Question

Linda and Kyle Smith are married taxpayers who file a joint return. Their social security numbers are 123-45-6789 and 111-11-1111, respectively. Linda’s birthday is September 21, 1977, and Kyle’s is June 27, 1967. They live at 473 Revere Avenue, Lowell, MA 01850. Linda is the office manager for Lowell Dental Clinic. Kyle is the self-employed physical therapist.

The following information is shown on Linda’s Wage and Tax Statement (Form W-2) for the tax year

Line	Description	Linda
1.	Wage, tips, other compensation	$58,000
2.	Federal income tax withheld	6,960
4.	Social security tax withheld	3,596
6.	Medicare tax withheld	841
17.	State income tax withheld	2,610

During the year, Kyle recorded the following items of his business:

Revenue from patient visits	$270,000
Property tax on the office	4,500
Mortgage interest on the office	12,000
Depreciation on the office	5,500
Malpractice insurance	37,500
Utilities paid for the office	13,750
Office staff salaries	51,000
Rent payments on equipment	15,000
health insurance premium paid for himself and his dependents	2,500
health insurance premium paid for his employees	5,000

Kyle made the estimate Federal income tax payment totaled $28,000. He also made the estimate state income tax payment of $3,500 during the tax year.

The Smiths provide over half of the support of their two children, Abby (born January 25, 1994, Social security number 123-45-6788) and Michael (born February 7, 2000, Social Security number 123-45-6786). Both children are full-time students and live with the Smiths except when they are away at college. Abby earned $4,500 from a summer internship, and Michael earned $3,800 from a part-time job.

The Smiths furnished 60% of the total support of Kyle’s widower father, Paul Smith (born March 6, 1939, social security number 123-45-6777). Paul died in November 2018, and Kyle, the beneficiary of a policy on Paul’s life, received life insurance proceeds of $800, 000 on January 28, 2019.

The Smiths also made some investment activities. The following information is shown their investment income / (loss):

Interest income from saving account	$200
A gain from selling Netflix stock (hold for 7 months)	5,000
A loss from selling Bank of America stock (hold for 15 months)	(1,500)
An non-business bad debt (hint: tax treatment as short-term capital loss)	(2,000)

The Smiths had the following expenses relating to their personal residence during the tax year

Property Taxes	$5,000
Qualified interest on home mortgage	$8,800
Unreimbursed Medical expenses paid:          Medical expenses          Doctor bill          Operation          Hospital expenses	$4,500 7,600 8,500 3,500
Interest payment on car loan	1,500
Utilities	4,100
Union dues paid by Linda	600
Linda’s work uniform expenses	450

Prepare the Federal income tax return of 2019 for the Smiths. You will include Form 1040, Schedule 1, Schedule C-only page 1, and Schedule A, Schedule SE-only page 1

Checking numbers: Kyle’s net business income (Sch. C) $125750

                               AGI-Line 8a is $174066

                              They owe $221 (line 23) (you may have one or two dollar difference due to the rounding)