ACC 4328 2018 Tax Return Project

FOR TAX YEAR 2018- use 2018 draft forms provided or download form IRS.gov/DraftForms. USE THE LAW AS IT EXIST FOR 2018. FOR EXAMPLE, USE 2018 AMOUNTS FOR TAX RATES, STANDARD DEDUCTION, PHASEOUT AMOUNTS, ETC.

USE THE INFORMATION STATEMENTS IN TRACS TO GATHER AMOUNTS FOR WAGES, INTEREST, ECT AS DIRIECTED IN THE INFORMATION BELOW.

Your clients, David and Charlene Thomas, (David is 65 and Charlene is 55) have hired you to complete their 2018 tax return (2018 tax year). They wish to pay the minimum amount of taxes possible in this tax year. Disregard AMT; BUT DO CONSIDER ALL OTHER AVAILABLE CREDITS. They have provided you with the following information.

General information

They reside in Austin, Texas at 555 Lookout Dr., zip 78725. Their SS numbers are (David 111-11-1111) and (Charlene 222-22-2222). They provide the majority of the support and home for their three children: Austin is a full-time student, son (age 10, SS# 555-55-5556), their daughter, Stephanie (age 19, SS# 333-33-333) and Max, their other son (age 21, SS# 777-77-7770), who is a full-time student (junior). Stephanie graduated high school in June 2017 but has not been able to find/keep a full-time job. She earned a total of $3,500 in 2018 as a part-time office clerk and spent approximately 4 months visiting a friend in California. respectively. (All ages are as of Dec 31, 2018)

Charlenes mother, Hattie Hunter (age 76, widowed) lives near Charlene and David in her own apartment which Charlene pays for ($15,000 per year including utilities). Her SS# is 666-66-6660. Except for $8,000 which Hattie received in Jan 2017 as an inheritance from her half-brothers estate, she has no other source of income (assume she is a Canadian citizen and does NOT qualify for social security/Medicare).

Charlenes aunt died in January 2017 of cancer and she inherited a lump sum of $200,000 in life insurance proceeds which she invested in mutual stock funds and an interest-bearing cash account at Edward Jones see below. She draws money from the account throughout the year to buy things for her family.

Davids grandmother died during 2018 and left him an antique diamond pendant. The fair market value of the pendant at the date of death was $15,000. He gave the pendant to his daughter, Stephanie.

David won $1,000 from a Texas Lotto game. He paid $250 total for several tickets and retained the receipts. David lost gross $300 in a poker game in Las Vegas. He had no other winnings and has documentation of his loss.

Charlene received twelve monthly child support payments (for a total of $16,000) from her ex-husband Ralph Broke.

David and Charlene put $5,000 into an Education Savings Plan (Sec 529) to save for the college education of their children.

Davids information

David in a senior site manager for a young, growing construction firm. He received a W-2 (W-2 can be viewed here https://drive.google.com/file/d/1iey4X_lckRnEeN1HamRhBhD9J60A5oLj/view?usp=sharing). Assume the FICA and Medicare taxes are computed correctly.

David is eligible for a bonus each year. Based upon his performance in 2018 he will receive a $10,000 bonus. The bonus is paid in January 2019.

His firm does NOT reimburse him for any out of pocket business expenses that he may incur.

Charlenes Information

Charlene uses Charlene Thomas Photography as the name of her company. She uses her social security number in lieu of an EIN.

Charlene is a cash basis, self-employed photographer with currently only two major commercial clients. She received two 1099-Misc forms (in TRACS) for photo shoots in 2018. She also received a payment of $16,000 in Feb. 2018 from a former client for a photo package sold in late December 2017. She did not receive a Form 1099 for this amount.

Charlene works out of her home but does not have a specific office in the house as she typically does her office related work in the den or living room. She uses a business use only computer system that is fully depreciated. She incurred the following business-related expenses during the year:

Printing/copying $ 3,000

Legal 1,125

Office Supplies 2,750

Internet Service used 100% for her work 1,200

Postage/UPS 300

Premium for Insurance Policy (100% Business) 750

During 2018 Charlene purchased new 5-year equipment in March to use in her photography business. The cost of the equipment was $9,000. She but wishes to maximize her depreciation deduction.

Charlene used her car for business and has the required documentation. She uses the IRS allowed mileage allowance to compute her deduction for the business use of her car. For 2018, she had 7,000 business miles. Her total mileage for the year was 18,000 miles.

Addition information Interest Income:

Interest from a City of Boston bond (1099-INTin TRACS)

AT&T bond (1099-INTin TRACS)

Interest from a savings account they hold jointly at Express Bank located in Windsor, Canada (1099 INT in TRACS). The savings account has a balance of $150,000 in it at year end and represents Jacks inherited funds (received in 2009) from his deceased father.

*DO NOT FILE ANY FORMS RELATING TO FOREIGN ACCOUNTS*

Dividend Income:

Charlenes American Mutual Funds Account at Edward Jones (1099-DIVin TRACS)

Rental Property

David and Charlene purchased a rental property in April 2014. They are active participants in the rental activity. For 2018 they had rental income of $20,000. The propertys address is 4506 Stassney, Austin Texas 78704

The expenses for the year were as follows:

Repairs and maintenance 2,000

Insurance 3,000

The purchase price of the property (building only) was $250,000.

Other Investments

David and Charlene purchased two investments during 2018.

Business #1 (Billy Bob Rentals). They invested $15,000 for a 50% share in this business which rents out commercial grade equipment. They do not participate in this business. The business loss for 2018 was $16,000. See K-1 for details in TRACS. Assume the 2017 form is for 2018 as the K1 for 2018 has not been drafted yet)

Business #2 (Old Jolly Camera). They invested $10,000 for a 75% share in this business which sells photography equipment. Charlene is a material participant in this business. The business had a loss of $20,000 in 2018. See K-1 for details in TRACS. Assume the 2017 form is for 2018 as the K1 for 2018 has not been drafted yet)

Report the net taxable income from these investments on Schedule E, Part II. Do not fill out Forms 8582 (passive activity forms)

Medical Expenses (unreimbursed portions)

Premiums for health insurance for the family $ 3,500

(this is the portion David paid had to pay for the medical Plan provided

by his employer)

Premiums for health insurance for Hattie Hunter (Charlenes mother) 2,500

Medicine and drugs (prescription) 500

Eyeglasses 300

Other Unreimbursed qualified medical expenses paid by

the taxpayer (deductibles, co-pays) 1,500

Other Unreimbursed qualified medical expenses paid by

the taxpayer all relating to a hospital stay when Hattie fell and broke

several bones 3,000

Mileage to & from a medical clinic in Houston

(475 miles on Dec 11, 2018)

Interest

Mortgage paid on Austin home to Country Mortgage see form 1098 in TRACS

Mortgage paid on weekend house to Regional Bank see form 1098 in TRACS

Mortgage paid on rental house to Chase Bank see form 1098 in TRACS

Business Use Credit Card (100%) used by Charlene $ 500

Taxes

Real Estate Taxes - Austin home $ 9,000

Real Estate Taxes weekend home 2,500

Real Estate Taxes rental house 6,000

Contributions (you have verified all dates as correct)

All cash and clients have all required receipts and required documentation. (all are IRS recognized non-profit organizations)

United Way of Austin (paid by credit card on 12/31/18). Paid the credit card

On 1/15/19. $225

Salvation Army (check dated in 6/20/18) 175

American Heart Association (check dated and mailed on 12/31/18). Received

a thank you note dated 1/12/19) 500

First Baptist Church (paid by check dated 10/11/18) 200

Charlene volunteers at a local IRS qualified non-profit organization. This organization presented her with a $125 check this year in recognition for her best fund-raising idea which netted the organization over $10,000 in additional funds. In addition, Charlene has receipts accounting for $600 out of pocket expenses she incurred during the year, all associated with events she attended on behalf (as a representative) of the organization. She wonders if these expenses are deductible as charitable contributions if so deduct them.

Other/Miscellaneous

CPA fees

-Income Tax preparation fees (paid in May 2018 for 2017 return. $ 1,800

Assume 50% is related to Charlenes Schedule C

-Agreed upon fee to prepare 2018 return in 2019 (to be paid in 2019) 2,000

Safe deposit box used 100% for storage of Hatties mementos 125

Davids Engineers Society dues and State license 1,150

Davids unreimbursed work related office supplies 1,100

Davids airfare to a one-day business meeting in New Orleans 500

Davids lodging for meeting in New Orleans 250

Interest paid on Davids student loan (got his Masters in 2014) 800

*ATTACH SCHEDULE A TO TAX RETURN WHETHER OR NOT IT OR THE STANDARD DEDUCTION IS USED ON FORM 1040 LINE 8

Child care Expenses

Paid for (son) Austin: Five Star After-School Care,

Austin, TX ID# 05-3434567 (two days a week) $ 7,850

EDUCATION EXPENSES

The Thomas paid $6,500 for tuition, $1,000 for books and supplies and $10,000 for room and board for Max to attend college. Max received a scholarship from Texas State for $2,500.(see 1098-T IN TRACS)

Estimated Taxes Paid (on time)

Paid $ 500 for each of the four quarters; total of $ 2,000.

If applicable, client would like any over-payment to be applied to 2019

Needed: Your textbook, IRS Forms, and references such as Pub 17

PREPARE the couples joint tax return for 2018. Assume that they want to claim the maximum amount of deductions possible and pay the minimum amount of taxes. If you have questions of the client see me for any additional information you may need.

Make sure to use the 2018 TAX RATES (in your textbook or the IRS Website) rather than the TAX TABLES!!!!!!!