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[email protected]Chapter 4 & 5 Practice return - 2019 Zac and Melinda Pearson provided the following information and attached tax documents for use in preparing their 2019 tax return. Maximize deductions to give Roberta the highest refund or lowest tax bill. As you are completing the return, cross reference any amounts used to the tax return location, show all calculations, and indicate reason for information not used. Be thorough on your review of information and define all codes on tax documents. Excel spreadsheets may be used to compute items such as depreciation if needed for support. Complete all forms with names, SS#, address, etc as required. Remember, once you complete the return, the reviewer must be able to determine all information given has been considered, all missing information has been requested, and any tax planning/advice has been provided. Zachary and Melinda Pearson, husband and wife, file a joint return. The Pearsons live at 625 Oak Street in Corbin, KY 40701. Zac’s Social Security number is 111-00-1112, and Melinda’s is 123-00-6789. Zac was born on January 15, 1957, and Melinda was born on August 20, 1969. During 2019, Zac and Melinda furnished over half of the total support of each of the following individuals, all of whom still live at home: 1. Sally, their daughter, age 21, a full-time student, who married on December 21, 2019, has no income of her own and for 2019 did not file a joint return with her husband, Casey Monroe, who earned $10,600 during 2019. Sally’s Social Security number is 123-00-6788. 2. Sam, their son, age 20, who had gross income of $6,300 in 2019, attended college until October 2019. He graduated from high school in May 2018. Sam’s Social Security number is 123-00-6787. 3. Ben, their oldest son, age 26, is a full-time graduate student with gross income of $3,200. Ben’s Social Security number is 123-00-6786. The Pearsons included the attached W-2s, K-1, and 1099s with their information. Zac began receiving retirement income from ABC Company in January 2018. He made after-tax contributions to the retirement plan $39,000 during his 25 year employment at the company. For 2018, he excluded $1,800 in benefits. Melinda sold a house on December 30, 2019, and will be paid a commission of $3,100 (not included in the $86,100 reported on the W–2) on the January 10, 2020 closing date. The $282 from First Bank was original issue discount. Zac and Melinda collected $16,000 on the First Bank CD that matured on September 30, 2019. The CD was purchased on October 1, 2016, for $14,995, and the yield to maturity was 3.3%. The Pearsons also held other investments at the bank that yielded the tax-exempt interest reported on the 1099. Zac’s Social Security benefits reported on 1099-SSA were $14,000. Collections on an annuity contract purchased from Great Life Insurance – 12 monthly payments of $450 each for a total of $5,400 received in 2019. The cost of the annuity was $46,800. Zac has received 34 payments through 2019. Zac was 59 when he started receiving the payments. Round the decimal to two decimal places when computing the exclusion and round exclusion to whole dollar amount. Zac’s 40-year-old daughter, Sarah C. Seymour, borrowed $60,000 on January 2, 2018. She used the money to start a new business. Zac does not charge her interest because she could not afford to pay it, but he does expect to collect the principal eventually. In 2019, Sarah provides her own support from her business and $1,400 in dividends on stocks that she inherited from her mother. The federal interest rate in effect is 2%. On their 2018 return, the total itemized deductions totaled $25,140 with $3,440 related to state income taxes. The Pearson’s received a refund 4/15/2019 for $475 from their Kentucky state income tax return filed for 2018. On line 9, form 1040, enter $1,600 as the QBID. The $8,000 income from partnership is considered QBI. NEXT YEAR – THIS MUST BE REDUCED BY CHARITABLE CONTRIBUTIONS TOO In addition to the above information, Zac and Melinda’s itemized deductions included the following: Personal property tax paid on vehicles $1,250 Cash contributions to the Boy Scouts 800 Charitable contributions of cash to Alto Baptist Church $8,400 All members of the family had health insurance coverage for all of 2019. Zac and Melinda do not wish to contribute to the Presidential Election Campaign. Compute Zac and Melinda’s 2019 Federal income tax payable (or refund due). Use tax forms, 1040 and Schedules 1, A, B, and E. Also, use the Capital Gain and Dividend worksheet to compute tax and the Social Security Worksheet to compute the taxable social security.