Where do sheldon and leonard live in pasadena

Income Tax Determination & Planning

Tax Return Project (Tax Filing Year = 2014)

Leonard J. and Penny K. Hofstadter are married and live at 173 Galecki Lane, Pasadena, CA 91101. They have a daughter, Leslie, and a son, Stuart. Also living in their home is Leonard’s friend, Sheldon Cooper. They file jointly, using the cash basis and calendar year for tax purposes.

1. Penny is an entrepreneur and currently works selling Avon cosmetics to women in Pasadena. She is also part owner of a cosmetics and jewelry store which has retail sales. Her specialty is designing the perfect beauty routine for customers, giving them confidence in their looks. As she has a lot of contacts and referrals, her business, Pretty Penny, is proving to be extremely successful. During 2014, the business (a single-member LLC using the cash basis and calendar year) had the following receipts:

Receipts for sales during---

2013 $13,000 2014 64,000 2015 prepayments 12,000

The $12,000 prepayments are from pre-orders of a new line of moisturizers due out in January of 2015. Not listed above is the $2,000 billed to Carol Wolowitz for a series of personal beauty consultations in early 2014. Carol died in 2014, and Penny feels certain that she will not be paid for her services. Penny’s share of income from the cosmetics and jewelry store was $54,000. She received a K-1 from PAB, LLC for this amount.

2. Penny’s Mercedes C350, which she uses exclusively in her cosmetics business, was purchased on July 1, 2012 for $49,000. No trade-in was involved, and the vehicle is classified as a passenger car (not a truck or van) for income tax purposes. Penny did not claim any Section 179 or bonus depreciation. She does, however, use the actual operating cost method for claiming car expenses. Under this method, she calculates depreciation using 200% declining-balance with a half-year convention, subject to limitations for automobiles. The expenses for operating the Mercedes during the tax year appear below:

Gasoline $3,220

Oil changes and lubrication 550 Auto insurance 2,800 Repairs 1,400

The Mercedes was driven a total of 17,000 miles during 2014 (mileage was evenly distributed throughout the year).

3. The retail store is very noisy and has no office space, so Penny runs the sales of most cosmetics and consultation for all of the custom beauty plans from their home. A few years ago, she set aside 800 square feet of living space in their residence to serve as her office (total living space

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area is 3,200 square feet). As of January 1, 2014, the house has an adjusted basis of $850,000 (of which $50,000 is attributable to the land) – the fair market value of the property is in excess of this amount. Information regarding the entire residence for the tax year appears below:

Utilities $13,200

Homeowner’s insurance 3,100 Repairs and maintenance 1,300 Cleaning and trash pick-up services for office area only

2,400

New mirrors and tile for office area only 6,200

Penny replaced all of the mirrors and tile in the office area this year to make the space more conducive to the beauty consultations.

4. Besides a home office and the Mercedes, Penny had the following income and incurred the following expenses during 2014 in connection with Pretty Penny:

Travel nationwide to client homes for consultations---

Lodging $5,400 Meals 4,300 Incidentals 300 Office supplies 2,450 Cosmetic supplies for consultations 3,200

5. Penny owns the following assets related to the cosmetics store (these are owned personally by

her, not by PAB, LLC):

Asset Date

Acquired Acquisition

Price Accumulated Depreciation

Land 03/15/01 $34,000 $ 0-

Building 03/15/01 650,000 213,194*

*Not including current year depreciation.

6. This year, Penny sold a retail store that she owned in Glendale. She has no prior §1231 losses or carryovers.

Asset Date

Acquired Date Sold

Acquisition Price

Accumulated Depreciation

Selling Price

Land 04/14/04 6/4/14 $50,000 $ 0- $ 290,000

Building 04/14/04 6/4/14 450,000 112,019* 900,000

* Not including current year depreciation.

7. Leonard is a physics professor at Caltech. His salary for 2014 was $142,000. Federal tax withheld was $35,500 and state tax withheld was $10,650. This year, he also incurred some out of pocket expenses related to his research in experimental physics. During the tax year, grant money has been scarce so Leonard will not be reimbursed for these expenses, summarized as follows:

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Payments to participants in experiments $800

Supplemental materials for experiments 1,500 Lodging expense for out-of-town physics conferences

4,500

For the out-of-town conferences, Caltech only paid for transportation, and asked Leonard to pay for the cost of the meals and lodging. Leonard paid $930 for meals.

8. This year, Leonard decided to expand his love of personalized action figures to a business

venture. With Stuart’s help, he spent several weekends in his 500 square foot basement building personalized action figures for a few friends and neighbors. He estimates that he spent $1,000 on materials used to build the action figures, and $350 on tables and other materials to hold the trains. In his first year of business, Leonard sold five action figures for a total of $875.

9. In 2012, Leonard and Penny sold stocks held as investments that had declined considerably in value. As a result, they recognized a long-term capital loss of $108,000. They had no additional gains or losses in either 2012 or 2013. Because they were able to claim only $3,000 of this loss on their 2012 and 2013 tax returns, they have a $102,000 long-term capital loss carryover to 2014.

10. On July 18, 2007, the Hofstadters completed construction of a guest house on a lot adjacent to their home – 173 Galecki Lane, Pasadena, CA 91101. They spent $200,000 on the home and $35,000 on the land. On May 22, 2014, the home was destroyed by an explosion in the kitchen. Sheldon said it was due to a physics experiment he was demonstrating for Leslie and Stuart, but the insurance ruled it as a gas leak and completely accidental. At the time of the fire, the home had a fair market value of $400,000. The property was insured by Harrier Casualty, Ltd., and they were paid $320,000 [$400,000 (fair market value) - $80,000 (20% co-insurance deductible)] for their loss. After the fire, the land is worth $35,000. Leonard and Penny do not plan to rebuild the home but will sell the land when the real estate market improves.

11. While cleaning out the basement in preparation for Leonard and Stuart’s train venture, Penny found some valuable comic book memorabilia that had long been forgotten. Leonard has a bad habit of attending auctions and bidding on everything, then quickly losing interest in everything purchased. Penny found two valuable comic books in the basement – the first issue of Action Comics, featuring Superman (purchased on 5/12/1994 for $1,000,000) and the first Batman comic book (purchased on 5/18/1992 for $100,000). Leonard and Penny decided to donate both of them to Cartoon Art Museum in San Francisco on January 10, 2014 (located at 655 Mission Street, San Francisco, CA) for use in their collection. The Action Comics was valued it at $2,890,000, while the Batman comic was valued at $440,000. (The appraiser was Howard Lowery, P.O. Box 4492, Glendale, CA 91222). Andrew Farago, the museum curator, was very grateful for the donation and assured the Hofstadters that the comic books would be displayed for years to come.

12. [*** Optional – Extra Credit ***] On October 31, 1988, Penny’s aunt gave her a tract of land

near Omaha, NE as a wedding present. The land cost the aunt $18,000 but had a fair market value of $145,000 (no gift tax resulted). Since then Penny has held the property as an investment. In 2014, she was offered $350,000 from a local condo developer for the tract. After

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consulting a tax advisor and a realtor, she agreed to exchange the Omaha, NE tract for similar land in Lincoln, NE worth $250,000 and $100,000 in cash. On August 6, 2014, the transaction was completed in the realtor’s office. Penny plans to hold the Lincoln tract as an investment since she thinks it has appreciation potential.

13. Besides the items previously mentioned, Leonard and Penny had the following expenditures for the tax year:

Medical (not covered by insurance)---

Dental (root canal for Penny and crowns for Leonard) Laser resurfacing skin treatments for Penny Hand surgery for Stuart Doctor visits for the children

$7,000

25,000 1,000

300 Taxes--- California state income tax, due with 2013 return, paid on April 15, 2014

1,400

Property taxes on residence 14,800 Interest on home mortgage 18,650 Charitable contributions (cash to Red Cross) 800

The surgery for Stuart was a skin graft on his hand after an explosion of a fake volcano for a science project. The graft was necessary to restore proper use of his hand. For this and the doctor visits for the children, they drove Leonard’s Toyota a total of 400 miles. With respect to trips to the dentist, they drove the Toyota 270 miles. Penny generally had the laser resurfacing treatments done at the family home, but had to drive 185 miles (again, in the Toyota) round trip for the initial dermatologist consultation.

14. In addition to the items previously mentioned, Leonard and Penny had the following receipts during the tax year:

Interest Income

City of Pasadena bonds $2,340 Altria Group bonds 2,200 Pepsico bonds 5,450 CD issued by Chase Bank 900 Ordinary and qualified dividends from GE Corporation, not reinvested

4,300

Leonard’s first physics professor (and mentor) died at the beginning of the tax year. As a result of his death, he received life insurance proceeds of $1,000,000. Sheldon paid Leonard and Penny $2,000 monthly rent for his use of the 500 square foot apartment over their garage. He lived there for the entire tax year.

15. Leonard sold three vintage baseball cards on March 12, 2014. The cards were purchased for $375 each on July 10, 2013. At the time, Leonard thought he wanted to collect baseball cards to

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diversify his portfolio. However, he really hates sports and doesn’t know anything about baseball, so Leonard sold all three to a friend who was collector for $150 each.

16. For the tax year 2013, Leonard and Penny had a Federal income tax overpayment of $500 that they applied toward their 2014 tax liability. Penny’s estimated tax payments for 2014 are $11,000 (Federal) and $4,200 (state), all paid during the current tax year.

17. Use business code of 424210 for Penny. Relevant Social Security numbers are:

Name SSN Birth Date

Leonard 123-45-6788 01/12/1965 Penny Leslie Stuart

123-45-6789 123-45-8876 123-45-8877

06/17/1968 05/22/2001 12/02/2007

18. Leonard and Penny do not have any foreign bank accounts or trusts, and they don’t wish to

donate to the presidential election campaign. For the past several years, they have had more than enough expenses to itemize their deductions.

Required:

1. Complete Leonard and Penny’s Federal income tax return for 2014. You are NOT allowed to use tax preparation software. If they have a refund due, they would prefer having it credited against their taxes for next year. You will need to fill out and turn in the following forms and any accompanying schedules: 1040, 2106-EZ, 4562, 4684, 4797, 8283, 8824 (optional), 8829 and 8949; Schedules A, B, C, D, E, and SE; Unrecaptured Section 1250 Gain Worksheet and the Schedule D Tax Worksheet. In addition, all calculations/decisions not immediately apparent on the forms should be explained or discussed in an attached document (feel free to attach an Excel spreadsheet or Word document).

2. Ignore the following forms & any related calculations:

 Form 2210 – Underpayment of Estimated Tax

 Form 6251 – Alternative Minimum Tax (Individuals)

 Form 8959 – Additional Medicare Tax

 Form 8960 – Net Investment Income Tax