December 31, 2020 To the friendly student tax preparer: Hi, it’s Shady Slim again. I just got back from my 55th birthday party, and I’m told that you need some more information from me in order to...

December 31, 2020

To the friendly student tax preparer:

Hi, it’s Shady Slim again. I just got back from my 55th birthday party, and I’m told that you need some more information from me in order to complete my tax return. I’m an open book! I’ll tell you whatever I think you need to know.

Let me tell you a few more things about my life. As you may recall, I am divorced from my wife, Alice. I know that it's unusual, but I have custody of my son, Shady Jr. The judge owed me a few favors and I really love the kid. He lives with me full time and my ex-wife gets him every other weekend. I pay the vast majority of my son's expenses. I think Alice should have to pay some child support, but she doesn't have to pay a dime. The judge didn't owe me that much, I guess.

I had to move this year after getting my job at Roca Cola. We moved on February 3 of this year, and I worked my job at Roca Cola for the rest of the year. I still live in the same state, but I moved 500 miles away from my old house. I hired a moving company to move our stuff at a cost of $2,340, and I drove Junior in my car. Junior and I got a hotel room along the way that cost us $65 (I love Super 8!).

Can you believe I’m still paying off my student loans, even after 15 years? I paid a total of $19,440 in interest on my old student loans this year.

Remember when I told you about that guy that hit me with his car? I had a bunch of medical expenses that were not reimbursed by the lawsuit or by my insurance. I incurred a total of $20,400 in medical expenses, and I was only reimbursed for $11,200. Good thing I can write off medical expenses, right?

I contributed a lot of money to charity this year (and have receipt documentation for all contributions). I’m such a nice guy! I gave $1,040 in cash to the March of Dimes. I contributed some of my old furniture to the church. It was some good stuff! I contributed a red velvet couch and my old recliner. The furniture is considered vintage and is worth $5,200 today (the appraiser surprised me!), even though I only paid $1,040 for it back in the day. When I contributed the furniture, the pastor said he didn’t like the fabric and was going to sell the furniture to pay for some more pews in the church. Oh well, some people just have no taste, right? Roca Cola had a charity drive for the United Way this year and I contributed $114. Turns out, I don’t even miss it because Roca Cola takes it right off my paycheck every month . . . $19 a month starting in July. My pay stub verifies that I contributed the $114 to the United Way. Oh, one other bit of charity from me this year. An old buddy of mine was down on his luck. He lost his job and his house. I gave him $520 to help him out.

I paid a lot of money in interest this year. I paid a total of $990 in personal credit card interest. I also paid $18,200 in interest on my $540,000 home mortgage that helped me buy my dream home. I also paid $2,080 in real estate taxes for my new house.

A few other things I want to tell you about this year. Someone broke into my house and stole my kid's brand new bicycle and my set of golf clubs. The total loss from theft was $940. I paid $145 in union dues this year. I had to pay $1,200 for new suits for my job. Roca Cola requires its managers to wear suits every day on the job. I spent a total of $1,340 to pay for gas to commute to my job this year.

Oh, this is pretty cool. I've always wanted to be a firefighter. I spent $1,440 in tuition to go to the local firefighter's school. I did this because someone told me that I can deduct the tuition as an itemized deduction, so the money would be coming back to me.

That should be all the information you need right now. Please calculate my taxable income and complete page 1 of Form 1040 (through taxable income, line 11b) and Schedule A. You're still doing this for free, right?

a.Calculate the taxable income.

b. Complete page 1 of Form 1040

c.Complete Schedule A.

Ken is 63 years old and unmarried. He retired at age 55 when he sold his business, Understock.com. Though Ken is retired, he is still very active. Ken reported the following financial information this year. Assume Ken files as a single taxpayer.

1. Ken won $1,200 in an illegal game of poker (the game was played in Utah, where gambling is illegal).


2. Ken sold 1,000 shares of stock for $32 a share. He inherited the stock two years ago. His tax basis (or investment) in the stock was $31 per share.


3. Ken received $25,000 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually for 20 years, for $210,000.


4. Ken received $13,000 in disability benefits for the year. He purchased the disability insurance policy last year.


5. Ken decided to go back to school to learn about European history. He received a $500 cash scholarship to attend. He used $300 to pay for his books and tuition, and he applied the rest toward his new car payment.


6. Ken’s son, Mike, instructed his employer to make half of his final paycheck of the year payable to Ken as a gift from Mike to Ken. Ken received the check on December 30 in the amount of $1,100.


7. Ken received a $610 refund of the $3,600 in state income taxes his employer withheld from his pay last year. Ken claimed $12,250in itemized deductions last year (the standard deduction for a single filer was $12,200).


8. Ken received $30,000 of interest from corporate bonds and money market accounts.

Comprehensive Problem 5-75 Part 2 (Static)

Complete page 1 of Form 1040, Line 1-7bandForm 1040, Schedule 1, Lines 1-9for Ken.

Reba Dixon is a fifth-grade school teacher who earned a salary of $38,000 in 2020. She is 45 years old and has been divorced for four years. She receives $1,200 of alimony payments each month from her former husband (divorced on 12/31/2016). Reba also rents out a small apartment building. This year Reba received $50,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental.
Reba and her daughter Heather (20 years old at the end of the year) moved to Georgia in January of this year. Reba provides more than one-half of Heather’s support. They had been living in Colorado for the past 15 years, but ever since her divorce, Reba has been wanting to move back to Georgia to be closer to her family. Luckily, last December, a teaching position opened up and Reba and Heather decided to make the move. Reba paid a moving company $2,010 to move their personal belongings, and she and Heather spent two days driving the 1,426 miles to Georgia.
Reba rented a home in Georgia. Heather decided to continue living at home with her mom, but she started attending school full-time in January and throughout the rest of the year at a nearby university. She was awarded a $3,000 partial tuition scholarship this year, and Reba helped out by paying the remaining $500 tuition cost. If possible, Reba thought it would be best to claim the education credit for these expenses.
Reba wasn't sure if she would have enough items to help her benefit from itemizing on her tax return. However, she kept track of several expenses this year that she thought might qualify if she was able to itemize. Reba paid $5,800 in stateincome taxes and $12,500 in charitable contributions during the year. She also paid the following medical-related expenses for herself and Heather:

Shortly after the move, Reba got distracted while driving and she ran into a street sign. The accident caused $900 in damage to the car and gave her whiplash. Because the repairs were less than her insurance deductible, she paid the entire cost of the repairs. Reba wasn’t able to work for two months after the accident. Fortunately, she received $2,000 from her disability insurance. Her employer, the Central Georgia School District, paid 60 percent of the premiums on the policy as a nontaxable fringe benefit and Reba paid the remaining 40 percent portion.
A few years ago, Reba acquired several investments with her portion of the divorce settlement. This year she reported the following income from her investments: $2,200 of interest income from corporate bonds and $1,500 interest income from City of Denver municipal bonds. Overall, Reba’s stock portfolio appreciated by $12,000, but she did not sell any of her stocks.
Heather reported $6,200 of interest income from corporate bonds she received as gifts from her father over the last several years. This was Heather’s only source of income for the year.
Reba had $10,000 of federal income taxes withheld by her employer. Heather made $1,000 of estimated tax payments during the year. Reba did not make any estimated payments. Reba had qualifying insurance for purposes of the Affordable Care Act (ACA).

Comprehensive Problem 8-84 Part a-1

a.Determine Reba’s federal income taxes due or taxes payable for the current year.Use Tax Rate Schedule for reference.

Using the information from part a-1, Complete pages 1 and 2, Schedule 1, and Schedule 3 of Form 1040 for Reba.

Reba Dixon's address is 19010 N.W. 135th Street, Miami, FL 33054.

Social security numbers:

Reba Dixon: 111-11-1111

Heather Dixon: 222-22-2222

2. Is Reba allowed to file as a head of household or single?


3. Determine the amount of FICA taxes Reba was required to pay on her salary.


4. Determine Heather’s federal income taxes due or payable. UseTax Rate Schedule,Dividends and Capital Gains Tax Rates,Estates and Trustsfor reference.