Janice and Richard Morgan are married and have no dependents (MFJ). Janice works as anemployee from Worldwide
Question:
Janice and Richard Morgan are married and have no dependents (MFJ). Janice works as anemployee from Worldwide Publishing and also as a freelance writer. She called her freelancewriting business "Writers Anonymous" (self employed). Richard is an employee, earning a W-2wage. 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 flyfishing 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, andJanice received a $5,000 distribution from ABC limited partnership. Hint #3During 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 IRAaccounts. Janice's employer, Worldwide Publishing, offers a 401k that Janice contributesto. Richard's 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 Morgan's donated $7,000 to charitable organizations. How much did this deductiondecrease their taxable income? How much money did this save them?
Prepare the 2022 Federal income tax return for Janice and Richard. You may work ingroups no larger than 4 (i.e. 1, 2, 3, or 4). Only submit one project per group. It is required thatyou submit both the (1) tax return and a (2) brief explanation for each line item on the return
Income Tax Fundamentals 2021
ISBN: 9780357141366
39th Edition
Authors: Gerald E. Whittenburg, Martha Altus-Buller, Steven Gill