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: o Form 1040 o Schedules 1, 3, 4, and 5 o Schedules A, B, C, D, and E o Form 8949, Form 4562 (2 - one for DogWalker and one for rental) and Form 8863 o Schedule SE (2 - One for Cal and one For Evann) o 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 group's 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. Facts: 1) Cal A. and Evann M. Malec are married and file a joint return. Cal is self-employed as a professional dog walker and Evann is a college science professor. Cal and Evann have three children. The oldest is Chase, who lives at home. Chase is a full-time nursing student at the University of Nebraska and worked part time during the year earning $1,500, which he spent for his own support. Cal and Evann provided $6,000 towards Chase support (including $4,000 for fall tuition). They also provided over half the support of their daughter, Alexis, who is a full-time student at the University of Nebraska. Alexis lived at home until she was married in December of 2018. She filed a joint return with her husband, Darin, who earned $40,000 during the year. Becky is the youngest and lived with Cal and Evann for the entire year. The Malecs provide you with the following additional information: The Malecs do not want to contribute to the presidential election campaign The Malecs live at 6910 NW 3rd Street Lincoln, Nebraska 68521 Cal's birthday is 8/15/1958 and his social security number is 444-56-7777 Evann's birthday is 12/16/1961 and her social security number is 655-77-8889 Chase's birthday is 5/28/1996 and his social security number is 576-20-2879 Alexis's birthday is 5/1/1998 and her social security number is 575-29-2143 Becky's birthday is 5/15/2004 and his social security number is 643-92-4685 The Malecs do not have a foreign bank account or trusts 2 2) Evann is a lecturer at the University of Nebraska in Lincoln, where she earned $60,000. The university withheld federal income tax of $6,425, state income tax of $2,550, Social Security tax of $3,720, and Medicare tax of $870. She also worked part time for Spreetail. Spreetail paid her $10,000 in salary, and withheld federal income tax of $1,124, state income tax of $425, Social Security tax of $620, and Medicare tax of $145. 3) The Malecs received $800 of interest from Wells Fargo on a joint account. They received $900 interest on the City of New York bonds they purchased in January with the proceeds from a loan from Union Bank. They paid interest of $1,100 on the loan. Cal received a dividend of $640 on Walmart, Inc. stock he owns. Evann received a dividend of $1,580 on Facebook, Inc. stock she owns. Cal and Evann received a dividend of $865 on jointly owned stock in Target, Inc. All of these dividends are qualified dividends. 4) The Malecs have qualified educational loan interest expense of $2,800 in 2018. 5) The Malecs filed their 2017 federal and state tax returns on April 13, 2018. They paid the following additional 2017 taxes with their returns: Federal income taxes of $680 and state income taxes of $330. 6) The Malecs made timely estimated federal income tax payments of $1,600 each quarter during 2018. They also made estimated state income taxes of $470 each quarter. The Malecs made the federal and state fourth quarter estimated tax payments on December 31, 2018. They would like to receive a refund for any 2018 overpayment of tax. 7) Evann received a 2018 K-1 from the McBride Partnership interest she purchased two years ago. Evann materially participates in the partnership. A copy of the K-1 is included in the assignment information in Canvas. 8) The Malecs had the following activity in their brokerage account during the year (all transactions were reported on Form 1099-B. Basis information on each stock sale was reported to the IRS): Sold 75 shares of Apple, Inc 4/15/18 $28,750 Sold 350 shares of Cooper Tire 10/14/18 $14,700 Relevant tax basis/holding period information related to sales of securities in the current year: Purchased 200 shares of Apple, Inc on 3/8/15 for 90,000 Purchased 300 shares of Cooper Tire on 1/12/14 for 19,000 Purchased 50 shares of Cooper Tire on 6/28/18 for 2,000 The Malecs have a $5,000 long-term capital loss carryover from the prior tax year. 3 9) Cal and Evann have also provided the following information for 2018: 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. Cal's gross receipts for the year were $120,000. Cal uses the cash method of accounting for his business. Cal's 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 Prescription medicine and drugs (net of insurance reimbursement) $376 Doctor and hospital bills (net of insurance reimbursement) 2,468 Penalty for underpayment of last year's 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 4 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. Phil's 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) Evann's mother, Joseline, died on July 1, 2011, leaving Evann her entire estate. Included in the estate was Joseline's residence (515 Goodwill, Lincoln, NE 68508). Joseline's 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. 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) ? 5 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 property's basis to the land. 12) The Malecs sold a painting on July 12, 2018 for $14,000. The Malecs had received the painting from Cal's great uncle as a wedding present on June 25, 1980. Cal's 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. 13) The Malec's decided to donate $6,000 in cash from the sale of the painting to the local art museum, which is a qualified charitable organization. 6 ACCY 171 Fall 2019 Return Summary Form to be submitted with the 2018 tax return for Cal and Evann Malec Group number: #_____ Names of Group members: Total Gross Income from line 6 of Form 1040 __________________________________ Adjusted Gross Income from line 7 of Form 1040 __________________________________ Itemized Deductions or Standard Deduction from line 8 of Form 1040 __________________________ Taxable Income from line 10 of Form 1040 _________________________________ Tax from line 11 of Form 1040 (attach tax computation) __________________________________ Total tax from line 15 of Form 1040 __________________________________ Line 19 Overpayment or line 22 Amount Due, as applicable __________________________________