Anthony Barrone is a graduate student at State University. His 10-year-old son, Jamie, lives with him, and Anthony is Jamies sole support.

Anthonys wife died in 2020, and Anthony has not remarried. Anthony received $320,000 of life insurance proceeds (related to his wifes death) in early 2021 and immediately invested the entire amount as shown below.

Item Date Acquired Cost Date Sold Selling Price Dividends/Interest 1,000 shares Blue 01/23/21 $14,000 12/03/21 $3,500 $0 400 shares Magenta 01/23/21 23,000 750 600 shares Orange 01/23/21 230,000 2,300 100 shares Brown 06/23/15 2,800 01/23/21 14,000 0 Green bonds 01/23/21 23,000 1,200 Gold money market account 01/23/21 30,000 600 Anthony had $42,000 of taxable graduate assistant earnings from State University and received a $10,000 scholarship.

He used $8,000 of the scholarship to pay his tuition and fees for the year and $2,000 for Jamies day care. Jamie attended Little Kids Daycare Center, a state-certified child care facility.

Anthony received a statement related to the Green bonds saying that there was $45 of original issue discount amortization during 2021.

Anthony maintains the receipts for the sales taxes he paid of $735.

Anthony lives at 1610 Cherry Lane, Bradenton, FL 34212, and his Social Security number is 111-11-1111.

Jamies Social Security number is 123-45-6789.

The university withheld $2,000 of Federal income tax from Anthonys salary.

Anthony is not itemizing his deductions.

Part 1Tax Computation Compute Anthonys lowest tax liability for 2021.

Part 2Tax Planning Anthony is concerned because the Green bonds were worth only $18,000 at the end of 2021, $5,000 less than he paid for them. He is an inexperienced investor and wants to know if this $5,000 is deductible. The bonds had original issue discount of $2,000 when he purchased them, and he is curious about how that affects his investment in the bonds. The bonds had 20 years left to maturity when he purchased them. Draft a brief letter to Anthony explaining how to handle these items. Also prepare a memo for Anthonys tax file.

1) Fill out Form 8949 and Schedule D for the capital transactions (ignore the Dividends / Interest column in the table)

2) Assuming Paul's taxable income is $24,795, which includes any capital gain computed in step 1, calculate Paul's tax liability assuming

a) all gains are treated as ordinary income

b) the alternative tax computation is used to calculate tax on the capital gain