Question

Bob and Mary Smith, a married couple, engaged you to prepare their 2018 individual income tax return. Their address is 123 Main Street, Wilmore, KY. Their social security numbers and dates of birth are as follows: S. S. No. Date of Birth Bob 123-45-6789 December 1, 1955 Mary 098-76-5432 May 5, 1957 They provide you with the following income and expense information for 2018: • Bob is a CPA and his salary was $150,000. He had $17,500 in federal income taxes withheld, $6,500 in state income taxes withheld, and $3,500 in local income taxes withheld. • Mary retired in August of 2018 and began receiving $1,200 per month from a pension. Mary’s cost in the pension is $100,000. • Bob and Mary also have rental property. The net rental income for the year is $25,000. (Do not prepare schedule E for this tax return.) • During 2018, they received $150 in interest on their savings account and $250 from a tax-exempt municipal bond. • They received $2,500 in ordinary dividends. • Bob paid $1,000 per month in alimony from a divorce that was settled in 2012. The recipient’s social security number is 765-89-1234. • They have the following medical expenses for the year: o Prescription drugs - $150 o Doctor visit copays - $250 o Physical therapy for an injury - $200 o New eyeglasses for Mary - $50 o Dental work - $150 • They paid $1,500 with their 2017 Kentucky individual income tax return. They filed the return and made the payment in 2018. • Bob and Mary paid $3,500 in real estate property taxes on their home and $550 in property taxes on their vehicles. The outstanding mortgage on their home is $350,000. • Bob and Mary also paid $2,500 in real estate property taxes for a vacation home in Oregon. The outstanding mortgage on the vacation home is $250,000. • The mortgage interest paid on the primary residence during 2018 was $2,575. The mortgage interest paid on the vacation home during 2018 was $1,550. • They paid $250 in credit card interest during 2018. • They provide you with the following list of charitable contributions made during the year: o $5,000 to their church o $1,500 to The Salvation Army o $500 to Asbury University o $250 to the local humane society • Bob provides volunteer service as a CPA to their church. He claims he provided 100 hours in volunteer service during the year. His billing rate is $150 per hour. Bob and Mary also sold stock during the year. They provide you with the following stock sale information. They also have a $1,500 short-term capital loss carryforward and $2,000 long-term capital loss carryforward from 2017. • ABC, Inc. was original purchased on January 31, 2018, for $5,000. It was sold on December 15, 2018, for $2,500. • XYZ, Inc. was also sold on December 15, 2018. It was sold for $3,500 and originally purchased on January 15, 2018, for $5,000. • The following stock were sold on December 1, 2018: o DEF, Inc. sold for $5,000. Originally purchased on February 2, 2012 for $3,575. o UVW, Inc. sold for $6,500. Originally purchased on July 5, 2016 for $2,525. o GHI, Inc. sold for $4,500. Originally purchased on May 1, 2015 for $2,500.

Required: Using the above information, prepare Bob and Mary’s 2018 federal individual income tax return. Include all necessary schedules, forms, and worksheets.

Answer 1

2018 Individual income tax Status MF) Bab Mary Smith SP su Calculation of Capital Gain Description Date purchased Date Sold Cost Proceed Gain/Loss Type ABC inc 1/31/2018 12/15/2018 5000 2500 -2500 ST XYZ Inc 1/15/2018 12/15/2018 5000 35001 -1500 ST DEF inc 2/2/2012 12/1/2018 3575 5000 1425LT UVW Inc 7/5/2016 12/1/2018 252565003975LT GHI Int | 5/1/2015| 12/1/2018 2500 45001 2000 LT -2000 -1500 Total -100 STCL Tax Calculation of Tax liability Description Amount($) Taxable income 152500 Tax limit Tax rate 0-19050 10% 19051-77400 12% 77401-165000 22% Total Tax liability 1905 7001.88 16521.78 25428.66 Note: Itemized deduction is lesser than standard deduction. Hence Standard deduction is claimed as it is more benefical.

apartmart te laasirynter aware orice 991 U.S. Individual Income Tax Return OMB No 15-15 0074 IES Lse Cny-Do notar ter sispe in this space Filing status: Smile Married lingonly C Marnel liling separately C Hewlollsthold Qullying vacket) Your first name and initial Last name Your social security number Bob Smith 1 2 314 516 7 8 9 Your standard deduction: Someone can claim you as a dependent You were born before January 2, 1954 You are blind Il carrelur, Spouse's first name and lol Last name Spouse's social security number Mary Smith 0 9 817 615 4 3 2 Spaux wardr o lim [ Sonconic con clairn your spouse as a dependent Spouse was born Exclore January 2, 1954 Full your health care coverage Spouse is blind Spouse itemizes on a separate retum or you were dual-status alien or exempt see inxt. Home addressinumber and street). If you have a P.O. box, see instructions Apt. no. Presidential Election Campaign 123 Main street se insl.) You Spouse Cily, cxri ar pasl allice, slate, and ZIP Code. If you have a locuri address, allach Schedule 6. If more than four dependents, Wilmore, KY sexsland here Dependents (see instructions, 2) Social Security number (3) Relationship to you (4) if qualties for See inst: (1) First name Lost C Child tax credit Credit for other dependents Sign Here Jorna? Gesinsiruolo's Ken jy for your : Under certies o' perjur, I declare that have exerined this remanc eccome ring schedue srdela.omers and to the best of my crosecco srdbeiet, they are true, SOT, Come Declarachofpot har b alination which pro v ided Your signature Dale Your occupation If the Scent cu alerty Protection PN If a joint rotun, both must sign. Dato Spouse's occupation TUN Preparer's name Prepaus kanalures Paid Preparer Use Only Film's name Firm's address For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. If the KS sentc lerhy Profession PN bare Beanst. Firm's CN Check il: Ard Party Dagicne Sello.ec Phone no. Cal. No 115003 Form 1040 2181

Page 2 150000 2b 150 2500 177500 176500 24000 10 152500 25429 Form 1040 (2018) 1 Wagos, sularios, tips, etc. Attach Forris, W 2 . . 2a Tax-xempt interest. . . 2a 250 b Taxable interest . . Attachme Also attach 3a Quand ends. . . 3a b Ordinary dividends . . Fornix Y- 2 3 4a 10x Ras, sans, and arnes. 6000 Taxable amount . . . indd 5a Social unily brichs b Taxable around. . . cca incons. Adelines through 5. Add any amourtfon Schedule 1. in 22 24900 Actueel yox T e ll you how I cannis in income, wer the count frorn line 6; cherise, subtract Schedule 1, line 35, from line 6 Standard . . . . . . . . . . . . Deduction for 8 Standard deduction or itemized deductions from Schedule A . . . . . . . . . . . Sing Of Eid ning renesately 9 Quilhed business income cduction (see instruccion. . . . . . . . . . . . . . 112,00) Taxable income. Subtract lines and 9 from line 7. If zerorless.enter 0 . . . . . . . . Merred111 anty or wyn 11 a Tek w insl.) check it any om 1 To 014 2 1723 rirvan 1. b Add any amount from Schedule 2 and check here . 124,300 Hoon 12 a cha credited to attet nederders b Addarama... from Sameduel and check here Fondo M 13 Subtractine 12 fram line 11. If zelo ors, entel - (- . . . . . . . . . . . . . leuke 14 Other laxe. Allach Schedule 4 . . . . . . . . . . . . . . . . En border Condd Total tex. Addlines 13 and 14 . . . . . . . . . . . . . . . . AI Federal income tax withheld fron Forms W 2 and 1049 . . . . . Paanans Tefundabe ceste a EIC ses ir st! b Sch. 8812 c Forn 2806 Add any amount from Schedule 5 18 Addlines 16 and 17. These are your total payments Refund 19 line 18 is more than line 15, subtract line 15 from line 18. This is the amount you overpaid . . . 20a Amount of line 19 you want refunded to you. If Form 6888 is attached, check here . . . Cirect it? b Routing number D c Type: Checking Savings Breitung ► Macount number 21 Ancounlolli 19 you wal applied to your 2019 estimated tax, 21 Amount You Owe 22 Amount you owe. Subtract line 18 from line 15. For details on ho to pay, so instructions. . . 23 Estimated tax porty see instructions. . . . . . . . 23 Go to www.is.goviform:040 for instructions and the latest information. 25429 25429 17500 17 7929 18 TS 20a 22 7929 crm 1040 20181

OMB No 1545-0074 2018 Allachment Sequence No. 01 Your social security number 123456789 1-9b 10 12 -100 13 14 15b 16b 17 25000 18 19 20b 21 SCHEDULE 1 Additional Income and Adjustments to Income (Form 1040) Attach to Form 1040. Deguimen alle Trissur Internal Revenue Service Go to www.its.gov/Form1040 for instructions and the latest information. Namcis shown on Form 10:10 Bob Smith Additional 1-9b Reserved . . . . . . . . . . . 10 Taxable refunds, credits, or offsets of state and local income taxes . Income 11 Alimony received . . . . . . . . . . . . . 12 Business income or loss). Attach Schedule C or C-EZ . . . . . . . . . 13 Capital gain or loss). Attach Schedule D if required. If not required, check here 14 Other gains or losses). Attach Fom 4797. ........ . . . . 15a Reserved . . . . . . . . . . . . . . . . . . . . . . . . Reserved . , , . . . . . . . . . . . . . . . 17 Rental real estate, royalties, partnerships. S corporations, trusts, etc. Attach Schedule E 18 Fam income or loss). Attach Schedule F .. . . . . . . . . . 19 Unemployment compensation . . . . . . . . . . . . . . . . . 20a Reserved . . . . . . . . . . . . . . 21 Other income. List type and amount 22 Combine the amounts in the far right column. If you don't have any adjustments to income, enter here and include on Form 1040. line 6. Otherwise, go to line 23 : Adjustments 23 Educator expenses : .i iii.. . 23 to Income 24 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 24 25 Health savings account deduction. Attach Form 8889 25 26 Moving expenses for members of the Amed Forces Attach Form 3903 . . . . . . . . . 126 27 Deductible part of self-employment tax. Attach Schedule SE 27 28 Self-employed SEP, SIMPLE, and qualified plans... 29 Self-employed health insurance deduction . 29 30 Penalty on early withdrawal of savings...... 31a Alimony paid b Recipient's SSN 76 5!8 9 1 2 3 4 31a 32 IRA deduction . . . . . . 32 33 Student loan interest deduction . . . . . . . . 34 Reserved . . . . . . . . . . . . . 34 . . 35 Reserved . . . . . . . . 35 36 Add lines 23 through 35 For Paperwork Reduction Act Notice, see your tax return instructions. Cal. Na, 71479 22 24900 28 33 1000 Schedule 1 Form 1040) 2012

2018 SCHEDULE A Itemized Deductions OMB No 1545-0074 (Form 1040) Go to www.irs.gov/ScheduleA for instructions and the latest information. Hew. January 2220 Attach to Form 1040. Dewmen alth Insur Allachmonla Internal Revenue Servier 10 Caution: If you are claiming a net qualified disaster loss on Form 4084, see the instructions for line 16. | Scrucne No 07 Nameis shown on Form 1040 Your social security number 800 Medical and Dental Expenses 13238 Taxes You Paid Caution: Do not include expenses reimbursed or paid by others. 1 Medical and dental expenses (see instructions),. . 2 Enter amount from Form 1040, line 7 2 176500 3 Multiply line 2 by 7.5% (0.075). . . . . 4 Subtract line 3 from line 1. If line 3 is more than line 1, enter-O- 5 State and local taxes, a State and local income taxes or general sales taxes. You may include either income taxes or general sales taxes on line 5a, but not both. If you elect to include general sales taxes instead of income taxes, check this box........ b State and local real estate taxes (see instructions) . . . c State and local personal property taxes,.. d Add lines 5a through 5c... . . . . . . e Enter the smaller of line 5d or $10,000 ($5,000 if married filing separately) 6 Other taxes. List type and amount 11500 6000 5a Sb 5c 5 500 18000 10000 10000 deducinay bc 7 Add lines 5e and 6 . . . . Interest You 8 Home mortgage interest and points. If you didn't use all of your Paid home mortgage loan(s) to buy, build, or improve your home, Caution: Your see instructions and check this box. . . . . . mortgage interest a Home mortgage interest and points reported to you on Form linit 4 :588 1098. See instructions if limited instructions. . . . . . . . . . b Home mortgage interest not reported to you on Form 1098. If paid to the person from whom you bought the home, see instructions and show that person's name, identifying no., and address 8a 4125 c Points not reported to you on Form 1098. See instructions for special rules. . . d Mortgage insurance premiums (see instructions) e Add lines Ba through ad 9 Investment interest. Aitach Form 4952 if required. See instructions . . . . . . . . . . . . . 10 Add lines de and 9 Gifts to 11 Gifts by cash or check. If you made any gift of $250 or more Charity see instructions . . . . . . . . . . . . . . 11 7250 12 Other than by cash or check. If any gift of $250 or more, see If you made a gift and got a instructions. You must attach Fom 8283 if over $500 , 12 13 Carryover from prior year . . . . 13 see instructions. 14 Add lines 11 through 13, .. Casualty and 15 Casualty and theft loss/es) from a federally declared disaster (other than net qualified Theft Losses disaster losses). Attach Form 4684 and enter the amount from line 18 of that form. See instructions. . . . . . . . . . . . . . . . . . . . . . . . Other 16 Other-from list in instructions. List type and amount ...-.. Itemized Deductions Total 17 Add the amounts in the far right column for lines 4 through 16. Also, enter this amount on Itemized Form 1040, line 8 , , , , Deductions 18 If you elect to itemize deductions even though they are less than your standard deduction, check here . . . . . . . . . . . . . . . . . . . For Paperwork Reduction Act Notice, see the Instructions for Form 1010. Cat. No. 17145C 7250 17 21375 Schedule A For 1040) 2018

SCHEDULE D (Form 1040) Capital Gains and Losses OMB No. 145-0071 2018 Department at the resury Internal Revenue Service 19) Namcis shown on return Attach to Form 1040 or Form 1040NR. Go to www.irs.gov/Scheduled for instructions and the latest information. Use Form 8949 to list your transactions for lines 1, 2, 3, 8, 9, and 10. Attachment Sequence No. 12 Your social security number Part1 Short-Term Capital Gains and Losses-Generally Assets Held One Year or Less (see instructions) (g) (d) See instructions for how to figure the amounts to enter on the lines below. This form may be easier to complete if you round off cents to whole dollars. Proccods isales price Girst for other basis Adjustments to gain a lot from Forms) 8949, Partl, linic 2. column h) Gain or loss) Sutilrar column ) from column idi and combine the result with column 1a Totals for all short-term transactions reported on Form 1099-6 for which basis was reported to the IRS and for which you have no adjustments (see instructions). However, if you choose to report all these transactions on Form 6949, leave this line blank and go to line 1b. 1b Totals for all transactions reported on Fom(s) 8949 with Box A checked . 2 Totals for all transactions reported on Fomis) 8949 with Box B checked . . . . . . . . . 3 Totals for all transactions reported on Fom(s) 8949 with Box C checked . . . . . . . . . . . . . 6000 10000 -4000 4 Short-term gain from Form 6252 and short-term gain or loss) from Forms 4664, 6781, and 8624 .. . 4 5 Net short-term gain or loss) from partnerships, S corporations, estates, and trusts from Schedule(s) K-1 : : : . . : . : . . : . : : . : . : . . : : 5 6 Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss Carryover Worksheet in the instructions . . . . . . . . . . . . . . . . . . . . . 1500) 7 Net short-term capital gain or (loss). Combine lines 1a through 6 in column (h). If you have any long- term capital gains or losses, go to Part II below. Otherwise, go to Part III on the back , -5500 Part II Long-Term Capital Gains and Losses-Generally Assets Held More Than One Year (see instructions) 16 lo) thi Gain or loss) Subtract columnie) from column idi and combine the result with column] See instructions for how to figure the amounts to enter on the lines below. (d) Adjustments Proceeds Cast to gain or loss frce This form may be easier to complete if you round off cents to sales price for other basis Forms: 8949, l'art II, whole dollars. line 2, calumn ( 8a Totals for all long-term transactions reported on Form 1099-B for which besis was reported to the IRS and for which you have no adjustments (see instructions), However, if you choose to report all these transactions on Form 8949, leave this line blank and go to line 8b . 8b Totals for all transactions reported on Fom(s) 8949 with Box D checked . . . . . . . . . 16000 8600 9 Totals for all transactions reported on Fomis) 6949 with Box E checked . . . . . . . . . . . 10 Totals for all transactions reported on Fom(s) 8949 with Box F checked. . . . . . 11 Gain from Form 4797, Part 1: long-term gain from Forms 2439 and 6262, and long-term gain or loss) from Forms 4684, 6781, and 8824 , 11 7400 12 Net long-term gain or loss) from partnerships, S corporations, estates, and trusts from Schedule(s) K-1 12 14 13 Capital gain distributions. See the instructions........... ..... 13 14 Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss Carryover Worksheet in the instructions . . . . . . . . . . . . . . . . . . . . 2000) 15 Net long-term capital gain or (loss). Combine lines ba through 14 in column (h). Then go to Part Ill on the back . . . . . . . . . . . . . 5400 For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 11338H Schedule D Form 10402018

Schedule Diform 1040, 2018 Page 2 Part III Summary 16 Combine lines 7 and 15 and enter the result . . . . . . . . . . . . . . . . . . 16 -100 • If line 16 is a gain, enter the amount from line 16 on Schedule 1 (Form 1040), line 13, or Form 1040NR, line 14. Then go to line 17 below. • If line 16 is a loss, skip lines 17 through 20 below. Then go to line 21. Also be sure to complete line 22. • If line 16 is zero, skip lines 17 through 21 below and enter-O-on Schedule 1 (Form 1040), line 13, or Form 1040NR, line 14. Then go to line 22. 17 Are lines 15 and 16 both gains? Yes. Go to line 18. No. Skip lines 18 through 21, and go to line 22. 18 If you are required to complete the 28% Rate Gain Worksheet (see instructions), enter the amount, if any, from line 7 of that worksheet. . . . . . . . . . . . . 18 19 If you are required to complete the Unrecaptured Section 1250 Gain Worksheet (see instructions), enter the amount, if any, from line 18 of that worksheet,,,,, , 20 Are lines 16 and 19 both zero or blank? Yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 11a (or in the instructions for Fom 1040NR, line 42). Don't complete lines 21 and 22 below. No. Complete the Schedule D Tax Worksheet in the instructions. Don't complete lines 21 and 22 below. 21 If line 16 is a loss, enter here and on Schedule 1 (Form 1040), line 13, or Form 1040NR, line 14, the smaller of: • The loss on line 16; or . ($3,000), or if married filing separately, ($1,500) . ... .... . 21 Note: When figuring which amount is smaller, treat both amounts as positive numbers, 22 Do you have qualified dividends on Form 1040, line 3a, or Form 1040NR, line 10b? Yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 11a (or in the instructions for Form 1040NR, line 42). No. Complete the rest of Form 1040 or Form 1040NR. Schedule D Form 10401 2018