Tax Return Problem:

Please complete the 2018 federal income tax return for David and Diana Cole. Ignore the requirement to attach the form(s) W-2 to the front page of the Form 1040. If something is unclear to you or required information is missing, please use Discussion Board to obtain guidance.

David and Diana Cole live in Pleasantville, New Jersey. David is the Vice-President of Sales at a small start-up company. Diana is a former advertising executive who currently consults with former clients. The Coles have two children Rebecca (age 19) and Alan (age 16). Rebecca does not work as she is a full-time college student (information provided below). Alan is a high school student and works for a landscaping business during the summer he earned $6,500 in 2018.

The Coles plan to file a joint tax return and provided the following information:

David Cole reported the following the following information relating to his employment during the year:

Employer	Gross Wages	Federal Income Tax Withholding	State Income Tax Withholding
Alternative Energy	$138,325	$29,230	$11,000

Davids employer withheld all payroll taxes it was required to withhold. The entire Cole family was covered by minimum essential health insurance during each month in 2018. The insurance was provided by Davids employer.

Diana Cole uses the cash method to accounting for her business activities which were as follows:

Consulting revenue reported to her on a Form 1099-MISC, Box 7

High-end Retail$32,000

Jensens Health Products$8,500

Strategic Solutions$3,750

During the year, Diana paid the following business expenses:

Office expenses$570

Professional license fees$325

Airfare$2,900

Hotel$1,450

Meals$390

Parking$320

Diana has a small office area (100 square feet) in the home and uses the simplified method to determine her home office deduction. The total square footage of the Coles home is 2,200.

Diana drove 515 business miles for her consulting-related activities. Diana drove a 2015 Lexus purchased on January 1, 2015 for all her business mileage. She drove the vehicle a total of 10,605 miles during the year for all purposes. Diana has written documentation to support the mileage amounts. She also has access to another vehicle for personal purposes.

Diana made the following estimated tax payments in 2018: $5,000 for Federal income taxes and $2,000 for state income taxes.

The Coles also received the following investment income during the year:

Interest income from First Bank of New Jersey$320

Interest income from Patterson, NJ School District Bond$200

Interest income from U.S. Treasury Bond$1,350

Qualified dividends income from Rio Tinto$2,650

Dividend income (not qualified) from China Fund$2,350

The Coles did not own, control or manage any foreign bank accounts, nor were they grantors or beneficiaries of a foreign trust during the tax year.

The Coles had the following activity in their brokerage account during the year. All transactions were reported on a Form 1099-B and basis information on each stock sale was reported to the IRS.

Sold 2,000 shares of Microsoft7/1/18$22,500

Sold 100 shares of Apple, Inc.4/15/18$35,750

Sold 50 shares of Union Pacific1/7/18$2,750

Relevant tax basis/holding period information related to sales of securities in the current year:

Purchased 2,000 shares of Microsoft on 5/1/18 for $21,000

Purchased 200 shares of Apple, Inc. on 3/8/15 for $88,000

Purchased 100 shares of Union Pacific on 9/5/17 for $6,000

The Coles received a New Jersey state income tax refund of $400 in May of 2018. The Coles received the refund because they had overpaid their New Jersey state individual income tax in 2017. On their 2017 Federal income tax return, the Coles itemized their deductions and received full tax benefit (deduction) for the state tax income taxes paid in 2017.

Diana is a 20% owner in an advertising agency named Bright Ideas (BI) (EIN 20-1234567). BI is a Subchapter S corporation. The company reported ordinary business income for the year of $150,000. Diana received a K-1 from BI reporting her allocation of this business income. Diana acquired the stock several years ago. Her basis and at-risk amount in the stock before considering her 2018 income allocation was $92,000. Diana is a passive owner with respect to this entity.

Diana is also a 20% owner in Natural Sunshine, Inc. (NS) (EIN 24-9876543). NS is a Subchapter S corporation. The company reported an ordinary business loss for the year of ($80,000). Diana received a K-1 from NS reporting her allocation of this business loss. Diana acquired the stock several years ago. Her basis and at-risk amount in the stock before considering her 2017 loss allocation was $45,000. Diana is a passive owner with respect to this entity.

In May, David was injured in a home accident. The injury prevented David from working for about a month. During this time, David received $12,000 in disability payments attributable to a disability insurance policy. The disability policy premiums were paid by Davids employer as a nontaxable fringe benefit.

The Coles paid the following expenses during the year:

Dentist (unreimbursed by insurance)$1,500

Doctors (unreimbursed by insurance)$ 2,425

Prescriptions (unreimbursed by insurance)$675

Real property taxes on residence$7,525

Vehicle property tax based upon value$1,250

Mortgage interest on principal residence$12,550

Margin interest paid on brokerage account loan$600

Fee paid to Mouser, Johnson, and Hintze CPAs for tax preparation$1,200

Contribution to United Way$2,000

Contribution to American Cancer Society$5,000

The Coles also donated clothing, electronics, furniture and other household goods to the Salvation Army of Pleasantville, New Jersey on April 15, 2018. The Coles estimated that their cost of donated items was $5,000. Estimated thrift value of the goods donated was $275.

During the year, the Coles paid a portion of Rebeccas tuition to attend The College of Liberal Arts of New Jersey (CLA). They also purchased Rebeccas school books. Rebecca attended the spring/summer and the fall semesters as a full-time student. In total, the Coles paid $9,000 for tuition and $2,000 for books. Rebecca used $6,000 from a scholarship she received from CLA to pay the remaining $6,000 of tuition for the year. Rebecca was not required to perform any services as a condition of accepting the scholarship. The Coles received a Form 1098-T from CLA whose address and employer identification number (EIN) are as follows:

The College of Liberal Arts of New Jersey

65 Ivory Tower

Penns Grove, NJ 08069

EIN- 22-5698324