Solved by verified expert :Gregory
R. and Lulu B. Clifden live with their family at the Rock Glen House
Bed & Breakfast, which Gregory operates. The Bed & Breakfast
(B&B) is located at 33333 Fume Blanc Way, Temecula, CA 92591.
Gregory’s Social Security number is 543-88-9756 and Lulu’s is
256-43-8819. Both are in their mid-40s and enjoy good health and
Clifdens have three sons, Gerald A. (SS# 466-74-1131), Gary T. (SS#
465-76-8375), and Glenn E. (SS# 475-23-1426). Gerald is 17 years old,
Gary is 12 years old, and Glenn is 10 years old.The
Rock Glen House Bed & Breakfast is operated as a sole
proprietorship and had the following income and expenses for the year:Gregory and Lulu Clifden’s Tax ReturnAll
of the above amounts relate to the business portion of the Bed &
Breakfast; the personal portion is accounted for separately. The Rock
Glen House Bed & Breakfast uses the cash method of accounting and
has no inventory. The employer tax ID number is 95-1234567.The
Clifdens made estimated federal income tax payments of $16,000 and
estimated state income tax payments of $6,000 (all made during 2013).Lulu
is a substitute schoolteacher with the local school district. For the
current year, Lulu’s Form W-2 from the school district showed the
following:Gregory and Lulu Clifden’s Tax ReturnGregory is retired from the U.S. Navy. His annual statement from the Navy, Form 1099-R.Gregory and Lulu paid (and can substantiate) the following amounts during the year:Gregory and Lulu Clifden’s Tax ReturnNone of the investment interest is related to amounts borrowed to purchase the City of Atlanta tax-exempt bonds.During the year, Gregory and Lulu received the following qualifying dividends and interest:Gregory and Lulu Clifden’s Tax ReturnAlso,
Lulu owns Series EE U.S. savings bonds. During the year, the bond
redemption value increased by $1,300. Lulu has not elected the accrual
method for these bonds. There were no Irish taxes paid on the interest
from the Bank of Ireland. All the above stocks, bonds, and bank accounts
are community property.Lulu has a stock portfolio. During the year she sold the following stock, shown on her Forms 1099-B as follows:Gregory and Lulu Clifden’s Tax ReturnLulu
paid her ex-husband $6,000 alimony in the current year, as required
under the divorce decree. Her ex-husband’s name is Hector Leach and his
Social Security number is 566-23-5431.Gregory
does all the significant work in the Bed & Breakfast and therefore
he pays self-employment tax on 100 percent of the earnings from the
the year, Gregory’s uncle Martin died. Martin had a $50,000 life
insurance policy that named Gregory as the beneficiary. Gregory received
the check for the benefits payable under the policy on November 30 of the current year. Martin also left Gregory a small nonoperating farm with an appraised value of $120,000.Two
years ago, Gary won a contest and received a cash prize. The money is
in a savings account in Gary’s name. His interest on the savings account
in the current year is $3,400. Instead of having Gary fill out a tax
return and pay the “kiddie tax,” Gregory and Lulu elect to report the
interest income on their joint tax return.Required:
Gregory and Lulu have come to you to prepare their 2013 federal income
tax return. Do not complete a California state income tax return.
Gregory and Lulu have completed a tax organizer and have also given you
several IRS forms (see Comprehensive Problem Two) that they were not
sure what to do with. Make realistic assumptions about any missing data
(addresses, etc.) that you need. Do not file a federal Form 4562, Form
4952, or Form 8829 for the Clifdens. The following is a list of the
forms and schedules that you will need to complete the tax return:Gregory and Lulu Clifden’s Tax ReturnNote:
The forms included in Appendix D are provided for the student to work
on only one of the two comprehensive problems. If desired, additional
forms may be obtained from the IRS website at

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