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Susan and Mike Johnson have been happily married for the last 40 years. They reside in Los Angeles. Susan is retired after building a successful shoe design company, “Sassy Susan’s Stilettos” a business that is currently valued at $22,000,000. Sassy Susan’s is classified as a subchapter-S corporation for federal income tax purposes and generates approximately $5,000,000 per year in EBITA.

Current Income/Deductions: Susan and Mike have income or deductions from the following sources each year:

• Grantor Letter from the “Susan and Mike Johnson Irrevocable Trust” (interest income $10,000; qualified dividends $4,000; total dividends $5,000; long-term capital gains $100,000).

• Schedule K-1 from Sassy Susan’s Stilettos (ordinary income $650,000; rental income $10,000; other income $11,000; cash charitable contributions $5,000)

• Schedule K-1 from RHH Active Equity, LP (ordinary loss -$11,000; interest income $23,702; total dividends $44,468; qualified dividends $31,596; royalties $16,000; short-term capital loss -$37,654; long-term capital gain $298,243)

• Schedule K-1s from family partnership MMEM LLC (ordinary income $6,892; interest income $278; net long-term capital gain $1,275)

• Consolidated 1099 from Charles Schwab, which generates significant tax-exempt interest from California bonds (total dividends $78,000; qualified dividends $0; tax exempt interest $72,110; long-term uncovered – basis not provided to IRS – proceeds $292,636 cost $289,692)

• 1099-INT from SunTrust Bank of $10,000 per year

• 1099-Miscellaneous from Susan’s Board Income of $15,000 per year, where all the board meetings occur in Illinois. Not subject to SE tax.

• Social Security of $15,000 per year for Mike (Medicare Part A $3,000 – medical premiums)

• Federal Tax Payments of $240,000 (Q-2 $80,000; Q-3 $80,000; Q-4 $80,000)

• Overpayment applied from prior year federal return of $80,000

• State and local income taxes of $150,000 (CA Q-1 $75,000; CA Q-3 $70,000; IL Q-4 $5,000)

• Charitable contributions of:

•Gift of stock with a fair market value of $10,000 to Salvation Army (omit Form 8283)

•Cash gift of $10,000 to their local community center.

•$1,000 donation for a ticket to the local gala event (two tickets valued at $100 each).

Forms: 1040 (pages one and two); Schedules 1-3; Schedules A, B, D, E (pages one and two)


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