Janice Morgan, age 24, is single and has no dependents. Janice works as an employee from Worldwide Publishing and also as a freelance writer. In January 2018, Janice opened her own office located at 2751 Waldham Road, Pleasant Hill, NM 88135. She called her freelance writing business Writers Anonymous. Both Writers Anonymous and Janice operate on the cash basis. She lives at 132 Stone Avenue, Pleasant Hill, NM 88135. Her Social Security number is 123-45- 6789. During 2018, Janice reported the following income and expense items connected with her business Writers Anonymous (a sole proprietorship):

Income from sale of articles Rent

Utilities

Supplies

Insurance

Travel (assume fully deductible)

Meals (client meetings)

Meals (Used by Janice while on business travel) Country Club (Used to entertain clients)

Client entertainment expenses

Janice has the following personal items:

Wages from Worldwide Publishing

Interest from checking account from First Bank Home mortgage interest paid to First Bank

75,000 23,500 7,900 1,800 5,000 2,300 600 600 4,000 1,000

$110,000 4,000 10,000

(Secured by principal residence, acquisition debt) Home Equity Line of Credit 3,000

(Secured by principal residence, used to pay off credit cards)

Property taxes on personal residence Charitable contributions

Federal income tax withholding State income tax withheld

4,000 10,700 27,000

8,500

During the year, Janice invested $15,000 (tax basis and at-risk basis) into XYZ limited partnership (a passive investment). Her share of the limited partnership income for the year was $6,000, and Janice received a $8,000 distribution from XYZ limited partnership.

During the year, Janice also invested $4,000 (tax basis and at-risk basis) into ABC limited partnership (a passive investment). Her share of the limited partnership loss for the year was $6,000, and Janice received a $1,000 distribution from ABC limited partnership.

Prepare the 2018 Federal income tax return for Janice Morgan. You may work in groups no larger than 3 (i.e. 1, 2, or 3). Submit one tax return per group.

Please submit the following forms:

(1) Cover page with student names (2) 1040, (3) Schedule 1, (4) Schedule 4, (5) Schedule A, (6) Schedule C page 1, (7) calculation/explanation of the taxable portion from the limited partnerships (must include loss carryforwards as well as their classification (passive vs. at-risk)), (8) calculation of self-employment tax, (9) calculation of tax.

Normally, this tax return would require additional forms (Schedule B, Schedule E, Schedule SE, Etc.). However, I do not require them. Instead, the required calculations/explanations will be sufficient.

Schedule 1 Hints:

1. 1)The Net income from the Schedule C (Writers Anonymous) will go on line 12
2. 2)Line 17 will include the net income/loss from the limited partnerships. These are NOT
3. subject to Self-Employment tax.
4. 3)There should be something in line 27

Other Hints:

1. 4)Schedule 4, line 57 is for the self-employment tax. SE tax is separate from and in addition
2. to the tax calculated on form 1040 line 11.
3. 5)The taxpayer has a refund.
4. 6)The FICA cap for 2018 is 128,400, not 132,900
5. 7)Assume that Janice has adequate health insurance.
6. 8)Do not forget the Deduction for Qualified Business Income (new in 2018), line 9 form
7. 1040. Assume Janice qualifies for this deduction. In Chapter 15, we can discuss the rules in more detail. Assume that the QBI is a deduction equal to 20% of Qualified Income. This deduction will go on 1040 line 9. Qualified income includes the net total of Schedule 1 line 12, 17, and 27. That is line 12 + line 17 - line 27.