Jason R. and Jenni L. Dane are married and live at 55 Smith Road, Cleveland, OH 44134. Jason is a self-employed insurance claims adjuster (business activity code 524290), and Jenni is the dietitian for the local school district. They choose to file a joint tax return. 1. Jason represents several national casualty insurance companies on a contract basis. He operates this business on the cash basis. He is paid a retainer and receives additional compensation if the claims he processes for the year exceed a specified number. As an independent contractor, he is responsible for whatever expenses he incurs. Jason works out of an office near his home. The office is located at 100 Front Street. Jasons 2018 expenses are detailed below: Office rent $11,600 Utilities (includes telephone and fax) 4,300 Replacement of waiting room furniture on April 22 3,600 Renters insurance 1,400 Office expense (supplies, postage) 740 New Toshiba copier on February 7 300 Waiting room coffee service (catered) 280 Waiting room magazine subscriptions 90 For business use, Jason purchased a $2,100 laptop computer on June 17 and a $1,200 Nikon camera on February 5. Jason uses the 179 write-off option whenever possible. Jason has no expenditures for which he is required to file Form 1099s. On January 2, 2018, Jason paid $31,000 (including sales tax) to purchase a gently used Toyota Camry that he uses 92% of the time for business. No trade-in was involved, and he did not claim any 179 expensing. Jason will use the standard mileage cost method to compute his tax deduction. His expenses relating to the Camry for 2018 are as follows: Gasoline $3,500 Auto insurance 1,700 Interest on car loan 820 Auto club dues 325 Oil changes and lubrication 210 License and registration 190 In connection with his business use of the Camry, Jason paid $510 for tolls and $350 in fines for traffic violations. In 2018, Jason drove the Camry 14,532 miles for business and 1,248 miles for personal use (which includes his daily, round-trip commute to work). Jason handles most claim applications locally, but on occasion he must travel out of town. Expenses in connection with these business trips during 2018 were $930 for lodging and $1,140 for meals. He also paid $610 for business dinners he had with several visiting executives of insurance companies with whom he does business. Jasons other business-related expenses for 2018 are listed below. Contribution to H.R. 10 (Keogh) retirement plan $8,000 Premiums on medical insurance covering self and family 4,600 Premiums on disability insurance policy 2,400 State and local occupation fee 450 Birthday gift for receptionist ($25 box of Godiva chocolates plus $3 for gift-wrap) Every year around Christmas, Jason receives cards from various car repair facilities (including dealerships), expressing thanks for the business referrals and enclosing cash. Jason has no arrangement, contractual or otherwise, that requires any compensation for the referrals he makes. Concerned about the legality of such gifts, Jason consulted an attorney about the matter a few years ago. Without passing judgment on the status of the payors, the attorney found that Jasons acceptance of the payments does not violate state or local laws. Jason sincerely believes that the payments he receives have no effect on the referrals he makes. During December 2018, Jason received cards containing $7,200. One additional card containing $900 was delayed in the mail and was not received by Jason until January 4, 2019. Payments to Jason for services rendered (as reported on Forms 1099MISC issued by several payor insurance companies) pursuant to contractual arrangement $84,800. 2. Jenni earns $32,000 working as a registered dietician for the Berea Public School District. The job she holds, manager of the school lunch program, is not classified as full time. Consequently, she is not eligible to participate in the teacher retirement or health insurance programs. Jennis expenses for 2018 are summarized as follows: Contribution to traditional IRA $5,500 Job hunting expense 720 Continuing education program 350 Membership dues to the National Association of Dietitians 120 Subscription to Nutrition Today 90 Jenni drove the family Chevrolet Malibu 930 miles on job-related use and 5,200 miles in commuting to work, out of a total of 8,670 miles driven for the year. The Form W2 Jenni receives from her employer reflects wages of $32,000. Appropriate amounts for Social Security and Medicare taxes were deducted. Income tax withholdings were $1,320 for Federal and $1,056 for state. 3. The Danes have supported Jesse Voss (Jennis widowed father) for several years, appropriately claiming him as a dependent for tax purposes. On December 27, 2017, Jesse suffered a massive stroke and he died on January 8, 2018. In January and February of 2018, the Danes paid, on behalf of Jesse, medical expenses of $11,800 not covered by Medicare ($6,000 incurred in 2017 and $5,800 in 2018) and funeral expenses of $15,300. 4. In early December 2017, a friend advised Jason to buy stock in Pioneer Aviation Inc. (PAI). At that time, PAI was in serious financial straits and was headed toward bankruptcy. Nevertheless, according to Jasons friend, the value of the corporations underlying assets was such that the shareholders were bound to recover considerably more than the current market price of $.50 per share. Excited at the chance for a sure profit, on December 15, 2017, Jason purchased 20,000 shares for $10,000. In September 2018, the trustee in bankruptcy announced that the stock was worthless and that even some of PAIs preferred creditors would not be paid. On June 14, 2018, the Danes sold 500 shares of Garnet Corporation for $17,500 ($35 per share). They owned 1,000 shares, acquired as follows: 500 shares on November 5, 2017, for $25 a share and 700 shares on April 5, 2018, for $30 a share. The Danes did not instruct their broker as to which shares to sell, so Form 1099B for this sale reported a $12,500 basis for these shares. 5. One month before she died on April 14, 2008, Susan Voss (Jennis mother) gave Jenni a coin collection. Based on careful records that Susan kept, the collection had a cost basis of $9,000 and a fair market value of $18,000 at the time Susan passed away. On February 12, 2018, the Dane residence was burglarized and the coin collection was stolen. The Danes filed a claim with the carrier of their homeowners insurance policy for $24,000 (the current value of the collection). Unfortunately, they were only able to collect $10,000, which was the maximum payout allowed for valuables (e.g., jewelry, antiques) without a special rider attached to the insurance policy. In her will, Susan Voss left Jenni a vacant lot on Eastland Road. Susan had paid $15,000 for the property, and it had a value of $19,000 when she died. Susan had purchased the lot because it was adjacent to Baldwin Wallace University property and she expected the school to eventually expand the campus. By 2018, it has become clear that the University does not have the funds to expand the campus. Consequently, on July 1, 2018, Jenni sold the lot for $19,000. 6. In addition to those previously noted, the Daness receipts during 2018 are summarized below. Income tax refunds for tax year 2017: Federal $210 State of Ohio 90 Interest income (reported on separate Forms 1099INT): State of Ohio general-purpose bonds $1,400 General Electric corporate bonds 1,100 Certificate of deposit at PNC 900 Qualified dividends (reported on Form 1099DIV) 1,200 Proceeds from garage sale $9,200 Cash gifts from Jasons parents 24,000 Jasons state lottery winnings reported on Form W2G 1,000 Jason had gambling losses of 2,300 On June 7 and 8, 2018, the Danes held a garage sale to dispose of unwanted furniture, appliances, books, bicycles, clothes, and one boat (including trailer). The estimated basis of the items sold is $25,500. All assets were used by the Danes for personal purposes. 7. Payments made for 2018 expenditures not mentioned elsewhere are as follows: Medical Copayment portion of medical expenses $1,300 Dental (orthodontist) 1,200 Taxes: State income tax 3,456 State sales taxes 1,120 Property taxes on personal residence 3,800 Interest on home mortgage reported on Form 1098 4,200 Charitable contributions 3,600 The Daness medical insurance does not cover dental services. The Danes pledge contributions of $1,200 per year to their church, Berea Community Church. In 2018, they paid the pledges for 2017 through 2019. During 2018, the Danes drove 270 miles for medical purposes (e.g., trips to the hospital, doctor and dentist offices) and 320 miles delivering meals to the poor for Meals-on-Wheels, a qualified charity. 8. The Danes have two sons who live with them: Ethan and Isaac. Both are full-time students. Ethan is an accomplished singer and earned $4,200 during the year performing at special events (e.g., weddings, anniversaries, civic functions). Ethan deposits his earnings in a savings account intended to help cover future college expenses. Ethan is a freshman at Baldwin Wallace University majoring in accounting and seems to really enjoy taxation more than audit! Isaac does not have a job. 9. The Danes made quarterly tax payments of $1,900 for Federal and $600 for state on each of the following dates: April 10, 2018; June 11, 2018; September 10, 2018; and December 28, 2018. None of the Danes hold any foreign financial accounts. Relevant Social Security numbers are noted below. Name Social Security Number Birth Date Jason R. Dane 111-11-1111 06/06/1976 Jenni L. Dane 123-45-6781 08/14/1977 Jesse S. Voss 123-45-6784 03/12/1938 Ethan T. Dane 123-45-6788 09/13/1999 Isaac S. Dane 123-45-6789 07/20/2003 Requirements: Prepare an income tax return (with all appropriate forms and schedules) for the Danes for 2018 following these guidelines: Make any necessary assumptions for information not given in the problem but needed to complete the return. The taxpayers are preparing their own return (i.e., no preparer is involved). The taxpayers have substantiation (e.g., records, receipts) to support all transactions for the year. If any refund is due, the Danes want a refund check sent to them by mail. The Danes had itemized deductions from AGI for 2017 of $16,700, of which $1,500 was for state and local income taxes. The Danes do not want to contribute to the Presidential Election Campaign Fund.