Tax Return Project Due December 4th (CORRECTED)

Required:

• Using the information provided, prepare the 2018 federal tax return for Cal and Evann Malec. The forms that need to be filled in are as follows:

  • Form 1040

  • Schedules 1, 3, 4, and 5

  • Schedules A, B, C, D, and E

  • Form 8949, Form 4562 (2 - one for DogWalker and one for rental) and Form 8863

  • Schedule SE (2 - One for Cal and one For Evann)

  • Helpful worksheets from Form 1040 instructions on page 40, 37, 96, and 7

• The return should be prepared manually. You are not allowed to use return software. The tax forms from the IRS allow typing, so you may complete the forms using typing or handwriting. Please write legibly if you fill in the forms by hand. Any supplemental schedules or election statements that should be attached to the return may be typed.

• The forms, schedules, and instructions can be found at the IRS website (www.irs.gov). The instructions can be helpful in completing the return and identifying the appropriate tax forms.

• Include the names of your groups members on the Return Summary Form.

• Attach an excel spreadsheet showing the calculation of the tax.

• Fill in the attached Return Summary Form and submit with the prepared return (page 4) and attach to the front of the tax return.

9) Cal and Evann have also provided the following information for 2018: (SCHEDULE C)

Prescription medicine and drugs (net of insurance reimbursement)	$376
Doctor and hospital bills (net of insurance reimbursement)	2,468
Penalty for underpayment of last years state income tax	15
Real estate taxes on personal residence	4,762
Interest on home mortgage (paid to First State Bank) The amount of the loan acquisition debt is $400,000	8,250
Interest on credit cards (vacation and consumer purchases)	595
Cash contribution to First Star Church	3,230
Professional dues (Evann)	325
Professional subscriptions (Evann)	245
Fee for preparation of 2017 tax return paid on April 12, 2018	500

10) Cal practices under the name Cal A. Malec, DogWalker. His business is located at 2412 Parkhaus Ave., Lincoln, NE 68521, and the employer identification number for the business is 01-2233445. Cals gross receipts for the year were $120,000. Cal uses the cash method of accounting for his business. Cals business expenses for 2018 are as follows:

Advertising	$1,200
Professional dues	490
Contributions to employee benefit plans	2,000
Insurance	3,200
Fine for overbilling a client	5,000
Insurance of office contents	720
Interest on money borrowed to refurbish office	600
Accounting services	2,100
Miscellaneous office expense	388
Building rent for 2018	12,000

Meals & Entertainment (all meals in 2018)	200
Office & kennel supplies	7,672
Utilities and telephone	3,260
Wages	30,000
Payroll taxes	2,400

In June, Cal decided to refurbish his office and kennel area. This project was completed and the assets were placed in service on July 1, 2018. Phils expenditures included $18,000 for new kennels for boarding animals and $2,200 for a computer. Cal does not want to immediately expense any of the assets purchased, or elect to expense under 179. Cal also does not want to claim any bonus depreciation. (Election statement to elect out of bonus depreciation is available in Canvas. Print it out and attach it to the return.) Cal wants to compute his cost recovery allowance under MACRS. All of the business assets are used 100% for business. Business assets purchased before 2018 have been fully depreciated in years prior to 2018.

The unadjusted basis of all qualified property for purposes of 199A (Qualified Business Income Deduction) is $46,000.

11) Evanns mother, Joseline, died on July 1, 2011, leaving Evann her entire estate. Included in the estate was Joselines residence (515 Goodwill, Lincoln, NE 68508). Joselines basis in the residence was $50,000. The fair market value of the residence on July 1, 2011 was $160,000. The property was distributed from the estate to Evann on January 1, 2012. From January 1, 2012 until June 30, 2018, they rented the house to the same tenant. The tenant was transferred to another city for work and moved out of the house on June 30, 2018. Cal and Evann have been managing the rental property themselves. Since they did not want to bother finding another tenant, they sold the house on June 30, 2018. Information regarding the sale of the rental house will be provided in the Tax Return 3 assignment. (Dont worry about the tax treatment of the sale of the rental house it is reported on Form 4797, but you do not have to do it for this project as information regarding the sale is not given. Just use the date of the sale when you calculate the depreciation.)

In 2018, Malecs collected rent of $1,800 a month for the months the house was rented during the year. They incurred the following expenses related to the rental in 2018:

Property insurance	$600
Property taxes	800
Maintenance	475
Depreciation (to be completed)	?

They have depreciated the house using MACRS rules and conventions applicable to residential rental real estate. To compute depreciation on the house, the Malecs had allocated $15,000 of the propertys basis to the land.

12) The Malecs sold a painting on July 12, 2018 for $14,000. The Malecs had received the painting from Cals great uncle as a wedding present on June 25, 1980. Cals great uncle originally purchased the painting for $2,000 on January 1, 1968. The painting was valued at $25,000 on the date of the gift. No gift tax was due, or paid, on the gift.