Question

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 2016, Janice opened her own office located at 2751 Waldham Road, Pleasant Hill, NM 88135. She called her freelance writing business Writers Anonymous. 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. During 2016, Janice reported the following income and expense items connected with her business Writers Anonymous (a sole proprietorship):

Income from sale of articles 50,000

Rent 16,500

Utilities 7,900

Supplies 1,800

Insurance 5,000

Travel (assume fully deductible)2,300

Meals 1,200

Social Club (Used to entertain clients) 4,000

Janice has the following personal items:

Wages from Worldwide Publishing $100,000

Interest from checking account from First Bank 4,000

Home mortgage interest paid to First Bank 7,000

Property taxes on personal residence 2,000

Charitable contributions 1,700

Federal income tax withholding 25,000

State income tax withheld 7,500

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 $5,000, and Janice received a $1,000 distribution from XYZ limited partnership.

During the year, Janice also invested $2,000 (tax basis and at-risk basis) into ABC limited partnership (a passive investment). Her share of the limited partnership loss for the year was $3,000. Because ABC limited partnership lost money during the year there were no distributions paid to partners. Prepare the 2016 Federal income tax return for Janice Morgan. You may work in groups no larger than 3 (i.e. 1, 2, or 3). Submit one tax return per group. Please submit the following forms: (1) 1040, (2) Schedule A, (3) Schedule C page 1, (4) calculation/explanation of the taxable portion from the limited partnerships, (6) calculation of self-employment tax, (7) calculation of tax. Normally, this tax return would require additional forms (Schedule B, Schedule E, Schedule SE, Etc.). However, schedule B, ScheduleE, Schedule SE are not needed. The required calculations/explanations will be sufficient.

Hints: 1) The Net income from the Schedule C (Writers Anonymous) will go on line 12 2) Line 17 will include the income/loss from the limited partnerships. These are NOT subject to Self-Employment tax. 3) There should be something in line 27 4) Line 57 is for the self-employment tax. SE tax is separate from and in addition to the tax calculated on line 44. 5) The total from Schedule A should match line 40 6) The taxpayer has a refund. 7) The FICA cap for 2016 is 118,500, not 127,200.

Answer 1

Dear students, required calculation alongwith selected extracts of form 1040 and relevant schedules are enclosed