Question

Please answer in the following form: (1) 1040, (2) Schedule 1, (3) Schedule 2, (4) Schedule A, (5) Schedule C page 1, (6) explanation (including calculation) for each line item on each form and schedule. Thank you.

Janice Morgan, age 24, is single and has no dependents. Janice works as an employee from Worldwide Publishing and also as a freelance writer. In January 2019, Janice opened her own office located at 2751 Waldham Road, Pleasant Hill, NM 88135. She called her freelance writing business Writers Anonymous (self-employed). Both Writers Anonymous and Janice operate on the cash basis. She lives at 132 Stone Avenue, Pleasant Hill, NM 88135. Her Social Security number is 123-45-6789.

                  Self Employed Information:

Income from sale of articles                              75,000

Rent                                                                   13,500

Utilities                                                                7,900

Supplies                                                              1,800

Insurance (business liability)                               5,000

Travel (assume fully deductible)                          2,300

Meals (while on business travel)                          600

Meals (while meeting with clients)                        600

Country Club (Used to entertain clients)              4,000

Client entertainment expenses                             1,000

         Personal items:

Wages from Worldwide Publishing                                               $110,000

Interest from checking account from First Bank                             4,000  

Home mortgage interest paid to First Bank                                    10,000

(Secured by principal residence, acquisition debt)

Home Equity Line of Credit                                                         3,000

(Secured by principal residence, used to pay off credit cards)

Property taxes on personal residence                                               4,000

Charitable contributions 10,700

Federal income tax withholding                                                        26,000

State income tax withheld                                                                 8,500

During the year, Janice invested $10,000 (tax basis and at-risk basis) into XYZ limited partnership (a passive investment). Her share of the limited partnership income for the year was $6,000, and Janice received a $5,000 distribution from XYZ limited partnership.

During the year, Janice also invested $6,000 (tax basis and at-risk basis) into ABC limited partnership (a passive investment). Her share of the limited partnership loss for the year was $7,000, and Janice received a $1,500 distribution from ABC limited partnership.

In 2012 Janice started DEF Corporation (a small private C corporation) by contributing $40,000. She was the only owner. During the year Janice sold her complete investment for $30,000.

Additionally, Janice had:

(1) Janice made a $6,000 contribution to her traditional IRA account. Her employer, Worldwide publishing, offers a 401k that Janice contributes to.

(2) Sale of LMN publically traded stock on 8/15/2019 for $11,000 (originally purchased for $4,000 on 1/15/2015)

(3) Sale of QRS publically traded stock on 10/15/2019 for $2,000 (originally purchased for $6,000 on 12/15/2018)

(4) Sale of a boat on 5/15/2019 for $10,000 used for personal recreation (originally purchased for $20,000 on 6/15/2014)

(5) Janice inherited publically traded stock worth $30,000 from a deceased uncle on September 30, 2019

(6) Immediately after receiving this stock, Janice sold it for $30,000. This stock was originally purchased by his uncle on January 15 , 2016 for $23,000

Prepare the 2019 Federal income tax return for Janice Morgan. It is required that you submit both the (1) tax return and a (2) brief explanation for each line item on the return.

         Please submit the following forms:

(1) 1040, (3) Schedule 1, (4) Schedule 2, (5) Schedule A, (6) Schedule C page 1, (7) explanation (including calculation) for each line item on each form and schedule. This explanation must include loss carryforwards and ending basis for limited partnerships. Additionally, a discussion of each of the above items must be made in the explanations (i.e. items 1 through 6). Normally, this tax return would require additional forms including schedule B, D, E, SE and form 4797, and 6198, etc. However, I do not require them. Instead, the required calculations/explanations will be sufficient.

         Schedule 1 Hints:

1) The Net income from the Schedule C (Writers Anonymous) will go on Schedule 1, line 3

2) Schedule 1 line 5 will include the net income/loss from the limited partnerships. These

         are NOT subject to Self-Employment tax as they are passive investments

3) There should be something in line 14 of schedule 1.

4) Schedule 2, line 4 is for the self-employment tax. SE tax is separate from and in addition

to the tax calculated on form 1040 line 12.

5) The taxpayer has a refund. Form 1040 line 20.

6) The FICA cap for 2019 is 132,900

7) Assume that Janice has adequate health insurance.

8) Do not forget the Qualified Business Income Deduction (new in 2018), line 10 form

1040. Assume Janice qualifies for this deduction. In Chapter 15, we can discuss the rules in more detail. Assume that the QBID is a deduction equal to 20% of Qualified Business Income (QBI). With QBI being equal to net total of Schedule 1 line 3, 5, and 14. That is line 3 + line 5 – line 14.

9) Net capital gains is positive, and goes on form 1040 line 6.

10) The deductions for traditional IRA is on Schedule 1 line 19.

11) Don’t forget to check the box for filing status (single, MFJ, HOH, or MFS).

Answer 1

Solution:-