Janice and Richard Morgan are married and have no dependents (MFJ). Janice works as an employee from Worldwide Publishing and also as a freelance writer. She called her freelance writing business Writers Anonymous (self employed). Richard is an employee, earning a W-2 wage. They live at 132 Stone Avenue, Pleasant Hill, NM 88135

Self Employed Information (Schedule C): Income from sale of articles 69,500 Rent 15,000 Utilities 8,000 Supplies 1,800 Insurance (business liability insurance) 4,500 Travel (assume fully deductible) 1,100 Meals (while on business travel) 600 Meals (while meeting with clients) 600 Country Club (Used to entertain clients) 4,000 Client entertainment expenses 1,000 Personal items: Wages (Janice) $130,000 Wages (Richard) 35,000 Interest from checking account from First Bank 1,545 Home mortgage interest paid to First Bank 10,700 (Secured by principal residence, acquisition debt) (Mortgage origination date is 06/15/2019) Home Equity Line of Credit 3,000 (Secured by principal residence, used to pay off credit cards) Property taxes on personal residence 5,000 Charitable contributions (cash contributions) 7,000 Federal income tax withholding 30,000 State income tax withheld 12,500 Richard Morgan is an employee working for a local company. In his spare time he started a fly fishing business (deemed a hobby). Richard sells fly tying materials, as well as unique fly hooks. He often travels to various fishing locations to test his flies (i.e., fishing hooks). Richard had $16,000 in sales, and $10,000 in direct costs of goods sold. That is, $6,000 in gross income. Additionally, Richard had $17,000 in travel related expenses.

During the year, Janice invested $2,000 (tax basis and at-risk basis) into ABC limited partnership (a passive investment). Her share of the limited partnership income for the year was $6,000, and Janice received a $5,000 distribution from ABC limited partnership. Hint #3 During the year, Janice invested $5,500 (tax basis and at-risk basis) into DEF limited partnership (a passive investment). Her share of the limited partnership loss for the year was $6,500, and Janice received a $3,000 distribution from DEF limited partnership. Hint #3 Additionally, Janice had: (1) Both Janice and Richard made a $6,000 contribution each to their traditional IRA accounts. Janices employer, Worldwide publishing, offers a 401k that Janice contributes to. Richards employer does not offer a 401k. (2) Sale of LMN publicly traded stock on 8/15/2022 for $7,000 (originally purchased for $4,000 on 1/15/2018) (3) Sale of QRS publicly traded stock on 10/15/2022 for $2,000 (originally purchased for $9,000 on 12/15/2021) (4) Sale of TUV publicly traded stock on 4/15/2022 for $3,500 (originally purchased for $5,500 on 7/15/2021) (5) What is the average Self Employment Tax rate on this tax return? Is it a reasonable rate, given that it is below the 15.3% nominal rate? Explain why or why not a. Average rate = SE tax (from Schedule 2) divided by Schedule C net income (6) The Morgans donated $7,000 to charitable organizations. How much did this deduction decrease their taxable income? How much money did this save them? Prepare the 2022 Federal income tax return for Janice and Richard. You may work in groups no larger than 4 (i.e. 1, 2, 3, or 4). Only submit one project per group. It is required that you submit both the (1) tax return and a (2) brief explanation for each line item on the return. Please submit the following forms: (2) 1040, (3) Schedule 1, (4) Schedule 2, (5) Schedule A (even if not needed), (6) Schedule C page 1, (7) explanation (including calculations) for each line item with a calculation. This explanation must include ending basis and suspended losses (if any) for limited partnerships. Normally, this tax return would require additional forms including schedule B, D, E, SE and form 4797, and 6198, etc. However, I do not require them. Instead, the required calculations/explanations will be sufficient.