Instruction:

Complete the 2018 federal income tax return for Joseph and Diana Green. In preparing

the return, you will need to use schedule A, B, C, D, E and SE form 1040, 2441, 4562, 8582,

8812, 8863, 8949 and other forms if necessary. You have two options: 1) You may use 1040 and

other necessary forms for 2018 available at the IRS website. I did not cover the new 1040 and

forms in class but feel free to use them if you want. 2) you may use 1040 and forms for 2017 but

use the 2018 numbers and rates (e.g., standard deduction, etc.) for calculations. In this case,

replace Exemptions with QBI deduction under line 42 of Form 1040

. For the schedule

A, you may ignore the miscellaneous itemized deductions subject to 2% AGI. Ignore the

requirement to attach the form(s) W-2 to the front page of the Form 1040. If required

information is missing, use reasonable assumptions to fill in the gaps.

You must submit a hard copy of the completed tax return on the due date in class. You

may turn in your group project before the due date if you want. Write your names on a cover

page along with your group number. Tax forms should be assembled in the correct order and

bound by a single staple (no folders). You may include supporting evidence to your calculations.

Each student must submit a group evaluation form to a Peer Evaluation folder in

Dropbox on Beachboard. This form is to be completed on an individual basis. Do not show your

form to your group members. Please complete the form before the final. Your group project

grade may be adjusted based the input received from your group members.

Graded projects will not be returned, but you are welcome to review them during office hours or

by appointment.

Note:

You may download the tax forms from the IRS website and prepare the tax return

manually - Both new and old forms are available. You may use the instructions for the tax forms

from the IRS website. Or you may use a tax software to complete the group project. You can

download TaxAct tax software from Connect. If you prefer using other tax software, that is

fine with me.

Family Information:

Husband

Joseph Green

SSN 598-94-2583

Birthday: 8/21/1964

Wife

Diana Green

SSN 301-52-2942

Birthday: 4/15/1966

Home address

85 North Maple Drive, Long Beach, CA 90231

Son

Alan Green

SSN 614-42-5871

Birthday: 2/08/1998

Daughter

Mary Green

SSN 658-98-7480

Birthday: 6/13/2011

Mother-in-law

Ella Morris

SSN 289-35-4984

Birthday: 9/28/1937

Facts:

1.

Diana Green earned gross wages of $95,000 from Apple Corp. Her 2018 Form W-2

shows that $11,400 has been withheld from her paycheck for payment of federal income

taxes.

2.

Joseph Green also received Social Security benefits of $28,000 in 2018.

3.

Joseph Green owns a used bookstore in Long Beach called Story Books. It is a sole

proprietorship located at 155 Main Street, Long Beach, CA 90532. Its income and

associated expenses for the year ending December 31, 2018, are the following:

Gross Income

$ 405,000

Less: Cost of Goods Sold

(212,000)

Gross Profit

193,000

Automobile Expense

(5,123)

Depreciation Expense

(21,484)

Office Expense

(10,860)

Supplies Expense

(9,672)

Payroll tax Expense

(14,566)

Meals Expense

(4,000)

Entertainment Expense

(6,000)

Utilities Expense

(4,112)

Salaries and Wages Expense

(98,000)

Property tax Expense

(3,198)

Total Expense

(165,015)

Net Income/(Loss)

$ 27,985

On January 1, 2018, Story Books purchased a new delivery van for $60,000. The vans

weight does not exceed 6,000 pounds. It elected to take a bonus depreciation on the new

delivery van. On January 1, 2017, it purchased bookcases (7-year property) for $18,000,

and sofas (5-year property) for $8,000. In 2017, bonus depreciation of $9,000 and $4,000

were taken on the bookcases and furniture, respectively. It elected to use MACRS (half-

year convention), which results in $2,204 and $1,280 depreciation expenses for the

bookcases and sofas, respectively, in 2018.

4.

Interest income consists of the following:

Citibank

$ 800

US Bank

$ 120

Wells Forgo

205

5.

Dividend income consists of the following:

CFD Etrade

$ 10,100

LUCKY

$ 4,000

(Qualified, $8,500)

(Qualified, $850)

6.

Diana Green is previously divorced (in 2010) from Lef Doel (SSN 453-87-5402), and she

had one child with him. In 2018, she made alimony payments totaling $16,000 to him

along with child support payments of $8,000. She does not claim this child as a

dependent.

7.

The Greens own a house at 543 Light Avenue, Long Beach, CA, 91242. They purchased

this house on January 1, 2010, for $250,000. 75% of the purchase price was related to the

building, and the remaining 25% was related to the land. Starting from January 1, 2013,

they have converted it to a rental property and rented it to Sam Donald (so that Sam

Donald could open his antique store). In 2018, its rental report showed the following:

Rental Income

$ 20,000

Interest expense (mortgage)

(6,200)

Repair expense

(700)

Property tax expense

(1,850)

Utilities Expense

(750)

Depreciation Expense

(7,500)

Total Expense

(16,900)

Net Income/(Loss)

$ 3,100

8.

The Greens also had invested in several flow-through entities (they have not actively

participated in the activities). In 2018, the results from these flow-through entities were

as follows:

Socal Brewers (Partnership)

$ 5,000

Rolling Sushi (S-corp)

($ 6,200)

9.

In 2016, Joseph Green purchased an annuity from MyLife for $99,000. Monthly

payments of $1,100 on the annuity started on July 1, 2018 and will continue for a total of

15 years.

10.

On October 1, 2012, the Greens bought land for $25,000 and built a new house as their

primary personal residence for $100,000. They paid cash. It is located at 873 Red Horse

Ridge, Long Beach, CA 92842. They sold it on June 30, 2018 for $500,000 and incurred

selling costs of $3,000 and commissions of $25,000.

11.

Joseph Green made the following stock sales:

Shares/Stock name

Purchase Date

Sale Date

Sales Price

Purchase Price

150 shares of Ford Co.

3/25/2018

7/05/2018

$4,000

1,000

300 shares of HP Co.

5/12/2014

9/25/2018

$8,000

4,000

100 shares of Starbucks

8/30/2011

10/13/2018

$5,000

4,000

500 shares of Walmart

6/11/2018

11/30/2018

$3,000

5,000

12.

The Greens purchased a vacation condominium at 671 Snowwhite, Aspen, Colorado

82433, on April 1, 2017 for $550,000, borrowing $200,000 with a mortgage. They used it

personally except for from May 1, 2018 to October 31, 2018, when they rented it out.

They reported the following (Note that the expenses are not prorated):

Rental Income

$ 46,000

Interest expense (mortgage)

(9,500)

Repair expense

(800)

Property tax expense

(5,300)

Utilities Expense

(700)

Homeowners Association dues

(3,600)

Depreciation Expense

(10,400)

Total Expense

(30,300)

Net Income/(Loss)

$ 15,700

13.

In 2018, Diana Green made an IRA contribution of $5,500

14.

Medical expenses for the family in 2018 were as follows:

Doctors

$ 10,000

X-lays

$ 650

Dentists

1,200

Glasses/Contact lenses

700

15.

Taxes paid in 2018 (in addition to any other taxes discussed previously) were as follows:

State income taxes

$ 5,200

Property taxes

$ 4,700

Automobile license fees

(based on its value)

1,900

16.

Mortgage interest paid in 2018 (in addition to any other mortgage interest discussed

previously was $21,900 on their personal residence. Assume total outstanding principal

on all mortgages does not exceed 750,000.

17.

Cash charitable contributions made in 2018 were as follows:

UNICEF

$ 4,800

Red Cross

$ 1,200

18.

The Greens incurred child care expenses for Mary Green of $14,000 in 2018 in order for

them to work. These expenses were paid to Sherry Du (SSN: 482-93-0923), who lives at

4532, main Street, Long Beach, CA 90223.

19.

Alan Green is a full-time college student as a second-year student. He was studying at

Boston University in the United States, He earned no income while he was studying. The

Greens paid his tuition of $35,000 for 2018.

20.

Ella Morris qualifies and is claimed as a dependent of the Greens.

21.

The Greens made an estimated tax payment in the amount of 15,000 for the year. This

amount reflects all four quarters estimated tax payment.