Comprehensive 2018 Federal Income Tax Return for the Smith Family

This assignment involves calculating the 2018 federal income tax return for the Smith family. Joseph Smith, a self-employed CPA, and Rita Smith, a teacher, have two children. The scenario provides their incomes, business expenses (including office rent, supplies, internet, phone, advertising, postage, audit/tax software, and business gifts), and Rita's employment-related tax withholdings. The task requires completing the necessary 2018 tax forms and schedules, including Form 1040, Schedule C for Joseph's self-employment income and business expenses, and potentially Schedule E if there are any rental properties or other supplemental income or losses. The solution will determine the family's taxable income, tax liability, any applicable credits or deductions (e.g., child tax credit), and the final amount owed or refund due. The assignment also highlights the importance of accurate record-keeping and understanding various tax deductions and credits to minimize tax liability.

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.)
▶ Attach to Form 1040, 1040NR, or Form 1041.
▶ Go to www.irs.gov/ScheduleE for instructions and the latest information.
OMB No. 1545-0074
2018Attachment
Sequence No.13
Name(s) shown on return Your social security number
Part I Income or Loss From Rental Real Estate and RoyaltiesNote: If you are in the business of renting personal property, use
Schedule C or C-EZ (see instructions). If you are an individual, report farm rental income or loss from Form 4835 on page 2, line
A Did you make any payments in 2018 that would require you to file Form(s) 1099? (see instructions). . . . . Yes No
B If “Yes,” did you or will you file required Forms 1099?. . . . . . . . . . . . . . . . . . . Yes No
1a Physical address of each property (street, city, state, ZIP code)
A
B
C
1b Type of Property
(from list below)
A
B
C
2 For each rental real estate property listed
above, report the number of fair rental and
personal use days. Check the QJV box
only if you meet the requirements to file as
a qualified joint venture. See instructions.
Fair Rental
Days
Personal Use
Days QJV
A
B
C
Type of Property:
1 Single Family Residence
2 Multi-Family Residence
3 Vacation/Short-Term Rental
4 Commercial
5 Land
6 Royalties
7 Self-Rental
8 Other (describe)
Income: Properties: A B C
3 Rents received. . . . . . . . . . . . . 3
4 Royalties received . . . . . . . . . . . . 4
Expenses:
5 Advertising . . . . . . . . . . . . . . 5
6 Auto and travel (see instructions). . . . . . . 6
7 Cleaning and maintenance. . . . . . . . . 7
8 Commissions. . . . . . . . . . . . . . 8
9 Insurance . . . . . . . . . . . . . . . 9
10 Legal and other professional fees .. . . . . . 10
11 Management fees. . . . . . . . . . . . 11
12 Mortgage interest paid to banks, etc. (see instructions)12
13 Other interest. . . . . . . . . . . . . . 13
14 Repairs. . . . . . . . . . . . . . . . 14
15 Supplies . . . . . . . . . . . . . . . 15
16 Taxes . . . . . . . . . . . . . . . . 16
17 Utilities . . . . . . . . . . . . . . . . 17
18 Depreciation expense or depletion. . . . . . 18
19 Other (list)▶ 19
20 Total expenses. Add lines 5 through 19. . . . . 20
21 Subtract line 20 from line 3 (rents) and/or 4 (royalties). If
result is a (loss), see instructions to find out if you must
file Form 6198. . . . . . . . . . . . . 21
22 Deductible rental real estate loss after limitation, if any,
on Form 8582 (see instructions). . . . . . . 22 ( ) ( ) ( )
23a Total of all amounts reported on line 3 for all rental properties. . . . 23a
b Total of all amounts reported on line 4 for all royalty properties. . . . 23b
c Total of all amounts reported on line 12 for all properties. . . . . . 23c
d Total of all amounts reported on line 18 for all properties. . . . . . 23d
e Total of all amounts reported on line 20 for all properties. . . . . . 23e
24 Income. Add positive amounts shown on line 21. Do not include any losses. . . . . . . 24
25 Losses. Add royalty losses from line 21 and rental real estate losses from line 22. Enter total losses here .25 ( )
26 Total rental real estate and royalty income or (loss). Combine lines 24 and 25. Enter the result
here. If Parts II, III, IV, and line 40 on page 2 do not apply to you, also enter this amount on
Schedule 1 (Form 1040), line 17, or Form 1040NR, line 18. Otherwise, include this amount in the
total on line 41 on page 2.. . . . . . . . . . . . . . . . . . . . . . . . 26
For Paperwork Reduction Act Notice, see the separate instructions. Cat. No. 11344L Schedule E (Form 1040) 2018
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Schedule E (Form 1040) 2018 Attachment Sequence No.13 Page 2
Name(s) shown on return. Do not enter name and social security number if shown on other side. Your social security number
Caution: The IRS compares amounts reported on your tax return with amounts shown on Schedule(s) K-1.
Part II Income or Loss From Partnerships and S Corporations— Note: If you report a loss, receive a distribution, dispose of
stock, or receive a loan repayment from an S corporation, you must check the box in column (e) on line 28 and attach the require
computation. If you report a loss from an at-risk activity for which any amount is not at risk, you must check the box in column (
line 28 and attach Form 6198 (see instructions).
27 Are you reporting any loss not allowed in a prior year due to the at-risk, excess farm loss, or basis limitations, a prior ye
unallowed loss from a passive activity (if that loss was not reported on Form 8582), or unreimbursed partnership expen
you answered “Yes,” see instructions before completing this section .. . . . . . . . . . . Yes No
28 (a) Name (b) Enter P for
partnership; S
for S corporation
(c) Check if
foreign
partnership
(d) Employer
identification
number
(e) Check if
basis computation
is required
(f) Check if
any amount is
not at risk
A
B
C
D
Passive Income and Loss Nonpassive Income and Loss
(g) Passive loss allowed
(attach Form 8582 if required)
(h) Passive income
from Schedule K-1
(i) Nonpassive loss
from Schedule K-1
(j) Section 179 expense
deduction from Form 4562
(k) Nonpassive income
from Schedule K-1
A
B
C
D
29a Totals
b Totals
30 Add columns (h) and (k) of line 29a.. . . . . . . . . . . . . . . . . . . . 30
31 Add columns (g), (i), and (j) of line 29b.. . . . . . . . . . . . . . . . . . . 31 ( )
32 Total partnership and S corporation income or (loss). Combine lines 30 and 31. . . . 32
Part III Income or Loss From Estates and Trusts
33 (a) Name (b) Employer
identification number
A
B
Passive Income and Loss Nonpassive Income and Loss
(c) Passive deduction or loss allowed
(attach Form 8582 if required)
(d) Passive income
from Schedule K-1
(e) Deduction or loss
from Schedule K-1
(f) Other income from
Schedule K-1
A
B
34a Totals
b Totals
35 Add columns (d) and (f) of line 34a. . . . . . . . . . . . . . . . . . . . 35
36 Add columns (c) and (e) of line 34b. . . . . . . . . . . . . . . . . . . . 36 ( )
37 Total estate and trust income or (loss). Combine lines 35 and 36 .. . . . . . . . . 37
Part IV Income or Loss From Real Estate Mortgage Investment Conduits (REMICs)—Residual Holder
38 (a) Name (b) Employer identification
number
(c) Excess inclusion from
Schedules Q, line 2c
(see instructions)
(d) Taxable income (net loss)
from Schedules Q, line 1b (e) Income from
Schedules Q, line 3b
39 Combine columns (d) and (e) only. Enter the result here and include in the total on line 41 below39
Part V Summary
40 Net farm rental income or (loss) from Form 4835. Also, complete line 42 below .. . . . . 40
41 Total income or (loss). Combine lines 26, 32, 37, 39, and 40. Enter the result here and on Schedule 1 (Form 1040), line 17, or Form 1040NR, line 18▶ 41
42 Reconciliationof farmingand fishingincome. Enter your gross
farming and fishing income reported on Form 4835, line 7; Schedule K-1
(Form 1065), box 14, code B; Schedule K-1 (Form 1120S), box 17, code
AC; and Schedule K-1 (Form 1041), box 14, code F (see instructions). 42
43 Reconciliation for real estate professionals. If you were a real estate
professional (see instructions), enter the net income or (loss) you reported
anywhere on Form 1040 or Form 1040NR from all rental real estate activities
in which you materially participated under the passive activity loss rules .. 43
Schedule E (Form 1040) 2018
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