A. Richard McCarthy (born 2/14/64; Social Security number 100-10-9090) and Christine McCarthy (born 6/1/1966; Social security number 101-21-3434) have a 19-year-old son (born 10/2/99 Social Security number 555-55-1212), Jack who is a full-time student at the University of Key West. The McCarthys also have a 12-year-old daughter (Social Security number 444-23-1212), Justine, that lives with them. Richard is the CEO at a national paper company. His 2018 Form W-2: 

Christine is an optometrist and operates her own practice (“The Eyes of March”) in town as a sole proprietor. The shop address is 1030 Morgan Highway, Clarks Summit, PA 18411 and the business code is 621320. Christine keeps her books on the accrual basis and her bookkeeper provided the following information:

Gross sales.....................$270,000 

Returns.....................9,000 

Inventory: 

Beginning inventory.....................$24,000 

Purchases.....................120,000 

Ending inventory 30,000 

Rent.....................24,000 

Insurance.....................11,000 

Professional fees.....................3,000 

Payroll.....................37,000 

Payroll taxes.....................2,800 

Utilities.....................4,000 

Office expenses.....................2,000 

Depreciation.....................5,000 

The McCarthys have a nanny/housekeeper they paid $12,000 during 2018. They did not withhold income or FICA taxes. The McCarthys paid Pennsylvania state unemployment tax of $378 in 2018. Christine received a 2018 Form 1099-INT from the National Bank of Scranton that listed interest income of $23,400. Note that McCarthys reasonably allocate $1,278 to state income tax expense for purposes of the Net Investment Income tax. The McCarthys paid the following in 2018: 

Home mortgage interest.............$15,600 

Property taxes.............5,600 

Estimated state income tax payments.............3,000 

Estimated Federal income tax payments.............11,000 

Charitable contributions (all cash)..............7,600

Required: 

Complete the McCarthys’ federal tax return for 2018. Use Form 1040, Schedule 1, Schedule 4, Schedule A, Schedule B, Schedule C, Schedule H, Schedule SE, Form 8959, and Form 8960 to complete this tax return. Make realistic assumptions about any missing data and ignore any alternative minimum tax. Do not complete Form 4952, which is used for depreciation. 

B. Warner and Augustine Robins, both 33 years old, have been married for 9 years and have no dependents. Warner is the president of Dragon Lady Corporation located in Macon. The Dragon Lady stock is owned 40 percent by Warner, 40 percent by Augustine, and 20 percent by Warner’s father. Warner and Augustine received the following tax documents: 

Macon Museum of Arts
3231 Vineville Ave.
Macon, GA 31204
Employer Identification Number 22-1234567
Macon Museum of Arts is a registered 501(c)(3) corporation
November 23, 2018
Mr. and Mrs. Warner and Augustine Robins
628 Russell Parkway
Macon, GA 31207
Dear Mr. and Mrs. Robins:

Thank you for your contribution of the original album cover art for the Almond Sisters Band to the Macon Museum of Arts. This gift supports the Macon Museum’s efforts to bring original and locally-sourced art work to Macon. This continuing support will guarantee our ability to display Almond Sister art work for many years to come. We have attached a copy of the appraiser’s market valuation. Her analysis estimates the value of the painting at $34,505. Please keep this written acknowledgement of your donation for your tax records. As a token of our appreciation for your support, we have mailed you the Macon Museum tote bag. We estimate the value of the tote bag to be $5. We are required to inform you that your federal income tax deduction for your contribution is the amount of your contribution less the value of the tote bag. Thank you for your continuing support for our important work in this field! Please retain this letter as proof of your charitable contribution. Thank you for helping us to help veterans. Sincerely, 

Jack T. Mann 

Art Development Officer

The Robins paid the following amounts (all can be substantiated): 

General state sales tax...............2,120 

Auto loan interest...............4,800 

Medical insurance...............10,400 

Income tax preparation fee...............750 

Charitable contributions in cash: 

Church...............2,600 

Tree Huggers Foundation (a qualified charity)...............3,000 

Central Georgia Technical University...............5,000 

Safe-deposit box...............300

The tax basis for the donated painting is $25,000 and the painting has been owned by Warner and Augustine for 5 years. Dragon Lady does not cover health insurance for its employees. In addition to Warner and Augustine’s health insurance premiums shown above, Augustine required surgery which cost $6,720 for which only $3,100 was covered by insurance. Warner had to drive Augustine 300 miles each way to a surgical center. On January 1, 2018, Warner sold land to Dragon Lady Corporation for $75,000. He acquired the land 5 years ago for $160,000. No Form 1099-B was filed for this transaction. Dragon Lady Corporation does not have a qualified pension plan or Section 401(k) plan for its employees. Therefore, Warner deposited $11,000 ($5,500 each) into traditional IRA accounts for Augustine and himself (neither are covered by a qualified plan at work). 

Required: 

Complete the Robins’ federal tax return for 2018. Use Form 1040, Schedule 1, Schedule A, Schedule D, and Form 8949 to complete this tax return. Make realistic assumptions about any missing data and ignore any alternative minimum tax. Do not complete Form 8283, which is used when large noncash donations are made to charity.

Transcribed Image Text:

a Employee S social secunity number Safe, accurate, FASTI Use Visit the IRS website at RS file www.irs.gowiefile 100-10-9090 OMB No. 1545-0008 b Employer identification number (EIN 32-5656567 2 Federal income tax withheld Wages, tips, other compensation 230,000.00 3 Social security wages 66,000.00 4 Social security tax withheld c Employer's name, address, and ZIP code 128,400.00 5 Medicare wages and tips 7,960.80 6 Medicare tax withheld Mufflin-Dunder Paper 302 Lackawanna Ave. 3,605.00 230,000.00 7 Social security tips Scranton, PA 18503 8 Allocated tips 9 Verification code d Control number 10 Dependent care benefits Employee's first name and initial 12a See instructions for bax 12 Suf. 11 Nonqualified plans Last name Richard McCarthy 32 Sleepy Hollow Rd. Clarks Summit, PA 18411 13 Stery mployee Thed paty sick piay Retiremant plan 12b 14 Other 120 12d f Employee's address and ZIP code 19 Local income tax 15 State Employer's state ID number 16 State wages, tips, etc. 17 State income tax 18 Local wages, tips, etc. 20 Locality name 230,000.00 13,800.00 PAL 1234834 W-2 Wage and Tax Statement Department of the Treasury-Internal Revenue Service 2018 Form Copy B-To Be Filed With Employee's FEDERAL Tax Return. This information is being fumished to the Intemal Revenue Service. a Employee S SOcial secunty number Safe, accurate, FAST! Use Visit the IRS website at efile IRS 798-09-8526 OMB No. 1545-0008 www.irs.gov/efile b Employer identification number (EIN 43-4321567 1 Wages, tips, other compensation 152,000.00 3 Social secunity wages 128,400.00 5 Medicare wages and tips 2 Federal income tax withheld 8,000.00 4 Social secunty tax withheld c Employer's name, address, and ZIP code 7,960.80 6 Medicare tax withheld Dragon Lady Corp. 1670 Eisenhower Pkwy. Macon, GA 31206 2,204.00 152,000.00 7 Social security tips 8 Allocated tips d Control number 9 Verification code 10 Dependent care benefits e Employee's first name and initial Last name Suff. 11 Nonqualified plans 12a See instructions for bax 12 Warner Robins 638 Russell Parkway Macon, GA 31207 13 iary mploy Ratirement alan Thind paty ick pay 12b 14 Other 120 12d f Employee's address and ZIP code 15 State Employer's state ID number 16 State wages, tips, etc. 17 State income tax 18 Local wages, tips, etc. 19 Local income tax 20 Locality name GAL. 152,000.00 4,000.00 and Tax Tem W-2 Statement 2018 Department of the Treasury-Internal Revenue Service Copy B-To Be Filed With Employee's FEDERAL Tax Return. This information is being fumished to the Internal Revenue Service.