Question

Janice Morgan, age 24, is single and has no dependents. She is a freelance writer. In January 2018, Janice opened her own office located at 2751 Waldham Road, Pleasant Hill, NM 88135. She called her business Writers Anonymous. Janice is a cash basis taxpayer. She lives at 132 Stone Avenue, Pleasant Hill, NM 88135. Her Social Security number is 123-45-6789. Janice’s parents continue to provide health insurance for her under their policy. Janice wants to contribute to the Presidential Election Campaign Fund. During 2016, Janice reported the following income and expense items connected with her business. Income from sale of articles $85,000 Rent 16,500 Utilities 7,900 Supplies 1,800 Insurance 5,000 Travel (including meals of $1,200) 3,500 Janice purchased and placed in service the following fixed assets for her business. Janice wants to elect immediate expensing under § 179, if possible. • Furniture and fixtures (new) costing $21,000 on January 10. • Computer equipment (new) costing $12,400 on July 28. Janice’s itemized deductions include: State income tax $2,950 Home mortgage interest paid to First National Bank 6,000 Property taxes on home 1,500 Charitable contribution to her alma mater, State College 1,200 Janice did not keep a record of the sales tax she paid. The amount from the sales tax table is $437. Janice reports interest income of $4,000 on certificates of deposit at Second National Bank. Janice makes estimated tax payments of $3,000 for 2016. Compute Janice Morgan’s 2018 Federal income tax payable (or refund due).

Answer 1

Particulars	Amount
Net income from writers anonymous(Note 1)	$17,500
Interest Income	$4,000
Self-employment tax deduction(Note 4)	-$1,237
Adjusted gross income	$20,263
Less:
Itemized deduction	-$11,650
Personal exemption	-$4,000
Taxable income	$4,613
Tax on $4,613 from 2015 tax table	$461
Self-employment tax payments	$2,473
Less: Estimated tax payments	-$3,000
Net tax payable(or refund due) for 2018	-$66

1. Net income from writers anonymous is calculated as follows:
Particulars	Amount	Amount
Income from sales		$85,000
Less:
Rent	$16,500
Utilities	$7,900
Supplies	$1,800
Insurance	$5,000
Travel excluding meals($3,500-$1,200)	$2,300
Meals [$1,200-$600($1,200×50%)]	$600
Depreciation and 179 deduction(Note 3)	$33,400	-$67,500
Income from business		$17,500
2. The itemized deduction include:
Particulars	Amount	Amount
State income tax		$2,950
Home mortgage interest		$6,000
Property taxes on home		$1,500
Charitable contributions		$1,200
Total itemized deductions		$11,650
3. Furniture and fixtures and computer equipment
Particulars	Amount	Amount
Furniture and fixtures		$21,000
Computer equipment		$12,400
		$33,400
4. The self-employment tax is calculated as follows
Particulars	Amount	Amount
Net earnings from self employment		$17,500
Multiply line 1 by 92.35%		$16,161
If the amount on line 2 is $118,500 or less, multiply the line 2 amount by 15.3%. This is the self employment tax		$2,473
One half of the self-employment tax or $1,237 is a deduction for AGI		$1,237