John and Ellen Brite are married and file a joint return. They have no dependents. John owns and operates an unincorporated specialty electrical lighting retail store, Brite-On. Brite-On had the following assets on January 1, 2018:

Old Store building (acquired 4/1/2003) $100,000

Equipment (7 year, acquired 1/10/2013) $30,000

Inventory (FIFO method, 4,000 light bulbs @ $5/bulb)

Also, Brite-On purchased a competitors store on March 1, 2018, for $206,000. The purchase price included the following:

New Store Building $115,000 (FMV)

Land $28,000 (FMV)

Equipment (7 year) $45,000 (FMV)

Inventory (3,000 light bulbs @ $6 per bulb (cost)

On June 30, 2018, Brite-On sold the equipment acquired on 1/10/2013 for $12,000. Brite-On leased equipment for $500 per month beginning on January 1, 2018.

Brite-On leased a car for 860/month on june 1st, 2018. The car is used 100% for business and was driven 14000 miles during the year.

Brite-on sold 8,000 light bulbs at a price of $15/bulb during the year. Also, Brite-On made additional purchases of 4,000 light bulbs in August, 2018, at a cost of $7/bulb.

Brite-On had the following revenues, in addition to the light bulb sales, and expenses:

Service Revenues $94,000

Interest Expense on business loan $ 6,000

Auto Expense (gas, oil, etc.) $ 4,800

Taxes and licenses $ 3,300

Utilities $ 2,800

Salaries $36,000

The Brites also had the following personal expenses:

Medical Bills $4,500

Real Property Taxes $ 3,800

State Income Taxes $ 5,100

Home Mortgage Interest $5,000

Charitable contributions to

public charities (cash) $ 2,600

Ellen receives $42000 in wages from employment elsewhere, from which $3900 were withheld. The Brites received interest income on a bank savings account of $275 and qualified dividends of $1425. John and Ellen made four $3,900 quarterly estimated tax payments. For self-employment tax purposes, assume John spent 100% of his time at the store while Ellen spends no time at the store.

Additional facts:

-Equipment acquired in 2013: the Brites elected out of bonus depreciation and did not elect Sec. 179 -Equipment acquired in 2018: the Brites elected Sec. 179 to expense the cost of the 5-year equipment but elected out of bonus depreciation -Lease inclusion rules require that Brite-On reduces its deductible lease expense by $41

Required: Prepare their 2018 Form 1040 (and appropriate schedules/forms). Using United States tax law