Question

• Dan, age 45, is an independent contractor working in pharmaceutical sales, Cheryl, age 42, is a nurse at a local hospital. Dan’s ssn is 400-20-100 and Cheryl’s SSN is 200-40-8000 an they reside at 2033 Palmetto Drive, Atlanta, GA 30304.

• Dan is paid according to commissions from sales, and he has no income tax or payroll tax withholdings. Dan operates his business from his home office.

• During 2018 Dan earned total commission in his business of $125,000.

• Cheryl earned a salary during 2018 of $45,400,1 with the following withholdings: 6,000 federal taxes, 1,800 state taxes, 2,815 OASDI, and $658 Medicare taxes.

• During 2018, Dan and Cheryl had interest income from corporate bonds and bank accounts of $1450 and qualified dividends from stock of %5950. Dan also actively trades stocks and had the following results from 2018:

• LTCG              4,900
• LTCL              (3,200)
• STCG              0
• STCL              (7,800)

• He had no capital loss carryovers from previous years.
• Dan does a considerable amount of travel in connection with his business and uses his own car. During 2018, Dan drove his car a total of 38,000 miles, of whih 32,000 were business related. He also had business-related parking fees and tolls during the year of $280. Dan uses the mileage method for deducting auto expenses. Dan also had the following travel expenses while away from home during the year

• Hotel                                                                         4200
• Meals                                                                         820
• Entertainment of Customers                                     1080
• Tips                                                                             100
• Laundry and cleaning                                                 150
• Total                                                                            6350

• Dan uses the simplified method to deduct expenses for him office-in-home. His office measures 15feet by 12 feet is size (180 sqft)
• Cheryl incurred several expenses in connection with her nursing job. She paid 450 in professional dues, 200 in professional journals, and 350 for uniforms.

Dan and Cheryl's last name is Taxpayer.

If the Taxpayers have a refund, have the entire amount refunded.

Helpful Hints and Checks

For Schedule D:

• Assume the STCL was from Intel stock originally purchased on 1/4/19 for $10,000 and sold on 3/1/19 for $2,200.
• Assume the LTCG was from the sale of Google, Inc. stock originally purchased on 5/19/14 for $7,100 and sold on 5/1/19 for $12,000.
• Assume the LTCL was from the sale of Yahoo, Inc. stock originally purchased on 8/30/16 for $38,200 and sold on 11/7/19 for $35,000.

Assume the charitable donation of GE stock was to the United Way. It was donated on 3/5/19 and was originally purchased on 4/10/12.

Schedule C:

• Dan uses the cash method.
• Assume one-third of the tax preparation fees are allocable to Dan's business.
• The Taxpayers' house is 3,000 square feet.
• The vehicle was placed in service on 12/31/17.
• Answer "yes" to items 45-47b on page 2.

Use the 2019 tax forms (locate tax forms on www.irs.gov).

General Requirements

For this assignment you will need to submit the following tax forms as a single document:

• Form 1040
• Schedule 1, Form 1040
• Schedule 2, Form 1040
• Schedule 3, Form 1040
• Schedule A, Form 1040
• Schedule B, Form 1040
• Schedule C, Form 1040
• Schedule D, Form 1040
• Form 8949, Form 1040
• Schedule SE, Form 1040
• Form 8283, Form 1040

Refer to the resource, "Tax Rate Schedules 2019 and Other Items," located in the course materials.

Tax Return Check Figures for 2019 Tax Forms - Data Set A

Problem I:7-64

Check Figures for the Various Forms (check figures are not provided for every form):

Form 1040 –

• Line 8b, AGI                                       $138,875
• Line 16, Total tax                               $24,446

Schedule 1 –

• Line 22, Adjustments to income        $11,075

Schedule A –

• Total itemized deductions             $34,400                                    

Schedule C –

• Line 28, Total expenses                $23,950

Schedule D –

• Line 16                                          $(6,100)

Form 8829 (not required) –

• Use simplified method as directed in the problem. Note: You have to determine the amount of square footage for the home office based on the information provided.

Remember to use the tax forms for the year indicated by your instructor. Points will be deducted for incorrect forms and incorrect sequence. In addition, be sure to submit the tax forms in order as required by the IRS. You will notice a Sequence No. on the top right of each tax return form except for the Form 1040. Form 1040 is the first form in the sequence.

Answer 1

Solution:-

Dan and Cheryl’s taxable income tax liability for 2018 is determined below.

Notes:

1.

Travel expenses: $4,200 + 410 + 100 + 150 = $4,860

2.

Office-in-home expense: 180 sq. ft. x $5 = $900

3.

Self-employment tax deduction: $14,309 x 50% = $7,155

4.

Limited to $10,000

5.

QBI deduction: ($101,270 – 7,155 – 4,400) X 20% = $17,943

6.

Taxable income $87,172

Less: dividends ( 5,950)

$81,222

Tax per 2018 rate schedule on $81,222$9,749

Tax on dividends ($5,950 x 0.15) 893

Self-employment tax ($101,270 x .9235 x .153)   14,309

Total tax liability for 2018 $24,951

7.

Cheryl’s nursing expenses would be miscellaneous itemized deductions that are not deductible for tax years 2018–2025.