Question

Note: This problem is for the 2018 tax year.

Beth R. Jordan lives at 2322 Skyview Road, Mesa, AZ 85201. She is a tax accountant with Mesa Manufacturing Company, 1203 Western Avenue, Mesa, AZ 85201 (employer identification number 11-1111111). She also writes computer software programs for tax practitioners and has a part-time tax practice. Beth is single and has no dependents. Beth's birthday is July 4, 1972, and her Social Security number is 123-45-6785. She wants to contribute $3 to the Presidential Election Campaign Fund.

The following information is shown on Beth's Wage and Tax Statement (Form W–2) for 2018.

Line	Description	Amount
1	Wages, tips, other compensation	$65,000.00
2	Federal income tax withheld	10,500.00
3	Social Security wages	65,000.00
4	Social Security tax withheld	4,030.00
5	Medicare wages and tips	65,000.00
6	Medicare tax withheld	942.50
15	State	Arizona
16	State wages, tips, etc.	65,000.00
17	State income tax withheld	1,954.00

During the year, Beth received interest of $1,300 from Arizona Federal Savings and Loan and $400 from Arizona State Bank. Each financial institution reported the interest income on a Form 1099–INT. She received qualified dividends of $800 from Blue Corporation, $750 from Green Corporation, and $650 from Orange Corporation. Each corporation reported Beth's dividend payments on a Form 1099–DIV.

Beth received a $1,100 income tax refund from the state of Arizona on April 29, 2018. On her 2017 Federal income tax return, she reported total itemized deductions of $8,200, which included $2,200 of state income tax withheld by her employer.

Fees earned from her part-time tax practice in 2018 totaled $3,800. She paid $600 to have the tax returns processed by a computerized tax return service.

On February 8, 2018, Beth bought 500 shares of Gray Corporation common stock for $17.60 a share. On September 12, 2018, Beth sold the stock for $14 a share.

Beth bought a used sport utility vehicle for $6,000 on June 5, 2018. She purchased the vehicle from her brother-in-law, who was unemployed and was in need of cash. On November 2, 2018, she sold the vehicle to a friend for $6,500.

On January 2, 2018, Beth acquired 100 shares of Blue Corporation common stock for $30 a share. She sold the stock on December 19, 2018, for $55 a share. Both stock transactions were reported to Beth on Form 1099–B; basis was not reported to the IRS.

During the year, Beth records revenues of $16,000 from the sale of a software program she developed. Beth incurred the following expenses in connection with her software development business.

Cost of personal computer	$7,000
Cost of printer	2,000
Furniture	3,000
Supplies	650
Fee paid to computer consultant	3,500

Beth elected to expense the maximum portion of the cost of the computer, printer, and furniture allowed under the provisions of § 179. These items were placed in service on January 15, 2018, and used 100% in her business.

Although her employer suggested that Beth attend a convention on current developments in corporate taxation, Beth was not reimbursed for the travel expenses of $1,420 she incurred in attending the convention. The $1,420 included $200 for the cost of meals.

During the year, Beth paid $300 for prescription medicines and $2,875 for doctor interest to credit card bills and hospital bills. Medical insurance premiums were paid for her by her employer. Beth paid real property taxes of $1,766 on her home. Interest on her home mortgage (Valley National Bank) was $3,845, and interest to credit card companies was $320. Beth contributed $2,080 to various qualifying charities during the year. Professional dues and subscriptions totaled $350.

Beth paid estimated taxes of $1,000.

Required:

Compute the net tax payable or refund due for Beth R. Jordan for 2018. You will need Form 1040, (and its Schedules 1, 4, 5, B, C, D, and SE) and Forms 4562 and 8949 and the Qualified Dividends and Capital Gain Tax Worksheet.

• Make realistic assumptions about any missing data.
• If an amount box does not require an entry or the answer is zero, enter "0".
• Enter all amounts as positive numbers, unless instructed otherwise.
• It may be necessary to complete the tax schedules before completing Form 1040.
• When computing the tax liability, do not round your immediate calculations. If required round your final answers to the nearest dollar.
• Use the 2018 Tax Rate Schedule provided. Do not use the Tax Table

Answer 1

Calculation of federal Income tax payable (or refund Due)

PARTICULARS	AMOUNT	AMOUNT	EXPLANATION
Gross Income
Salary		$65000
Interest and Dividend income
Interest on savings	1300
Interest from AS bank	400
Dividends on B stock	800
Dividends on G stock	750
Dividends on o stock	650
		3900
state income tax refund		1100
Business Income		19800	refer wnote 1
Net short term capital gain		1200	refer wnote 2
Gross income		91000
Less for AGI deduction
Business expenses		(16750)	refer wnote 3
self employment tax deduction		(216)	refer w note 4
Adjusted Gross Income(AGI)		74034
less from AGI deduction
itemized deduction or standard deduction which ever is greater		(9834)	refer w note 5
personal and dependency exemption deductions		(3900)	refer w note 6
taxable income		$60300
tax liability		10784	refer w note 7
sself employment tax		431	refer w note 4
total tax liability		11215
less tax withholdings by employer		(10500)
Estimated taxes		(1000)
NET TAX PAYABLE (OR REFUND DUE FOR 2013)		$(285)

2.

Compute Short term capital gain tax(STCG)

Step 1

compute cost of short term capital investment as at purchase date

SECURITY	NO.OF SHARES	X	COST PRICE	=	COST OF INVESTMENT
corporation G	500 shares	x	17.60	=	8800
Sports utility vehicle					6000
corporation B	100 shares	x	30	=	3000
Total					17800

Step 2

Compute the sales proceeds from short term capital investment

SECURITY	No OF SHARES	X	COST PRICE	=	COST OF INVESTMENT
Corporation G	500	x	14.00	=	7000
sports utility vechicle					6500
corporation B	100	x	55		5500
TOTAL					19000

3.

Compute business expenses amount

PARTICULARS	AMOUNT
processing fee for part time tax practice	600
cost of personal computer	7000
cost of printer	2000
furniture cost	3000
supplies cost	650
fee paid to computer consultant	3500
TOTAL BUSINESS EXPENSE	16750

3

Compute self employment deduction amount

DETAILS	AMOUNT
Business income	19800
Business expenses	16750
B's earnings	3050

4.

compute excess of social security portion over FICA(Federal Insurance Contributions Act Taxes)

PARTICULARS	AMOUNT
social security ceiling	113700
less:FICA wages	(65000)
Net ceiling	48700

5.

Computation of medicare tax on lesser of step 2 & 3

since step 2 is lesser than step 3 compute medicare on step 2

Medicare self employment tax={Net self employment income x medicare tax rate}

= 2817 x 2.9%

=$ 82

6.

compute total self employment tax

PARTICULARS	AMOUNT
social security tax	349
Medi care tax	82
SELF EMPLOYMENT TAX	$431

7.

Compute self employment tax deduction tax

Self employment deduction amount={ self employment tax x 50% }

=431 x 50%

= $216