Joan and Eric are married taxpayers who elect to file jointly. Joan and Eric live in Milwaukee, Wisconsin. Eric is an attorney who works as General Counsel for at ABC, Inc. Joan has a small tax return preparation business. The couple uses the cash basis of accounting and is on the calendar year. Joan and Eric have two children, Ellen 12 and Graham 15. This year, Joan and Eric did not incur any childcare-related costs.
Joan and Eric also provide support to Joan’s elderly mother, Geraldine. Geraldine lives in a low-income senior citizens apartment in Woodland, California. Geraldine receives $5,000 in social security benefits and $1000 in dividend income. Joan and Eric paid her rent of $800/month ($9600 for the year).
Eric received a salary of $200,000. His employer withheld Federal income taxes of $50,000 and the appropriate amount of FICA taxes.
Joan had the following income and expenses for her tax preparatino business:
· Revenues $90,000
· Cost of a new computer (used exclusively for her business 4,000
· Office space rental (including utitllies) 12,000
· Technology charge for tax preparation 3,000
Joan uses her personal vehicle to meet with clients. This year she had 2,000 business miles. Joan carefully tracks her business mileage, but does not keep track of other costs associated with her usage of the car except for parking fees of $100. She also received a $50 parking fine for a meter violation. This year, Joan contributed $500 to her traditional IRA.
In 2018, Joan and Eric had the following gains and losses for the current taxable year (Note: they had not have any other sales of business assets in the past 10 years:
QRX, Inc. stock held for 18 months $(3,000)
Land held for investment for 12 years 4,000
Sale of business equipment held for 12 years:
Section 1245 recapture 1,800
Sec. 1231 gain 7,250
Eric and Joan’s other items of income and expense for 2018 are as follows:
· Dividends $400
· Interest on corporate bonds 700
· Interest on municipal bonds 566
· Interest paid on home mortgage 10,000
· Real estate taxes on home 3,000
· Safety deposit box rental 50
· State income taxes 8,000
· Cash contributions to qualified charities 8,000
· Joan donated 20 hours of accounting service to their church. Her hourly billing rate is $100.
What is Joan and Eric’s filing status? How much child tax credit may they claim
Determine the Schedule C income that Joan should report for her business.
Determine Joan’s self-employment tax.
Determine any capital gain or capital loss that Joan and Eric will claim this year.
Determine Joan and Eric’s gross income
Determine John and Patsy’s adjusted gross income
Determine the itemized deductions for 2018? Should they claim itemized deduction or take the standard deduction?
Determine their taxable income.
Determine their Federal income tax
Determine the amount of their tax refund or their tax due.