DeVry University Chicago Tax Filings of Joseph Smith and

Rita Smith Case Study

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DeVry University Chicago Tax Filings of Joseph Smith and Rita Smith Case Study

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:

Must fill out the following forms from the criteria given:

Form 1040

Schedule A

Schedule C

Schedule SE

Schedule 4562
Schedule 2441

Schedule E

Item Amount

Office Rent $24,000

Office Supplies $8,000

Internet Charges $1,200

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 $2,600

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

Utilities $3,000

Landscaping $500