John Sullivan is age 62. He lives at 15 North Tustin Ranch Road Tustin, CA 92782 (which was sold see below). His Social Security number is 122-55-1112. John was divorced to his first wife in 2015. He pays $20,000 annually of alimony to his ex-wife Elizabeth (Social Security Number 555-55-7566). He married his new wife Ann (Social Security Number 213-310-1222 in 2017. Ann does not work. John owns Sullivan Machinery LLC, a single-member limited liability company and manufacturers cabinets for which he uses the cash method of accounting and maintains no inventory. His revenues and expenses are:

During the year, John also had the following transactions:

Sold Blue, Inc. stock for $30,000 on March 12, 2018. He had purchased the stock on September 5, 2015, for $50,000.

Received an inheritance of $250,000 from his uncle and life insurance of $100,000, Henry. John used $250,000 to purchase Green, Inc. stock on May 15, 2018, and invested $100,000 in Gold, Inc. stock on May 30, 2018.

Received Orange, Inc. stock worth $20,000 as a gift from his aunt, Jane, on June 17, 2017. Her adjusted basis for the stock was $10,000. No gift taxes were paid on the transfer. Jane had purchased the stock on April 1, 2012. John sold the stock on July 1, 2018, for $22,000.

On July 15, 2018, John sold one-half of the Green, Inc. stock for $80,000.

John was notified on August 1, 2018, that Yellow, Inc. stock he purchased from Yellow, Inc. as their first investor on September 1, 2017, for $150,000 had become worthless. While he perceived that the investment was risky, he did not anticipate that the corporation would declare bankruptcy.

On August 15, 2018, John received a parcel of land in Phoenix worth $230,000 in exchange for a parcel of land he owned in Tucson. Because the Tucson parcel was worth $245,000, he also received $15,000 cash. Johns adjusted basis for the Tucson parcel was $180,000. He originally purchased it on September 18, 2013.

On December 31, 2018, John sold the condominium in which he had been living for the past 15 years (In Tustin). He will move into another home in 2019. The sales price was $1,000,000, selling expenses were $100,000 (including commissions). John purchased the condominium for $290,000.

Assume John contributes to a SEP IRA. You need to consult with John and let him know how much he can contribute to his SEP IRA assuming he files his return by April 15, 2019. Include the maximum eligible amount he can contribute to the SEP IRA in his return based on his income from his business.

Johns broker advised him to invest $50,000 on January 1, 2018. Johns Share of the Ordinary Loss for 2018 from We Drill Oil LLC per his K-1 (taxed as a partnership for tax purposes) was $55,000.

During the year, John makes estimated Federal income tax payments totaling $100,000 equally on the quarterly due dates. Compute Johns lowest net tax payable or refund due for 2018 assuming that he makes any available elections. Prepare the tax forms for your computations, you will need Forms 1040, 4562, 8824, and 8949 and Schedules A, B, C, D, E and SE and any other forms that are necessary to prepare a complete and accurate tax return. Document all your assumptions of why you treated each item in the problem as taxable, non-taxable, deductible or nondeductible. Also, you need to analyze the results of 2018 and his impact because of tax reform.

Sales revenue $1,100,000 Cost of goods sold (based on purchases for the year) 475,000 Salary and Wage expense 175,000 Rent expense 45,000 Utilities 10,000 Telephone 6,700 Advertising 3,000 Entertainment 5,500 Contributions to State Senate's Campaign 5,000 Meals 15,000 Depreciation (1) 35,000 Health insurance (2) 45,000 Accounting and legal fees (3) 40,000 Business Insurance 25,000 (1) Assume Section 179 was taken for this new equipment. (2) $25,000 for employees and $20,000 for John Ann. (3) Includes $10,000 related to the purchase of another machinery company and $15,000 to expand into the steel business that was not successful. 7,500 Other income for John includes the following Dividend income: Ford, Inc. Held for 45 days $15,000 Global, Inc. Held for 2 years Interest income: First National Bank 11,000 Second City Bank 2,500 City of Tustin bonds 25,000 Treasury Bills 15,000 John's potential itemized deductions, exclusive of the aforementioned information, are as follows: Medical expenses $15,500 Property taxes on residence and other properties 8,800 State income taxes (estimated tax payments) 25,000 Charitable contributions (Cash) 15,000 Mortgage interest on residence sold (First National) 12,900 Tax Preparation Fees (time incurred by the CPA was 10,000 80% related to his business) Sales taxes paid 5,000 Loss related to a Burglary (uninsured portion) 15,000 Sales revenue $1,100,000 Cost of goods sold (based on purchases for the year) 475,000 Salary and Wage expense 175,000 Rent expense 45,000 Utilities 10,000 Telephone 6,700 Advertising 3,000 Entertainment 5,500 Contributions to State Senate's Campaign 5,000 Meals 15,000 Depreciation (1) 35,000 Health insurance (2) 45,000 Accounting and legal fees (3) 40,000 Business Insurance 25,000 (1) Assume Section 179 was taken for this new equipment. (2) $25,000 for employees and $20,000 for John Ann. (3) Includes $10,000 related to the purchase of another machinery company and $15,000 to expand into the steel business that was not successful. 7,500 Other income for John includes the following Dividend income: Ford, Inc. Held for 45 days $15,000 Global, Inc. Held for 2 years Interest income: First National Bank 11,000 Second City Bank 2,500 City of Tustin bonds 25,000 Treasury Bills 15,000 John's potential itemized deductions, exclusive of the aforementioned information, are as follows: Medical expenses $15,500 Property taxes on residence and other properties 8,800 State income taxes (estimated tax payments) 25,000 Charitable contributions (Cash) 15,000 Mortgage interest on residence sold (First National) 12,900 Tax Preparation Fees (time incurred by the CPA was 10,000 80% related to his business) Sales taxes paid 5,000 Loss related to a Burglary (uninsured portion) 15,000