below:

Salary(from four employers) $38,000

Subscriptions and dues to professional organizations $180

Laptop computer $1,200

Occupational license fee $80

Continuing education correspondence course $120

She purchased the laptop computer on March 12 and uses it
about 80% of the time for business. The correspondence course is required for
retention of her license. Sherri is considering going to law school, so she
attend a series of LSAT preparation sessions at cost of $350. Because Sherri is a part-time employee, she is not covered
by any of her employers medical or retirement plans. During 2012 however, she
contributed $5,000 to a traditional IRA that she establish several years ago.
As to the family Suburban, the Johnsons use the automatic mileage method for
tax purposes.

7. With funds received from the settlement of his father’s
estate, David purchased rental property at 4620 Cottonwood Land. Of the
$250,000 purchases price, $30,000 was allocated to the land. After a
substantial renovation to the house ( e.g new flooring, roof, heating unit)
costing $80,000, the property was rented beginning February 1, 2006. In 2010,
the Johnsons decides that their investment would be more marketable if the
house was rented as furnished. Consequently, in May of that year they spent
$38,000 on new furniture( including grapes, carpeting, and appliances). Under
the current lease agreement, the property rents for $2,200 a month( payable at
the beginning of each month) with utilities not included. Information regarding
the property for 2012 appears below:

Rent received $28,600

Property taxes $2,400

Property/Casual Insurance premium paid $3,100

Yard maintenance $1,200

Repairs $800

The amount of rent received included $2,200 for January
2013. Because the tenants were going on vacation during the Christmas/New Year
holidays, in mid December they pre-paid the rent for next month. The property
taxes listed above do not include a special assessment of $2,400 by the city of
Casper for repaving the street in front of the property. Regarding
depreciation, the Johnsons use MACRS to depreciate the rental home and the
furnishings within it(assume half-year convention for the personalty).

8. As another investment, the Johnsons own 1,000 share stock
in Cormorant Mining acquired on March 7,2011. David had performed services for
the company late 2010 and submitted a bill for $3,900. Because Cormorant was
experiencing a cash-flow problem, David accepted the stock as payment for such
a services. Cormorant currently is in bankruptcy(see item 2 below) and
expectations are that the shareholders will not recover anything on their stock
investment. The stock is not publicly traded.

9. On March 10, 1994, David’s father gave the Johnsonss a
tract of the land located in Tenton County (WY) as an anniversary present. It
had a value of $150,000 and no gift tax was due on the transfer. The land had
been purchased by David’s father on June 1, 1984, for $50,000. In December 2011
the Johnsons contracted by a real estate developer and offered $800,000 for the
property. After considerable negotiation, the following transactions took place
on March 4, 2012: the Johnsons transferred the Teton tract in return for $8,000
in cash and four city in Laramie WY worth $792,000. TheJohnsons considered the
city lots to be a good investment as they are locate near the state university.
All closing cost and legal fees were absorbed by the real estate developer.

10. One of the items David inherited from his father was an
antique gun collection-mainly large caliber rifles used for buffalo hunting.
Although David has no idea what his father’s cost basis was, the collection had
a date of death value of $22,000. David sold it to a dealer for $29,000 on July 10,2012.

11. On July 12, 1998, using $50,000 of fund she had received
from an aunt’s life insurance policy, Sherri purchased grazing land in Converse
Country WY. On August 2, 2011, she sold the land to a local rancher for
$75,000. Under the terms of the sale, Sherri received a down payment of $15,000
and 10 annual notes of $6,000 each. Sherri is also to receive Simple interest of 8% on outstanding balance
principle each year.. On August 4, 2012, Sherri
collected $10,800 (including interest of $4,800) on the maturity of the
first note.

12. Although the Johnsons had several Schedule D transaction
during 2011, they end up with a net short-term capital loss of $7,000. Of this
loss $3,000 was deducted in 2011 and $4000 carried over to 2012.

13. For several years, Sherris’s widowed mother, Vivian
Olson, has lived with the Johnsons and has been claimed by them as a dependent.
On December 30,2011 Vivian suffered a heart attack. After six days in the ICU
of local hospital, Vivian died. In early February 2012, the Johnsons paid the
following expenses regarding Vivian:

Medical expenses incurred in 2011 $4,200

Medical expenses incurred in 2012 $3,100

Burial expenses $4,400

Remainder of church pledge for 2012 $600

Fortunately, the balance of Vivian’s medical expenses
($11,900) was covered by insurance. Besides personal and household effects,
Vivian’s major assetwas life insurance. As the designated beneficiary of the
policy, Sherri was paid the $20,000 proceeds on March 13,2012

14. Besides the items already mentioned, the Johnsons had
the following receipts during 2012:

-Interest income

City of Cheyenne general purpose bonds $1,900

CD at Wells Fargo Bank $1,100

Money market account at Bank of America $400

Qualified dividend income issued on

Meadowlark Corporation common stock $700

Jury duty fees $420

Yard (garage)sale $950

In connection with
her jury duty assignment in June, Sherri drove Suburban 40 miles and incurred
expenses of $30 for parking and $45 for meals. The yard sale involved used
furniture, appliances, books, toys, and other household goods having an
estimated original cost value of $1,800.

15. In addition to the items already noted, the Johnsons had
the following expenditures for 2012:

Medical and dental dills(including prescription drugs of

Other than those relating to Vivian (see item13) $1,800

Ad valorem property taxes on personal residence $3,100

Interest on home equity loan used to finance the purchase of
personal items (e.g camper) $4,400

Charitable contributions (not include Vivian’s pledge)

The Johnsons drove the Suburban 420 miles to various medical
and dental appointments. Wyoming has a no state or local income tax but does
imposes an additional local sales tax of 1%. Although they do not keep
track of their sales taxes, they
purchased a camper for $40,000 in May 2012. The sales tax ont his purchase was

16. Besides Vivian
(see item13) the Johnsons household include two daughters, Meredith (age19) and
Kirby (age18) and son Toby (age17). Kirby and Toby are full-time students in
highschool. Meredith graduate a year ago and works part-time earned $9,000
during 2012 which she deposits in a saving account.

17. For tax year 2011 the Johnsons had an overpayment of
$150 which they applied toward their 2012 income tax. Sherri’s income tax
withholdings for the year are $5,100 and the Johnsons made quarterly payments
of $4,000 (for a total of $16,000).

Use the business activity code of 541990 again.


Relevant Social Security numbers are noted below

David R. johnsonNNN-NN-NNNN/span>

Sheri Johnson-NNN-NN-NNNN/span>

Vivial Olson-

Meredith Johnson –

Kirby Johnsons

Toby Johnson- 123-45-6789


-Prepare an income tax return (with appropriate schedules)
for the johnsons for 2012.

-Make necessary assumptions for information not given in the
problem but needed to complete the return.

-If any refund is due, apply it toward next year’s taxes

-the Johnsons do not
wish to contribute to the Presidential election campaign fund.

I know that the total income is 128,139

The AGI is 105,343

Itemized deductions are 13,627

Taxable income is 72716

Tax (line 61) is 18008

And refund is 3242.