JTax Return #2 Jonathan Martin Use the following information to complete Jonathan Martins 2019 federal income tax return. If information is missing, use reasonable assumptions to fill in the gaps. You might need the following forms and schedules in addition to form 1040 to complete the assignment: Schedule 1 (other income and deductions), Schedule 2 (other taxes such as SE Tax), possibly Schedule A (for itemized deductions), Schedule B (interest and dividend income), Schedule C (for business income and deductions), Schedule SE (if there is net self-employment income) and Form 8995 (if you have Qualified Income Business Deduction). The forms, schedules, and instructions are available in the Blackboard course under instructor resources or at the IRS Web site (www.irs.gov). The instructions for the forms are very helpful and can be downloaded from the IRS website. Jonathan Martin was married, however, his wife Jackie passed away in 2017. They have two children (twins), Jill and Johnny. Jonathan worked as the General Manager at Hilton Hotel in Las Cruces, NM earning a salary of $89,800. He also did some accounting/bookkeeping work on the side and reported revenues of $14,800. Jonathan received $1,800 in qualified dividends from Chase Investments and $3,200 ordinary dividends from Zion Records. He also received $1,880 interest income from LC Credit Union. He also received a $552 refund of his New Mexico 2018 state income taxes. Jonathan itemized his deductions in the prior year and his itemized deductions were over the standard deduction amount last year by $800. Jonathan won $3,250 in gambling pools at work for college basketball. Lastly, he received $10,000 from his wifes life insurance policy that paid out in 2019. DO NOT prepare any state income tax returns The Martins live at 2301 Tears Trail Circle Santa Teresa, NM 88008 Jonathans birthday is 11/23/1982 and his Social Security number is 575-22-5546 Jills birthday is 10/30/2009 and her Social Security number is 577-53-9888 Johnnys birthday is 10/30/2009 and his Social Security number is 577-54-1572 The Martins do not have any foreign bank accounts or trusts Jonathan did file forms 1099 (contract labor) for his consulting services as required and he uses the cash method of accounting for his business The Martins had health insurance coverage all year provided by Hilton Hotel The Martins want you to determine the best filing status for their family Determine if the Martins get the child tax credit The qualified business income deduction available to the Martins is $608 The Martins reported the following activities and payments during the year

2019 Activity Jonathans W2 Information: Salary $ 89,800 Federal income tax withheld 8,350 State income tax withheld 2,940 Social Security tax withheld 5,568 Medicare tax withheld 1,302. Business Activity Jonathans Bookkeeping Income $ 14,800 Business office expense 1,902 Contract labor expense 4,000 Business insurance expense 2,681 Airfare to fly to business conference 1,100 Car rental fee at conference 338 Business meals expense 640 Hotel Expenses for business conference 1,190 Reimbursement for employee business expenses (security badges and parking decals) he paid out of pocket. He was required to provide documentation for his expenses to his employer $ 370 Gambling losses for the year 4000 Real estate taxes paid on residence 5,240 Home mortgage interest paid 9,817 (original loan $450,000 in 2013, outstanding balance of $395,000) Home- equity loan interest paid 2,980 Jonathan used the home equity loan to pay for his trip to Las Vegas to gamble. Interest was paid to LFCU (outstanding balance of $55,000) Cash contributions to St Matthews church (Jonathan has receipts) 2,950 Donation of used furniture to Goodwill, 1233 S. Good St, Las Cruces, NM 88002. The furniture had a fair market value of $210 and was purchased for $1,993, on 6/11/2013 Medical expenses 786

A few tips for Tax Return 2

1. Only wages from Form W2 goes in Line 1 of Form 1040 - only the wages from a job go on this line . Do not add any other income to this line accept wages. Other sources of income are reported on Schedule 1.

2. Schedule B - Dividends section, both qualified and non qualified dividends get listed here - so be sure to list ALL dividends. Then on Form 1040 in box 3a - only list the qualified dividends. In box 2b - all dividends (qualified and non qualified go here).

3. Schedule C - You need to look up at IRS.GOV or on-line what the business code is for Accounting Services (Bookkeeping). You should find the 6 digit business code. Also, you need to check the box if they are cash or accrual accounting method (It is stated in facts of your client), also you need to answer the questions if he materially participated (yes) and if he was required to file form 1099 (you were told in the facts of your client) and if they did - yes or no. Also, be careful with the meals - you are only allowed to take a certain percentage of meals - you may need to look that up. Once you have your net income from schedule C - you need to enter that amount on Schedule 1, line 3 Business Income.

4. If you have business income (Schedule C line 31) you will need to file a Schedule SE. The form will tell you how those numbers are reported on Form 1040, Schedule 1 (line 14) and Schedule 2 (line 4). Also, look back to see how I demonstrated computing taxes at different tax rates (line 12a of Form 1040). You will need to compute tax the way I demonstrated because there are two different tax rates used. There is a preferred rate (0, 15 or 20%) for the qualified dividends and the rest of the income is taxed at the ordinary rates (tax rate schedule). You will need to know how to do this for the next exam, so spend some time familiarizing yourself with what items are taxed at a preferred rate (qualified dividends and LT capital gains) and how this is computed.

5. HINT: You will need to include Form 8995. As a check number, the amount that goes on line 2 is $3,038. This number is the net income from your Schedule C less the deductible part of Self Employment taxes (Line 6 from Schedule SE or Line 14 from Schedule 1). If you use this number, then your Qualified Business Income Deduction (QBI) should be the amount given to you in the problem ($608).