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    Dave & Sarah's Income Tax Return

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    Using TaxCut® or other tax preparation software, and Prentice Hall's Federal Taxation 2010

    Dave Stevens, age 34, is a self-employed physical therapist. His wife Sarah, age 31,
    teaches English as a Second Language at a local language school.

    Dave's Social Security number is 417-46-9403. Sarah's Social Security number is 528-95-6271. Sarah and Dave
    have three children Andrew, age 8; Isaac, age 6; and Mira, age 3. The children's Social
    Security numbers are, respectively, 377-83-2836, 377-64-7283, and 377-17-1415.

    They live at 12637 Pheasant Run, West Bend, Oregon 74658. They paid $8,900 in qualified
    residence interest and $2,400 in property taxes on their home. They had cash charitable
    contributions of $14,000. They also paid $180 to a CPA for preparing their federal and
    state income tax returns for the prior year, $100 of which was for the preparation of
    Dave's Schedule C. Sarah and Dave earned interest on CDs of $3,200. Sarah's salary for
    the year is $32,000, from which $9,600 in federal income tax and $1,400 in state income
    taxes were withheld.

    Dave's office is located at Suite 402, 942 Woodview Drive, Portland, Oregon 74624, and his employer ID number is 22-7584904. Dave has been practicing for four years, and he uses the cash method of accounting. During the current year,

    Dave recorded the following items of income:
    Revenue from patient visits $300,000
    Interest earned on the office
    checking balance 225
    The following expenses were recorded on the office books:
    Property taxes on the office $ 4,500
    Mortgage interest on the office 12,000
    Depreciation on the office 4,500
    Malpractice insurance 37,500
    Utilities 3,750
    Office staff salaries 51,000
    Rent payments on equipment 15,000
    Office magazine subscriptions 150
    Office supplies 24,000
    Medical journals 330

    Dave pays $50 annually for use of a safety deposit box to store certain confidential documents related to his business. In addition to his medical practice, Dave spends 15 hours every week managing his real estate investments.

    To make sure he is aware of all current investment strategies and best practices, he subscribes to the following journals:
    Wall Street Journal $150
    U.S. News & World Report 55
    Money Magazine 45

    Dave also paid $30,000 in estimated federal income taxes. Prepare Dave and Sarah's tax
    return (Form 1040, Schedules A, B, C, and SE) for 2010.

    Disregard any tax credits for which they may be eligible.

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    Solution Preview

    Attached is the completed tax return for Dave and Sarah. Please note the following points:

    -I placed Dave's medical journals and business tax return ($100) under a miscellaneous ...

    Solution Summary

    This solution provides the student with a completed tax return including notations on specific areas.