Tax Problem 2018 year
Please fill out a 1040 form along with all schedules associated with the problem (itemized deductions schedule A, Schedule B, schedule C, and use of Home ETC. – Form 8829)
Tax Computation Problem 2018 year
Complete: FORM 1040 for 2018 year
Schedule A, B, C and Form 8829 for 2018 year
A. David R. and Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a self-employed consultant specializing in retail management, and Ella is a dental hygienist for a chain of dental clinics.
0. David earned consulting fees of $14
5,000
in 2018. He maintains his own office and pays for all business expenses. The Coles are adequately covered by the medical plan provided by Ella’s employer, but have chosen not to participate in its § 401(k) retirement plan.
David’s employment-related expenses for 2018 are summarized below.
|
Airfare |
$8, 800 |
|
|
Lodging |
5,000 | |
|
Meals (during travel status) |
4,800 |
|
|
Entertainment |
3,600 |
|
|
Ground transportation (e.g., limos, rental cars, and taxis) |
800 | |
|
Business gifts |
900 |
|
|
Office supplies (includes postage, overnight delivery, and copying) |
1,500 |
The entertainment involved taking clients to sporting and musical events and providing food before, during, or after those events. The business gifts consisted of $50 gift certificates to a national restaurant. These were sent by David during the Christmas holidays to 18 of his major clients.
In addition, David drove his 2016 Ford Expedition
11,000
miles for business and 3,000 for personal use during 2018. He purchased the Expedition on August 15, 2015 and has always used the automatic (standard) mileage method for tax purposes. Parking and tolls relating to business use total $
340
in 2018.
0. When the Coles purchased their present residence in April 2015, they devoted 450 of the 3,000 square feet of living space to an office for David. The property cost $440,000 ($40,000 of which is attributable to the land) and has since appreciated in value. Expenses relating to the residence in 2018 (except for mortgage interest and property taxes; see below) are as follows:
|
Insurance |
$2,600 |
|
Repairs and maintenance |
|
|
Utilities |
4,700 |
|
Painting office area; area rugs and plants (in the office) |
1,800 |
0. In terms of depreciation, the Coles use the MACRS percentage tables applicable to 39-year nonresidential real property. As to depreciable property (e.g., office furniture), David tries to avoid capitalization and uses whatever method provides the fastest write-off for tax purposes.
0. Ella works at a variety of offices as a substitute for whichever hygienist is ill or on vacation or when one of the clinics is particularly busy (e.g., prior to the beginning of the school year). Besides her transportation, she must provide and maintain her own uniforms. Her expenses for 2018 appear below.
|
Uniforms |
$690 |
|
State and city occupational licenses |
380 |
|
Professional journals and membership dues in the American Dental Hygiene Association |
340 |
|
Correspondence study course (taken online) dealing with teeth whitening procedures |
420 |
0. Ella’s salary for the year is $42,000, and her Form W–2 for the year shows income tax withholdings of $5,000 (Federal) and $1,000 (state) and the proper amount of Social Security and Medicare taxes.
0. Besides the items already mentioned, the Coles had the following receipts during 2018.
|
Interest income— |
||
|
State of Colorado general purpose bonds |
$2,500 |
|
|
IBM bonds |
||
|
Wells Fargo Bank |
1,200 |
4,500 $ |
|
Federal income tax refund for year 2017 |
510 |
|
|
Life insurance proceeds paid by Eagle Assurance Corporation |
200,000 |
|
|
Inheritance of savings account from Sarah Cole |
50,000 |
|
|
Sales proceeds from two ATVs |
9,000 |
|
0. For several years, the Coles’ household has included David’s divorced mother, Sarah, who has been claimed as their dependent. In late December 2017, Sarah unexpectedly died of coronary arrest in her sleep. Unknown to Ella and David, Sarah had a life insurance policy and a savings account (with David as the designated beneficiary of each). In 2017, the Coles purchased two ATVs for $14,000. After several near mishaps, they decided that the sport was too dangerous. In 2018, they sold the ATVs to their neighbor.
0. Additional expenditures for 2018 include:
|
Funeral expenses for Sarah |
$ 4,500 |
|
|
Taxes— |
||
|
Real property taxes on personal residence |
$6,400 |
|
|
Colorado state income tax due (paid in April 2018 for tax year 2017) |
310 |
6,710 |
|
Mortgage interest on personal residence (Rocky Mountain Bank) |
6,600 |
|
|
Paid church pledge |
2,400 |
|
|
Contributions to traditional IRAs for Ella and David ($5,500 + $5,500) |
11,000 |
0. In 2018, the Coles made quarterly estimated tax payments of $6,000 (Federal) and $500 (state) for a total of $24,000 (Federal) and $2,000 (state).
0. Part 1—Tax Computation
0. Using the appropriate forms and schedules, compute the Coles’ Federal income tax for 2018. Disregard the alternative minimum tax (AMT) and various education credits as these items are not discussed until later in the text (
Chapters 12
and
13
). Relevant Social Security numbers are:
|
David Cole |
123-45-6788 |
|
Ella Cole |
123-45-6787 |
0. The Coles do not want to contribute to the Presidential Election Campaign Fund. Also, they want any overpayment of tax refunded to them and not applied toward next year’s tax liability. David will have a self-employment tax liability; refer to
Exhibit 13.9
in
Chapter 13
to compute this liability.