Comprehensive Problem 6-2A Richard McCarthy (born 2/14/64; Social Security number 100-10-9090) and Christine McCarthy (born 6/1/1966; Social security number 101-21-3434) have a 19-year-old son (born 10/2/99 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. Richard is the CEO at a national 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 $270,000 Returns 9,000 Inventory: Beginning inventory $24,000 Purchases 120,000 Ending inventory 30,000 Rent 24,000 Insurance 11,000 Professional fees 3,000 Payroll 37,000 Payroll taxes 2,800 Utilities 4,000 Office expenses 2,000 Depreciation 5,000 The McCarthys have a nanny/housekeeper they paid $12,000 during 2018. They did not with hold income or FICA taxes. The McCarthys paid Pennsylvania state unemployment tax of $378 (based on the first $7,000 of wages) in 2018. Christine received a 2018 Form 1099-INT from the National Bank of Scranton that listed interest income of $23,400. Note that McCarthys reasonably allocate $1,278 to state income tax expense for purposes of the Net Investment Income tax. The McCarthys paid the following in 2018: Home mortgage interest $15,600 Property taxes 5,600 Estimated state income tax payments 3,000 Estimated Federal income tax payments 11,000 Charitable contributions (all cash) 7,600 Form 1040 (2018) For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11320B Form 1040 (2018) Richard McCarthy 100-10-9090 Page 2 Wages, salaries, tips, etc. Attach Form(s) W-2...., Attach Form(s) W-2. Also attach Form(s) W-2G and 1099-R if tax was withheld. b Taxable Tax-exempt interest 2a interest b Ordinary 3a Qualified dividends dividends 4a IRAs, pensions, and b Taxable annuities amount b Taxable Social security benefits amount 6 Total income. Add lines 1 through 5. Add any amount from Schedule 1, line 22 5a 7 Adjusted gross income. If you have no adjustments to income, enter the amount from line 6; otherwise subtract Schedule 1, line 36, from line 6........ Standard Deduction for- Single or married filing separately, $12,000 Married filing jointly or Qualifying widow(er), $24,000 Head of household $18,000 If you checked any box under Standard deduction, see instructions. Standard deduction or itemized deductions (from Schedule A) ..... 9 Qualified business income deduction (see instructions).. 10 Taxable income. Subtract lines 8 and 9 from line 7. If zero or less, enter-O-... 11 a Tax see inst) (check if any from: 1 Form(s) 8814 2 Form 4972 30 b Add any amount from Schedule 2 and check here 12 a Child tax credit/credit for other dependents b Add any amount from Schedule 3 and check here 13 Subtract line 12 from line 11. If zero or less, enter -0-............ 14 Other taxes. Attach Schedule 4........ 15 Total tax. Add lines 13 and 14. ...... 16 Federal income tax withheld from Forms W-2 and 1099......... Comprehensive Problem 6-2A Richard McCarthy (born 2/14/64; Social Security number 100-10-9090) and Christine McCarthy (born 6/1/1966; Social security number 101-21-3434) have a 19-year-old son (born 10/2/99 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. Richard is the CEO at a national 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 $270,000 Returns 9,000 Inventory: Beginning inventory $24,000 Purchases 120,000 Ending inventory 30,000 Rent 24,000 Insurance 11,000 Professional fees 3,000 Payroll 37,000 Payroll taxes 2,800 Utilities 4,000 Office expenses 2,000 Depreciation 5,000 The McCarthys have a nanny/housekeeper they paid $12,000 during 2018. They did not with hold income or FICA taxes. The McCarthys paid Pennsylvania state unemployment tax of $378 (based on the first $7,000 of wages) in 2018. Christine received a 2018 Form 1099-INT from the National Bank of Scranton that listed interest income of $23,400. Note that McCarthys reasonably allocate $1,278 to state income tax expense for purposes of the Net Investment Income tax. The McCarthys paid the following in 2018: Home mortgage interest $15,600 Property taxes 5,600 Estimated state income tax payments 3,000 Estimated Federal income tax payments 11,000 Charitable contributions (all cash) 7,600 Form 1040 (2018) For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11320B Form 1040 (2018) Richard McCarthy 100-10-9090 Page 2 Wages, salaries, tips, etc. Attach Form(s) W-2...., Attach Form(s) W-2. Also attach Form(s) W-2G and 1099-R if tax was withheld. b Taxable Tax-exempt interest 2a interest b Ordinary 3a Qualified dividends dividends 4a IRAs, pensions, and b Taxable annuities amount b Taxable Social security benefits amount 6 Total income. Add lines 1 through 5. Add any amount from Schedule 1, line 22 5a 7 Adjusted gross income. If you have no adjustments to income, enter the amount from line 6; otherwise subtract Schedule 1, line 36, from line 6........ Standard Deduction for- Single or married filing separately, $12,000 Married filing jointly or Qualifying widow(er), $24,000 Head of household $18,000 If you checked any box under Standard deduction, see instructions. Standard deduction or itemized deductions (from Schedule A) ..... 9 Qualified business income deduction (see instructions).. 10 Taxable income. Subtract lines 8 and 9 from line 7. If zero or less, enter-O-... 11 a Tax see inst) (check if any from: 1 Form(s) 8814 2 Form 4972 30 b Add any amount from Schedule 2 and check here 12 a Child tax credit/credit for other dependents b Add any amount from Schedule 3 and check here 13 Subtract line 12 from line 11. If zero or less, enter -0-............ 14 Other taxes. Attach Schedule 4........ 15 Total tax. Add lines 13 and 14. ...... 16 Federal income tax withheld from Forms W-2 and 1099