Individual Return (Linda and Kyle Smith)

Linda and Kyle Smith are married taxpayers who file a joint return. Their social security numbers are 123-45-6789 and 111-11-1111, respectively. Lindas birthday is September 21, 1976, and Kyles is June 27, 1966. They live at 473 Revere Avenue, Lowell, MA 01850. Linda is the office manager for Lowell Dental Clinic. Kyle is the self-employed physical therapist. The following information is shown on Lindas Wage and Tax Statement (Form W-2) for the tax year Line Description Linda

1. Wage, tips, other compensation $58,000

2. Federal income tax withheld 6,960

4. Social security tax withheld 3,596

6. Medicare tax withheld 841

17. State income tax withheld 2,610

During the year, Kyle recorded the following items of his business:

Revenue from patient visits $270,000

Property tax on the office 4,500

Mortgage interest on the office 12,000

Depreciation on the office 5,500

Malpractice insurance 37,500

Utilities paid for the office 13,750

Office staff salaries 51,000

Rent payments on equipment 15,000

health insurance premium paid for himself 2,500

health insurance premium paid for his employees 5,000

Kyle made the estimate Federal income tax payment totaled $50,000. He also made the estimate state income tax payment of $3,500 during the tax year.

The Smiths provide over half of the support of their two children, Abby (born January 25, 1993, Social security number 123-45-6788) and Michael (born February 7, 1999, Social Security number 123-45-6786). Both children are full-time students and live with the Smiths except when they are away at college. Abby earned $4,200 from a summer internship, and Michael earned $3,800 from a part-time job.

The Smiths furnished 60% of the total support of Kyles widower father, Paul Smith (born March 6, 1938, social security number 123-45-6777). Paul died in November 2017, and Kyle, the beneficiary of a policy on Pauls life, received life insurance proceeds of $800, 000 on January 28, 2018.

The Smiths also made some investment activities. The following information is shown their investment income / (loss): Dividend income (qualified dividend) from investing in Apple Inc. $200

A gain from selling Netflix stock (hold for 7 months) 5,000

A loss from selling Bank of America stock (hold for 15 months) (1,500)

An non-business bad debt (hint: tax treatment as short-term capital loss) (2,000)

The Smiths had the following expenses relating to their personal residence during the tax year

Property Taxes $5,000

Qualified interest on home mortgage $8,800

Unreimbursed Medical expenses paid: Medical expenses paid for two children Doctor bill for Paul Operation for Paul Hospital expense for Paul

$4,500 7,600 8,500 3,500

Interest payment on car loan 1,500

Utilities 4,100

Union dues paid by Linda 600

Lindas work uniform expenses 450

Prepare the Federal income tax return of 2018 for the Smiths. You will include Form 1040, Schedule 1, Schedule C, and Schedule A, Schedule SE (page1)

The following important learning objectives are covered in this tax return project: Determine gross income (e.g. life insurance proceeds) Calculate Business income (using Schedule C) Determine qualifying child and qualifying relative Determine self-employment tax Determine the amount of itemized deductions (e.g. medical expenses) Capital gain/loss Calculate taxes

Checking numbers: Kyles net business income (Sch. C) $125750 Their taxable income $119071 Your answers maybe different by one or two dollars due to rounding.