Gregory R. and Lulu B. Clifden live with their family at the Rock Glen House Bed & Breakfast, which Gregory operates. The Bed & Breakfast (B&B) is located at 33333 Fume Blanc Way, Temecula, CA 92591. Gregory and Lulu enjoy good health and eyesight.

1. The Clifdens have three sons. Gerald is 17 years old, Gary is 12 years old, and Glenn is 10 years old. All three boys live at home and the Clifdens provide more than 50% of their support.

2. The Rock Glen House B&B is operated as a sole proprietorship and had the following income and expenses for the year:

Room rental income $138,000

Vending machine income 2,100

Advertising expense 4,810

Depreciation for book and tax purposes 18,100

Mortgage interest on the B&B 23,010

Wages of cleaning people 17,540

Taxes and licenses 6,420

Supplies consumed 18,870

Business insurance 6,300

Laundry expenses 4,289

Accounting fees 1,850

Office expenses 2,400

Utilities 6,350

All of the above amounts relate to the business portion of the Bed & Breakfast; the personal portion is accounted for separately. The Rock Glen House B&B uses the cash method of accounting and has no inventory. The employer tax ID number is 95-1234567.

3. The Clifdens made estimated federal income tax payments of $2,000 and estimated state income tax payments of $6,000 (all made during 2018).

4. Lulu worked about 1,000 hours as a substitute schoolteacher with the local school district. She also spent $276 out-of-pocket for various supplies for her classroom. Lulu's Form W-2 from the school district is located on a separate tab.

5. Gregory is retired from the U.S. Navy. His annual statement from the Navy, Form 1099-R.

6. Gregory and Lulu paid (and can substantiate) the following amounts during the year:

Mastercard interest $1,480

Dental expenses (orthodontics for Gary) 4,600

California state income tax (for 2017) 2,450

Charitable contributions 3,875

Deductible interest on home (personal portion) 7,631

Real estate taxes (personal portion) 2,830

Life insurance premiums 845

Automobile registration fees (deductible portion) 45

Tax return preparation fee 475

Contributions to Donald Trump's election campaign 1,000

During the year, Gregory and Lulu received the following qualifying dividends and interest: Interest: Bob's Big Bank $375 Bank of Ireland 220 City of Temecula

Tax Exempt Bonds 1,490

Vintage Bank See 1099-INT

Qualified dividends:

Southwest Airlines $250

Heinz Foods 550

7. Also, Lulu owns Series EE U.S. savings bonds. During the year, the bond redemption value increased by $1,300. Lulu has not elected the accrual method for these bonds. There were no Irish taxes paid on the interest from the Bank of Ireland. All the above stocks, bonds, and bank accounts are community property.

8. Lulu has a stock portfolio. During the year she sold stock, for which she received 1099-B Forms, as follows (basis was provided to the IRS in all cases):

Orange Co. Gold Co. Green Co.

Sales price $8,100 See Form $1,450

Basis 3,800 1099-B 2,575

Date acquired 02/11/18 10/31/13

Date sold 06/19/18 10/23/18

9. Lulu paid her ex-husband $4,800 alimony in the current year, as required under the 2014 divorce decree. Her ex-husband's name is Hector Leach and his Social Security number is 566-23-5431.

10. Gregory does all the significant work in the Bed & Breakfast and therefore he pays self-employment tax on 100 percent of the earnings from the B&B.

11. During the year, Gregory's uncle Martin died. Martin had a $50,000 life insurance policy that named Gregory as the beneficiary. Gregory received the check for the benefits payable under the policy on November 30 of the current year. Martin also left Gregory a small nonoperating farm with an appraised value of $120,000.

12. Gregory is a general partner in a partnership that owns a boutique hotel in northern California and leases the property to a hotel management company. Gregory does not materially participate in the partnership activity but the partnership activity does rise to the level of a trade or business. See Schedule K-1 from the partnership.

13. Lulu was not eligible for health care benefits due to the part-time nature of her job thus health insurance for the Clifden household was purchased by Gregory. The Clifdens are not eligible for an exemption from coverage. The Clifdens purchased health insurance through the Covered California program and received the Form 1095-A. They had no other health insurance during 2018. Assume that the self-employed health insurance deduction is $1,540. The Clifdens did not claim an advance premium credit. Click here to access the completed Form 1095-A to use when completing Form 8962. Required: Gregory and Lulu have come to you to prepare their 2018 federal income tax return. You are not required to complete the state income tax return. Gregory and Lulu have given you several IRS forms (see 1099-B and 1099-INT) assumptions. Do not file a federal Form 4952. Click here to access the tax table for this problem. The taxpayers do not want to make a contribution to the presidential election campaign.

Enter all amounts as positive numbers, except for a "loss." If required, enter a "loss" as a negative number on the tax form. If an amount box does not require an entry or the answer is zero, enter "0". If required, round your answers to the nearest dollar. On Schedule SE, use the rounded amounts in subsequent computations. Remember, the taxpayers make the election to include any child's interest and dividends on their tax return. Make realistic assumptions about any missing data (addresses, etc.) that you may need. The following is a list of the 13 forms and schedules that you will need to complete the tax return: Part 1 Part 2 Part 3 Part 4 Form 1040 Schedule C Schedule E Form 8962 Schedule 1 Schedule D Form 8812 Shared Responsibility Payment Worksheet Schedule 4 Schedule SE Child Tax Credit Worksheet Flat Dollar Amount Worksheet Schedule 5 Form 8949 Schedule A Qualified Dividends and Capital Gain Tax Worksheet Schedule B