PLEASE COMPLETE ONLY FORM 1040, SCHEDULE 1, SCHEDULE 4, SCHEDULE C, and SCHEDULE H.

Comprehensive Problems 6

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:

Item

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:

Item Amount

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.

Richard McCauthy (bom 2/14/64; Social Security number 100-10-9090) and Christine McCarthy (bom 6/1/1966; Social security number 101-21-3434) have a 19-year-old son (bora 10/299 Social Security number 555-55-7212). 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