SMITH FAMILY'S 2018 TAX SCENARIO (A COMPREHENSIVE QUESTION!) Joseph L. Smith (age 45, Social Security number 145-26-9210) and Rita M.
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Joseph L. Smith (age 45, Social Security

number 145-26-9210) and Rita M. Smith (age 43, Social Security number 142-46-5108) are husband and wife. They live at 1650 Belmont Avenue, Chicago, IL 60615. David is a self-employed CPA and Rita is a third grade teacher. They have two children: Blake (age 5, Social Security number 310-51-2108) and Amelia (age 3, Social Security number 314-62-8924).

In 2018, Joseph earned $182,000 and Rita earned $46,000. The Smith family has medical coverage through the school system for which Rita works. As an employee, Rita had $9,500 of federal tax withheld, $2,300 of IL state tax withheld, and the required Social Security and Medicare taxes.

Joseph has an office with business expenses for 2018 as follows:

Item Amount

Office Rent $24,000

Office Supplies $8,000

Internet Charges $1,2000

 Phone System Charges $4,800

Advertising Expenses$1,800

Postage Charges$1,500

Audit/Tax Software Charges $20,000

Business Gifts$400

The advertising expenses included local newspaper advertisements, digital marketing, and direct marketing flyers. The business gifts were $40 gift certificates given to his 10 largest clients in appreciation for their business.

Joseph purchased a 2017 Honda Civic in 2017. In 2018, he drove 24,000 business miles and 6,000 personal miles, and uses the standard mileage method for tax purposes.

In 2018, Joseph made estimated quarterly federal tax payments of $18,000/quarter and estimated quarterly IL state tax payments of $3,000. All the payments were made within calendar 2018. Joseph also contributed $8,000 to his SEP account.

Rita bought various supplies for her classroom, but did not closely track expenditures and thus only wants to take the allowed educator expenses deduction. Her teacher's license was also renewed in 2018 for $125.

Blake and Amelia are both in day care at the Riley Day Care Center at 1325 Lake Street, Chicago, IL 60612 (EIN 36-2875647). They are only in day care for 9 months of the year (weekly charge of $240.00/week), because Rita does not work during the summer.

In addition to the wages and expenses as detailed, the Smiths have the following documented income and expenses:

Item Amount

Interest income from CDs $1,800

Interest Income from Series EE $4,000

Government Bonds Mortgage Interest on Principal Residence $15,000

Property taxes on Residence $8,000

PMI Insurance Payments $3,000

Cash Charitable Contributions $2,500

Non-Cash Contributions (Used Clothing to Salvation Army) $350

The Smiths itemized deductions in 2017. The federal tax refund was $3,500 and the IL state tax refund was $600.

In addition, the Smiths own rental property (a "two flat" in Chicago) which they have rented out for the entire year. Total rental income was $30,000. Rental property related expenses were as follows:

Item Amount

Mortgage Interest on Rental Property $13,000

Property Tax $9,000

Repairs on Rental Units $2,6000

Depreciation on Rental Units (using SL Depreciation) $3,500

Utilities $3,000

Landscaping $500

I need



Department of the Treasury—Internal Revenue Service

U.S. Individual Income Tax Return


SCHEDULE A (Form 1040)

Department of the Treasury Internal Revenue Service (99)

Itemized Deductions

Go to

SCHEDULE C (Form 1040)

Department of the Treasury Internal Revenue Service (99)

Profit or Loss From Business (Sole Proprietorship)

▶ Go to

SCHEDULE SE (Form 1040)

Department of the Treasury Internal Revenue Service (99)

Self-Employment Tax

▶ Go to

SCHEDULE E(Form 1040)

Department of the Treasury Internal Revenue Service (99)

Supplemental Income and Loss (From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.)

▶ Go to

Form 4562

Department of the Treasury Internal Revenue Service (99)

Depreciation and Amortization (Including Information on Listed Property)

▶ Attach to your tax return. ▶ Go to

Form 2441

Department of the Treasury Internal Revenue Service (99)

Child and Dependent Care Expenses

▶ Attach to Form 1040 or Form 1040NR.

▶ Go to

Thank you

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