Brian and Corrine Lee are married taxpayers filing jointly. They live in the home they own, located at 3301 Pacific Coast Highway, Laguna Beach, CA 92651. Brian is an optometrist who owns his business; Corrine is a social worker for Orange County. They have two sons, Brady and Hank. During their trip to China last year, they fell in love with a beautiful one-year-old girl from an orphanage near Shanghai and are in the process of adopting her. The social security numbers of the four current members of their household are 412-34-5670 for Brian, 412-34-5671 for Corrine, 412-34-5672 for Brady, and 412-34-5673 for Hank. Their birth dates are as follows: Brian, 5/20/1976; Corrine, 7/23/1976; Brady, 9/1/2009; and Hank, 10/12/2011. The following are Brian’s income and expense information from his business and Corrine’s W-2 from Orange County. Brian’s optometrist office income and expenses for the current year: Gross income $ 271,355 Cost of goods sold (Beginning inventory $45,000; Purchases $63,000; Ending inventory $20,000) Cost method used to value closing inventory 88,000 Advertising 5,000 Wages 32,000 Office rent 9,600 Other 2,100 The Lees also made $26,000 in federal estimated tax payments during the year on the applicable due dates ($6,500 per quarter). The Form W-2 Corrine received from Orange County contained this information: Wages (box 1) = $ 76,925.04 Federal W/H (box 2) = $ 9,956.70 Social security wages (box 3) = $ 76,925.04 Social security W/H (box 4) = $ 4,769.35 Medicare wages (box 5) = $ 76,925.04 Medicare W/H (box 6) = $ 1,115.41 State income taxes (box 17) = $ 2,944.89 In addition, the Lees had the following income and expenses during the year: Income Interest from CDs at Pacific Coast Bank $ 3,665 Expenses Mortgage interest paid to PC Bank for their home $ 29,921 Property taxes paid on their residence 7,000 Adoption expenses (fees, court costs, and attorney’s fees) 8,850 Child care costs at LB Parks and Recreations (550 Main St, Laguna Beach, CA 92651, EIN 94-3344556) after-school program for Hank 3,500 Prepare the Lees’ federal tax return. Use Form 1040, Schedule A, Schedule B, Schedule C, and any additional appropriate schedules or forms they may need for credits. Do not complete Form 4562 (with Schedule C). (Assume no AMT although it may apply; Form 6251 or the AMT calculation is not required.) For any missing information, make reasonable assumptions. Assume that Brian follows cash basis of accounting. Use the appropriate Tax Tables or Tax Rate Schedules. Calculate the qualified business income? Note: List the names of the taxpayers in the order in which they appear in the problem. Input all the values as positive numbers. Instructions can be found on certain cells within the forms. Round your final answers to the nearest whole dollar amount. Do not skip rows, while entering in Dependents section of Form 1040 PG1. Scroll down to access Schedule C, 8812, Forms 8995, and 2441 shown separately.
Brian and Corrine Lee are married taxpayers filing jointly. They live in the home they own, located at 3301 Pacific Coast Highway, Laguna Beach, CA 92651. Brian is an optometrist who owns his business; Corrine is a social worker for Orange County. They have two sons, Brady and Hank. During their trip to China last year, they fell in love with a beautiful one-year-old girl from an orphanage near Shanghai and are in the process of adopting her. The social security numbers of the four current members of their household are 412-34-5670 for Brian, 412-34-5671 for Corrine, 412-34-5672 for Brady, and 412-34-5673 for Hank. Their birth dates are as follows: Brian, 5/20/1976; Corrine, 7/23/1976; Brady, 9/1/2009; and Hank, 10/12/2011. The following are Brian’s income and expense information from his business and Corrine’s W-2 from Orange County.
Brian’s optometrist office income and expenses for the current year:
| Gross income | $ 271,355 |
|---|---|
| Cost of goods sold (Beginning inventory $45,000; Purchases $63,000; Ending inventory $20,000) Cost method used to value closing inventory | 88,000 |
| Advertising | 5,000 |
| Wages | 32,000 |
| Office rent | 9,600 |
| Other | 2,100 |
The Lees also made $26,000 in federal estimated tax payments during the year on the applicable due dates ($6,500 per quarter).
The Form W-2 Corrine received from Orange County contained this information:
| Wages (box 1) = | $ 76,925.04 |
|---|---|
| Federal W/H (box 2) = | $ 9,956.70 |
| Social security wages (box 3) = | $ 76,925.04 |
| Social security W/H (box 4) = | $ 4,769.35 |
| Medicare wages (box 5) = | $ 76,925.04 |
| Medicare W/H (box 6) = | $ 1,115.41 |
| State income taxes (box 17) = | $ 2,944.89 |
In addition, the Lees had the following income and expenses during the year:
| Income | |
|---|---|
| Interest from CDs at Pacific Coast Bank | $ 3,665 |
| Expenses | |
| Mortgage interest paid to PC Bank for their home | $ 29,921 |
| Property taxes paid on their residence | 7,000 |
| Adoption expenses (fees, court costs, and attorney’s fees) | 8,850 |
| Child care costs at LB Parks and Recreations (550 Main St, Laguna Beach, CA 92651, EIN 94-3344556) after-school program for Hank | 3,500 |
Prepare the Lees’ federal tax return. Use Form 1040, Schedule A, Schedule B, Schedule C, and any additional appropriate schedules or forms they may need for credits. Do not complete Form 4562 (with Schedule C). (Assume no AMT although it may apply; Form 6251 or the AMT calculation is not required.) For any missing information, make reasonable assumptions. Assume that Brian follows cash basis of accounting. Use the appropriate Tax Tables or Tax Rate Schedules.
Calculate the qualified business income?
Note: List the names of the taxpayers in the order in which they appear in the problem. Input all the values as positive numbers. Instructions can be found on certain cells within the forms. Round your final answers to the nearest whole dollar amount. Do not skip rows, while entering in Dependents section of Form 1040 PG1. Scroll down to access Schedule C, 8812, Forms 8995, and 2441 shown separately.
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