Suffolk Free Tax Preparation Clinic

Suffolk Free Tax Preparation Clinic

Resident II Certification Exam

Section I:  Short Answer Questions

1. Michael O’Brien is unmarried. He drove for Uber in 2018. He lives with his 24-year-old son, Kevin. Kevin worked in a university and had $50,000 income in 2018. This was his first year driving for Uber so he did not keep track of all his business expenses such as mileage and meals. His total income from Uber was $32,000. Uber gave him a 1099-K stating his total mileage was 20,894 miles in 2018. He did not make any estimated payments in 2018. Based on the facts above, please answer the following questions:

1. What is the best filing status for Michael?

Single, since taxpayer is unmarried and has no dependent claimed, because his over 24 year old and had income more than $4150 in 2018.

1. Can Michael claim Kevin as a dependent on his tax return? Please explain.

No, Michael cannot claim Kevin, because Kevin did not meet both child and relative tests as age test and income test fail, by reaching 24 year old and having huge income.

1. Can Michael deduct the total mileage reported from Uber on his tax return? If so, what is the dollar amount? Please explain.

Yes, Michael can deduct total mileage since Uber kept the mileage log and report on it on 1099-k. The total mileage 20,894 times the standard mileage rate for business $0.545 equal to $11387.

1. Which portion of self-employment taxes is deductible on Michael’s tax return? Where will the deduction show on his return?

One half of the self-employment taxes will be deductible on his return as of $32,000 x 92.35% x 15.3% x 50%=$2261. The amount will be showed on line27, SCH1 of 1040.

1. When you finish Michael’s return, you notice that he has a decent amount of tax liabilities. What tax planning advices would you recommend to Michael for 2018?

I will suggest Michael to pay quarterly estimated taxes during the year since his self-employment income from Uber exceed $20000, in order to avoid tax penalty and pay huge lump sum tax.

1. If Michael cannot make a one-time payment to pay his tax liabilities, what are some other options available for him?

Michael can make estimated tax payments by four installments before IRS due dates for not being penalized.

1. James Kelley is married and lives with his wife, Diana Kelley and a 9-year-old daughter, Emily Kelley. He drove full-time for Lyft in 2018 - 30,293 business miles. He kept a detailed mileage log and kept track of all his business expenses. His income from Lyft was $54,000.  He incurred $2,000 meal expenses in 2018. Diana is an elementary school teacher at a local public school. She paid $400 of school supplies in 2018. The school did not reimburse her the expense. Based on the facts above, please answer the following questions:

1. What is the best filing status for James?

             The best filling status for James is MFJ as he lives with his wife during the year.

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