1. Note: This problem is for the 2018 tax year.

   Jane Smith, age 40, is single and has no dependents. She is employed as a legal secretary by Legal Services, Inc. She owns and operates Typing Services located near the campus of Florida Atlantic University at 1986 Campus Drive. Jane is a material participant in the business. She is a cash basis taxpayer. Jane lives at 2020 Oakcrest Road, Boca Raton, FL 33431. Jane's Social Security number is 123-45-6789. Jane indicates that she wants to designate $3 to the Presidential Election Campaign Fund. Jane had health insurance for all months of 2018. During 2018, Jane had the following income and expense items:

   a.

   $100,000 salary from Legal Services, Inc.

   b.

   $20,000 gross receipts from her typing services business.

   c.

   $700 interest income from Third National Bank.

   d.

   $1,000 Christmas bonus from Legal Services, Inc.

   e.

   $60,000 life insurance proceeds on the death of her sister.

   f.

   $5,000 check given to her by her wealthy aunt.

   g.

   $100 won in a bingo game.

   h.

   Expenses connected with the typing service:

   Office rent	$7,000
   Supplies	4,400
   Utilities and telephone	4,680
   Wages to part-time typists	5,000
   Payroll taxes	500
   Equipment rentals	3,000

   i.

   $9,500 interest expense on a home mortgage (paid to San Jose Savings and Loan).

   j.

   $15,000 fair market value of silverware stolen from her home by a burglar on October 12, 2018. Jane had paid $14,000 for the silverware on July 1, 2008. She was reimbursed $10,000 by her insurance company.

   k.

   Jane had loaned $2,100 to a friend, Joan Jensen, on June 3, 2014. Joan declared bankruptcy on August 14, 2018, and was unable to repay the loan. Assume that the loan is a bona fide debt.

   l.

   Legal Services, Inc., withheld Federal income tax of $15,000 and the appropriate amount of FICA tax from her wages.

   m.

   Alimony of $10,000 received from her former husband, Ted Smith; divorce was finalized in 2012, and no changes have been made to the divorce decree since that time.

   n.

   Interest income of $800 on City of Boca Raton bonds.

   o.

   Jane made estimated Federal tax payments of $2,000.

   p.

   Sales taxes from the sales tax table of $946.

   q.

   Property taxes on her residence of $3,200.

   r.

   Charitable contribution of $2,500 to her alma mater, Citrus State College.

   s.

   on November 1, 2018, Jane was involved in an automobile accident. At the time of the accident, Jane's automobile had an FMV of $45,000. After the accident, the automobile's FMV was $38,000. Jane acquired the car at a cost of $52,000. Jane's car was covered by insurance, but because the policy had a $5,000 deduction clause, Jane decided not to file a claim for the damage.

   Required:

   Compute Jane Smith's 2018 Federal income tax payable (or refund due) by providing the requested information that would be reported on Form 1040, Schedule A, Schedule C, Schedule D and Form 4684.

   • Make realistic assumptions about any missing data.
   • If an answer is zero, enter "0".
   • Enter all amounts as positive numbers.
   • When computing the tax liability, do not round your immediate calculations. If required round your final answers to the nearest dollar.

Provide the following that would be reported on Jane's Form 1040.

1. Filing status: The taxpayers' filing status: Single

2. Calculate taxable gross income. $

3. Calculate the total adjustments for AGI. $

4. Calculate adjusted gross income. $

5. Calculate the greater of the standard deduction or itemized deductions. $

6. Calculate the qualified business income deduction. $

7. Calculate total taxable income. $

8. Calculate the income tax liability. $

9. Calculate the total tax credits available. $

10. Calculate total withholding and tax payments. $

11. Calculate the amount overpaid (refund): $

12. Calculate the amount of taxes owed: $

Provide the following that would be reported on Jane's Schedule A.

1. Calculate the deduction allowed for medical and dental expenses. $

2. Calculate the deduction for taxes. $

3. Calculate the deduction for interest. $

4. Calculate the charitable deduction allowed. $

5. Calculate the casualty and theft loss deduction allowed. $

6. Calculate total itemized deductions: $

Provide the following that would be reported on Jane's Schedule C.

1. Calculate gross income: $

2. Calculate total business expenses: $

3. Calculate net profit or net loss: $

Provide the following that would be reported on Jane's Schedule D and Form 8949.

1. Determine the total sales price for reported transaction(s). $

2. Determine the total amount of the cost/basis of the reported transaction(s). $

3. Calculate the amount and character of the net gain or loss. There is a $ net

Tax Letter & Advice

Required: In 2019, Jane plans to continue her job with Legal Services, Inc. Therefore, items a, d, and l will recur in 2019. Jane plans to continue her typing services business (refer to item b) and expects gross receipts of $34,000. She projects that all business expenses (refer to item h) will increase by 10%, except for office rent, which, under the terms of her lease, will remain the same as in 2018. Items e, f, g, j, k, and s will not recur in 2019. Items c, i, m, n, p, q, and r will be approximately the same as in 2018.

Remain the same in 2019:

a.

$100,000 salary from Legal Services, Inc.

d.

$1,000 Christmas bonus from Legal Services, Inc.

l.

Legal Services, Inc., withheld Federal income tax of $15,000 and the appropriate amount of FICA tax from her wages.

c.

$700 interest income from Acme National Bank.

i.

$9,500 interest expense on a home mortgage (paid to San Jose Savings and Loan).

m.

Alimony of $10,000 received from her former husband, Ted Smith; divorce was finalized in 2012, and no changes have been made to the divorce decree since that time.

n.

Interest income of $800 on City of Boca Raton bonds.

p.

Sales taxes from the sales tax table of $946.

q.

Property taxes on her residence of $3,200.

r.

Charitable contributions of $2,500.

Increases in 2019:

b.

$20,000 gross receipts from her typing services business will increase to $26,000.

h.

The following expenses connected with the typing service will increase by 10%.

Supplies	$4,400
Utilities and telephone	4,680
Wages to part-time typists	5,000
Payroll taxes	500
Equipment rentals	3,000

The following items will not recur: life insurance proceeds, gift, bingo winnings, bad debt, stolen silverware, and the auto accident.

Jane would like you to compute the minimum amount of estimated tax she will have to pay for 2019 so that she will not have to pay any additional tax upon filing her 2019 Federal income tax return.

Assume her filing status does not change and that no personal exemption is allowed for 2019. Use the 2018 Tax Rate Schedule to compute the 2019 tax. Complete the letter to Jane that contains your advice.

Young, Hoffman, Raabe, Maloney, & Nellen, CPAs 5191 Natorp Boulevard Mason, OH 45040

January 26, 2019

Ms. Jane Smith 2020 Oakcrest Road Boca Raton, FL 33431

Dear Ms. Smith:

This letter is in response to your request for a tentative computation of your 2019 taxable income.

Based on the 2019 estimates you provided to us, we have determined that your estimated AGI would be . This results in and estimated taxable income of .

If I can be of further assistance to you in this matter, please do not hesitate to contact me.

Sincerely, John J. Jones, CPA Partner