Comprehensive Problem 6-2A

Richard McCarthy (born 2/14/1965; Social Security number 100-10-9090) and Christine McCarthy (born 6/1/1967; Social security number 101-21-3434) have a 19-year-old son (born 10/2/2000 Social Security number 555-55-1212), Jack who is a full-time student at the University of Key West. The McCarthys also have a 12-year-old daughter (Social Security number 444-23-1212), Justine, that lives with them. The McCarthys can claim a $2,000 child tax credit for Justine and a $500 other dependent credit for Jack. Richard is the CEO at a paper company. His Form W-2 is provided.

Christine is an optometrist and operates her own practice ("The Eyes of March") in town as a sole proprietor. The shop address is 1030 Morgan Highway, Clarks Summit, PA 18411 and the business code is 621320. Christine keeps her books on the accrual basis and her bookkeeper provided the following information:

Gross sales		$270,541
Returns		8,994
Inventory:
Beginning inventory	$24,000
Purchases	120,000
Ending inventory	30,000
Rent		24,000
Insurance		11,019
Professional fees		2,998
Payroll		37,113
Payroll taxes		2,877
Utilities		3,961
Office expenses		1,995
Depreciation		5,000

The McCarthys have a nanny/housekeeper they paid $12,600 during 2019. They did not withhold income or FICA taxes. The McCarthys paid Pennsylvania state unemployment tax of $378 in 2019.

Christine received a 2019 Form 1099-INT from the National Bank of Scranton that listed interest income of $23,467. Note that McCarthys reasonably allocate $761 to state income tax expense for purposes of the Net Investment Income tax.

The McCarthys received a Form 1099-G from Pennsylvania that reported a $451 state income tax refund from 2018. The McCarthys itemized deductions in 2018 and had $14,223 of state income tax expense that was limited to $10,000.

The McCarthys paid the following in 2019:

Home mortgage interest	$15,661
Property taxes	5,436
Estimated state income tax payments	2,400
Estimated Federal income tax payments	10,500
Charitable contributions (all cash)	7,600

Required: Complete the McCarthys' federal tax return for 2019. Use Form 1040, Schedule 1, Schedule 2, Schedule 3, Schedule A, Schedule B, Schedule C, Schedule H, Schedule SE, Form 8959, and Form 8960 to complete this tax return.

Ignore any alternative minimum tax. Do not complete Form 4952, which is used for depreciation.

Question:

This is Schedule A line 5a though line 7

Taxes You Paid 5 State and local taxes. a State and local income taxes or general sales taxes. You may include either income taxes or general sales taxes on line 5a, but not both. If you elect to include general sales taxes instead of income taxes, check this box . . . . . . . . . . . . . . . . . . . 5a