Forms required* for the final tax return are listed below:
Form 1040
Schedule A
Schedule B
Schedule C
Schedule D
Form 8949 (2 transactions)
Schedule E (Rental and S-Corp.)
Schedule SE
*Reminder: To save as a pdf, go to File, Save Client Return as PDF, and make sure you save it somewhere you will recognize it.
Notes for each section are as follows:
Section 1:
- Filing status and dependents should be researched in Chapter 4.
- Alimony will be included on the return. Notice who is receiving the alimony and who is paying the alimony. Also, notice that the amount changes when the son reaches age 18, which means a portion is assumed to be child support. Only list the true alimony. Notice the amount given is a monthly amount.
- Note each bullet point.
Section 2:
- Enter the W-2 information.
Sections 3 and 4:
- Enter the W-2 wages using the following formula:
o Salary (from Section 3) - 401(k) contributions (from Section 3) - deductible amount of flexible spending plan contributions (from Section 3) + whole life insurance premiums paid by employer (from Section 4) + health club dues paid by employer (from Section 4) + disability pay from her employer (from Section 11).
Section 5:
- See page 26 of Chapter 12.
Section 6:
- See page 24 of Chapter 12.
Section 7:
- See page 16 of Chapter 5.
- This will go on Line 21 as Other Income.
Section 8:
- Are inheritances taxable at the time received?
Section 9:
- See Exhibit A on page C-11 for 1099-INT and 1099-DIV information to enter.
- Notice that some of the interest is tax-exempt.
- Save the Form 1098 for Section 19.
- Save the Grubstake information for Section 10.
Section 10:
- Enter the Grubstake information through Documents Received/S-Corporation K-1.
- Do your best. We will be preparing Schedule K-1s next semester! If you have to override this, it is fine.
- She owns 1% of the S-Corporation, so her share of the income is $2,000.
- Enter her ownership percentage (K-1 Line F), her share of the income (K-1 Line 1), and then the distribution (on Schedule K-1 Line 16 D).
- You do not need any more of the information given in Section 10.
Section 11:
- The only thing you need on this section is the disability pay that was already entered per Sections 3 and 4 above.
Section 12:
- Enter both sale transactions through Form 1040 Line 13.
- The Schedule D will summarize the gains/losses.
- Make sure you check the box to have the Form 8949 print.
Section 13:
- Enter federal estimates through Form 1040 Line 65.
- Enter state estimates through Schedule A. Notice the 4th quarter estimate payment date.
Section 14:
- Include the state tax refund on Line 10 of Form 1040. Disregard federal tax info since it is from last year's taxes.
Section 15:
- Reference Section 8.
- Enter the number of fair rental days on Schedule E. Do not enter personal use days.
- Big hints: The rents received should be $2,400 total, and you should have $300 in repairs expense.
- OVERRIDE depreciation on Schedule E as $1,080. Disregard the note about the value of the land.
Section 16:
- Schedule A
Section 17:
- Schedule A (tax amount only)
Section 18:
- Schedule A
- There is one non-deductible medical expense listed.
Section 19:
- Schedule A
- Primary home mortgage and home-equity loan interest go on Line 10 of Schedule A. (See Exhibit A on page C-11.)
- The discount points amortization will be reported on Line 12 of Schedule A.
o You will go through the Line 12 entry screen to enter the total points, the loan date, and the length (life) of the new loan. The system will calculate the amortizable points for this tax return year. Partial months round up to the nearest number of whole months.
o This is what happens behind the scenes in the software: $1,500 / 180 months = $8.33/month x 10 months
Section 20:
- Schedule A - 4 cash contributions and 1 non-cash contribution.
- There is one non-deductible charitable contribution.
Section 21:
- See pages 24-25 in Chapter 6.
Section 22:
- Schedule C
- Assume cash method is used.
- Don't forget the business mileage and the checkboxes about the vehicle!
- Don't forget to enter about the personal property tax paid on her vehicle from Section 17. When you enter the total car tax through Schedule C line 9, the software will deduct the business portion (40%) from the amount on Schedule A line 7. Therefore, you will just enter the total $280 tax in Schedule A and Schedule C entry screens, and the software will divvy it up for you.
- The "car and truck expenses" deduction line is made up of mileage, property tax, loan interest, tolls, and parking.
- If you are having trouble getting the check figures, it is ok to override line 9 of Schedule C in order to make a total amount of expenses on line 28 = $12,713. Between lines 9 and 23 you should have a total of $3,818.
Section 23:
- Since the plan is accountable, the reimbursements are not taxable, and the amounts are not deductible.
Section 24:
- Schedule A - Miscellaneous Deductions
- Deduct all tax preparation fees as personal expenses (on Schedule A).
Please ask questions as you have them. If not prepared with tax software your grade will be affected significantly. Only pdf file formats of the tax return will be accepted for a grade. Remember to submit the critical thinking questions/answers!
Check Figures:
Line 22 = $72,779
Line 37 = $70,376
Line 43 = $44,527
Line 57 = $1,206
Line 75 = $1,753
QUESTIONS
1. Personal perspectives and position: What is your experience and knowledge level regarding individual taxes? How did your personal tax experience and knowledge help you in completing this tax return?
2. Other salient perspectives and positions: What resources did you use in preparing this tax return? Provide references to page numbers in your textbook and specific addresses within the IRS website.
3. Key assumptions: How did you decide what filing status to use? How did you decide who the dependents were? How did you decide which income was includible or excluded? How did you decide which expenses were deductible? Please explain.
4. Quality of evidence: Show your work in an Excel attachment for the following line item: Form 1040 Line 44. (When calculating the tax amount, make sure you consider the preferential tax rates for long-term capital gains and qualified dividends. If your tax amount calculated in your Excel worksheet is slightly different from the tax amount calculated by the software, just make a note of it on the spreadsheet. It may be a rounding difference, but you should not be off by too much.)
5. Conclusions, implications, and consequences: From your answers to the line items in this tax return, is this individual in a position to receive a refund from the IRS or to pay additional tax to the IRS?
6. Identify criteria for assessing alternatives: Based on the amount owed or to be refunded, what are the key tax issues that should be considered during the next year? List at least two key tax issues and explain each. (Think outside the box; this is not given in the problem.)
7. Applies criteria to alternatives: Based on these key tax issues, what are the taxpayer's options for the next year? Identify options for each tax issue listed. (Again, think outside the box.)
8. Evaluates results: As a tax preparer, what would you recommend this client to do next year based on the options identified?
Attachment:- Tax Return 1 Form 1040.xlsx