Calculation of gross income for tax declaration The Major Project Case Facts: Diana and Ryan Workman were married on January 1 of last year.Diana has an e

Calculation of gross income for tax declaration The Major Project Case Facts:

Diana and Ryan Workman were married on January 1 of last year.Diana has an eight-year-old son, Jorge, from her previous marriage.Ryan works as a computer programmer at Datafile Inc. (DI) earning a salary of $96,000.Diana is self-employed and runs a day care center.The Workmans reported the following financial information pertaining to their activities during the current year.

a.Ryan earned a $96,000 salary for the year.

b.Ryan borrowed $12,000 from DI to purchase a car.DI charged him 2 percent interest ($240) on the loan, which Ryan paid on December 31, but would have charged Ryan $720 if interest was calculated at the applicable federal interest rate. Assume that tax avoidance was not a motive for the loan.

c.Diana received $2,000 in alimony and $4,500 in child support payments from her former husband. They divorced in 2016.

d.Diana won a $900 cash prize at her church-sponsored Bingo game.

e.The Workmans received $500 of interest from corporate bonds and $250 of interest from a municipal bond.Diana owned these bonds before she married Ryan.

f.The couple bought 50 shares of ABC Inc. stock for $40 per share on July 2.The stock was worth $47 a share on December 31.The stock paid a dividend of $1.00 per share on December 1.

g.Diana’s father passed away on April 14.She inherited cash of $50,000 from her father and his baseball card collection, valued at $2,000.As beneficiary of her father’s life insurance policy, Diana also received $150,000.

h.The couple spent a weekend in Atlantic City in November and came home with grossgambling winnings of $1,200.

i.Ryan received $400 cash for reaching 10 years of continuous service at DI.

j.Ryan was hit and injured by a drunk driver while crossing a street at a crosswalk.He was unable to work for a month.He received $6,000 from his disability insurance.DI paid the premiums for Ryan but they reported the amount of the premiums as compensation to Ryan on his year-end W-2.

k.The drunk driver who hit Ryan in part (j) was required to pay his $2,000 medical costs, $1,500 for the emotional trauma he suffered from the accident, and $5,000 for punitive damages.

l.For meeting his performance goals this year, Ryan was informed on December 27 that he would receive a $5,000 year-end bonus.DI (located in Houston, Texas) mailed Ryan’s bonus check from its payroll processing center (Tampa, Florida) on December 28. Ryan didn’t receive the check at his home until January 2.

m.Diana is a 10 percent owner of MNO Inc., a Subchapter S corporation.The company reported ordinary business income for the year of $92,000.Diana acquired the MNO stock two years ago.

n.Diana’s daycare business collected $35,000 in revenues.In addition, customers owed her $3,000 at year-end.During the year, Diana spent $5,500 for supplies, $1,500 for utilities, $15,000 for rent, and $500 for miscellaneous expenses.One customer gave her use of his vacation home for a week (worth $2,500) in exchange for Diana allowing his child to attend the day care center free of charge.Diana accounts for her business activities using the cash method of accounting.

o.Ryan’s employer pays the couple’s annual health insurance premiums of $5,500 for a qualified plan.

REQUIRED Deliverables (A-B):

A. Assuming the Workmans file a joint tax return, determine their gross income.

B. Using your answer in part A, complete page 1 of Form 1040 through line 22 for the Workmans. Form
1040 U.S. Individual Income Tax Return 2018
(99)
Department of the Treasury—Internal Revenue Service
Filing status:
Single
Married filing jointly
Your first name and initial
Qualifying widow(er)
Your social security number
Someone can claim you as a dependent
If joint return, spouse’s first name and initial
Spouse is blind
Head of household
IRS Use Only—Do not write or staple in this space.
Last name
Your standard deduction:
Spouse standard deduction:
Married filing separately
OMB No. 1545-0074
You were born before January 2, 1954
You are blind
Spouse’s social security number
Last name
Someone can claim your spouse as a dependent
Spouse was born before January 2, 1954
Spouse itemizes on a separate return or you were dual-status alien
Home address (number and street). If you have a P.O. box, see instructions.
Apt. no.
City, town or post office, state, and ZIP code. If you have a foreign address, attach Schedule 6.
Dependents (see instructions):
(1) First name
(2) Social security number
Full-year health care coverage
or exempt (see inst.)
Presidential Election Campaign
(see inst.)
You
Spouse
If more than four dependents,
see inst. and ✓ here ▶
(3) Relationship to you
Last name
(4) ✓ if qualifies for (see inst.):
Child tax credit
Credit for other dependents
Sign
Here
Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true,
correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Joint return?
See instructions.
Keep a copy for
your records.
▲
Paid
Preparer
Use Only
Your signature
Date
Your occupation
Spouse’s signature. If a joint return, both must sign.
Date
Spouse’s occupation
Preparer’s name
Preparer’s signature
PTIN
If the IRS sent you an Identity Protection
PIN, enter it
here (see inst.)
If the IRS sent you an Identity Protection
PIN, enter it
here (see inst.)
Firm’s EIN
Check if:
3rd Party Designee
Firm’s name
▶
Phone no.
Self-employed
Firm’s address ▶
For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.
Cat. No. 11320B
Form
1040 (2018)
Page 2
Form 1040 (2018)
Attach Form(s)
W-2. Also attach
Form(s) W-2G and
1099-R if tax was
withheld.
Standard
Deduction for—
• Single or married
filing separately,
$12,000
• Married filing
jointly or Qualifying
widow(er),
$24,000
• Head of
household,
$18,000
• If you checked
any box under
Standard
deduction,
see instructions.
Refund
Direct deposit?
See instructions.
1
Wages, salaries, tips, etc. Attach Form(s) W-2 .
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1
2a
Tax-exempt interest .
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Qualified dividends .
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b Taxable interest
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b Ordinary dividends
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IRAs, pensions, and annuities .
4a
b Taxable amount
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4b
5a
Social security benefits
5a
b Taxable amount
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6
7
Total income. Add lines 1 through 5. Add any amount from Schedule 1, line 22
. . . . .
Adjusted gross income. If you have no adjustments to income, enter the amount from line 6; otherwise,
subtract Schedule 1, line 36, from line 6
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8
Standard deduction or itemized deductions (from Schedule A) .
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Qualified business income deduction (see instructions) .
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Taxable income. Subtract lines 8 and 9 from line 7. If zero or less, enter -0-
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a Tax (see inst.)
Form 4972
3
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(check if any from: 1
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Form(s) 8814
b Add any amount from Schedule 2 and check here
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a Child tax credit/credit for other dependents
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Subtract line 12 from line 11. If zero or less, enter -0-
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Other taxes. Attach Schedule 4 .
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Federal income tax withheld from Forms W-2 and 1099
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Refundable credits: a EIC (see inst.)
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b Add any amount from Schedule 3 and check here ▶
b Sch. 8812
c Form 8863
Add any amount from Schedule 5
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Add lines 16 and 17. These are your total payments
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If line 18 is more than line 15, subtract line 15 from line 18. This is the amount you overpaid .
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Amount of line 19 you want refunded to you. If Form 8888 is attached, check here
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b
Routing number
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d
Account number
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Amount You Owe 22
23
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Amount of line 19 you want applied to your 2019 estimated tax .
c Type:
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Checking
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Go to www.irs.gov/Form1040 for instructions and the latest information.
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Savings
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Amount you owe. Subtract line 18 from line 15. For details on how to pay, see instructions
Estimated tax penalty (see instructions) .
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Form
1040 (2018)

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