Posted: March 3rd, 2022
DeVry University Chicago Tax Filings of Joseph Smith and Rita Smith Case Study
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).
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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
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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