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INCOME TAX RETURN PROBLEM

Jacqueline Lutz, SS # 079-83-1982, date of birth June 18, 1972, is a self-employed mergers & acquisitions consultant. She uses the accrual method of accounting. Her principal business code number is 605720. Her business address is 370 Lexington Avenue, New York, N.Y., 10021. During the year, she had the following business income and expenses: Income Professional Fees Earned $1,663,037; Expenses Taxes & Licenses $67,690; Meals and Entertainment - a $62,048; Bank Service Charges $2,209; Office Expenses $45,520; Rent on office space $119,003; Advertising $144,546; Insurance $59,032; Utilities $26,054; Depreciation on office equipment $32,620; Depreciation on furniture $20,024; Depreciation on computer equipment $45,065; Salaries $457,690; Interest on bank loan $7,035; Supplies $74,036; Bad Debts $18,356; Accounting Fees $126,580; Travel (2,055 miles driven) - b ? Sch. C, Line 24a; Legal Fees $154,013; Repairs and Maintenance $38,155.

Note: Report the professional fees on lines 1, 3, 5, and 7 on Schedule C and report the expenses on the appropriate lines (8 through 27a) on Schedule C. You will also report the profit on Schedule 1 (attached), Line 12.

OTHER NOTABLE ITEMS

Jacqueline received dividends from Mobil, Inc. of $365, British Petroleum, Inc. of $480, and Texaco Corp. of $472. She also received interest from her Capital One bank account in the amount of $1,771. These items are reported on Schedule B.

Her home address is 5700 Arlington Avenue, Bronx, NY, 10471. Her home secures a $625,000 mortgage. Jacqueline paid $6,533 in mortgage interest. Report this amount on lines 8a and 10 of Schedule A.

Jacqueline gave $8,263 to Harvard Law School, and $6,337 to Brown University, her alma maters. She also donated $1,779 to the ASPCA. Report the combined total on lines 11 and 14 of Schedule A.

She incurred $26,024 of out of pocket medical expenses during the year, which included her health insurance premiums. Report the deductible amount on line 4 of Schedule A.

She made quarterly estimated federal tax payments during the year of $13,540 per quarter. Report this amount on lines 8 and 14 of Schedule 1, then transfer this amount to Form 1040, Line 18d.

She paid quarterly estimated state income tax payments of $5,924 per quarter & local income tax payments of $4,152 per quarter. She also paid $3,720 in real estate taxes on her home during the year. Report the properly deductible amount on lines 5-7 of Schedule A. Remember the combined deductible amount for state & local taxes is limited to $10,000.

Jacqueline is not married, and has no dependents.

a - Meals and Entertainment are only 50% deductible

b - Mileage is deductible at a rate of 57.5 cents ($0.575) per mile

REQUIRED: Prepare Jacquelines 2020 Federal Income Tax Return. You will need the following schedules:

1) Form 1040; 2) Schedule A ; 3) Schedule B; 4) Schedule C; 5) Schedule SE

Hint: To prepare this return MANUALLY, you MUST follow this sequence:

Step1: Prepare Schedule C Transfer profit to lines 3 and 9 of Schedule 1

Step 2: If Schedule C shows a profit, prepare Schedule SE.

Step 3: Transfer the amount on Line 5 of Schedule SE to Lines 4 and 10 of Schedule 2, and also Line 22 of Form 1040.

Step 4: Transfer the amount on Line 6 of Schedule SE to Lines 14 and 22 of Schedule 1, and also Line 8a of Form 1040.

Step 5: Then prepare Schedule B.

Step 6: Then prepare Form 1040 up to line 11.

Step 7: Then prepare Schedule A to determine whether your client should Itemize or take the standard deduction.

Step 8: After claiming the correct deduction (itemized or standard) amount, complete Form 1040.