• The return is for 2019.
• Marys is actively involved in her S-corporation
• Please note the difference between her share of the income and the distribution made to her. If the difference is unclear, Ill post some explanations in the discussions.
• You can consider Johns limited partnership income as passive
• AGI is $166,000. Thats really the only check figure you should worry about on the 1040.
• Itemizing deductions may not be the best option. Please prepare it and submit Schedule A, but use whichever deduction is the better option on the 1040.

John and Mary Jane Diaz are married, filing jointly. Their address is 204 Shoe Lane, Blacksburg, VA 24061. John is age 35, and Mary Jane is age 30. They are expecting their first child in early 2020. John's salary in 2019 was $105,000, from which $20,800 of Federal income tax and $4,700 of state income tax were withheld. Mary Jane made $52,000 and had $3,000 of Federal income tax and $3,100 of state income tax withheld. The appropriate amounts of FICA tax and Medicare tax were withheld for John and for Mary Jane. Johns Social Security number is 111 -11 -1111, and Mary Janes Social Security number is 123-45-6789.

John and Mary Jane are both covered by their employer's medical insurance policies with four-fifths of the premiums being paid by the employers. The total premiums were $10,000 for John and $6,200 for Mary Jane. Mary Jane received medical benefits of $7,300 under the plan. John was not ill during 2019. Mary Jane paid non-covered medical expenses of $1,300.

John makes child support payments of $15,000 for his son, Rod, who lives with June, John's former spouse, except for two months in the summer when he visits John and Mary Jane. At the time of the divorce, John worked for a Fortune 500 company and received a salary of $225,000. As a result of corporate downsizing, he lost his job.

Mary Janes father lived with them until his death in November. His only sources of income were salary of $2,800, unemployment compensation benefits of $3,500, and Social Security benefits of $4,100. Of this amount, he deposited $6,000 in a savings account. The remainder of his support of $9,500, which included funeral expenses of $4,500, was provided by John and Mary Jane.

Other income received by the Diazes was as follows:

Interest on certificates of deposit $3,500

Share of S corporation taxable income (distributions from the

S corporation to Mary Jane were $1,100; assume no wage limitation

for qualified business income deduction) 1,500

Share of Johns limited partnership taxable loss (his basis is $3,000) (2,500)

Award received by Mary Jane from employer for an outstanding

suggestion for cutting costs 4,000

John has always wanted to operate his own business. In October 2019, he incurred expenses of $15,000 in investigating the establishment of a retail computer franchise. With the birth of their child expected next year, however, he decides to forgo self-employment for at least a couple of years.

John and Mary Jane made charitable contributions of $3,700 during the year and paid an additional $1,800 in state income taxes in 2019 upon filing their 2018 state income tax return. Their deductible home mortgage interest was $8,200, and their property taxes came to $4,800. They paid sales taxes of $2,000, for which they have receipts. They paid a ticket of $150 that Mary Jane received for running a red light (detected by a red light camera).

Part 1Tax Computation

Calculate John and Mary Janes tax (or refund) due for 2019.

Forms to use 1040, Schedule A, B and E (page 2), Schedule 1 and 8582.