Chapter 8 Tax Return (covers material from chapters 4.5.6 and 8) In 2018, Caitlyn Smith's husband Ben passed away. The next year she moved from Louisiana to Texas. Caitlyn has not remarried as of the end of 2020 and currently lives in Portland, TX with her three children (ages as of the end of the year): Elizabeth (23), Joshua (16), and Anthony (11). Caitlyn would like to determine her federal income tax under the filing status that is most advantageous for her. Caitlyn reported the following information: . Caitlyn's social security number is 194-38-4528 Elizabeth's social security number is 842-48-5684 Joshua's social security number is 842-43-8495 Anthony's social security number is 842-65-8429 Caitlyn's mailing address is 23 Freedom Road Portland, Texas, 78374 Elizabeth is single and enrolled as a full-time graduate student at TAMUCC (EIN 33-9654387). TAMUCC's address is 6300 Ocean Dr., Corpus Christi, TX. 78412. She completed her bachelor's degree in 2019 and is in her fifth year of full-time higher education schooling. While at school, Elizabeth works part-time at TAMUCC to help with her living expenses earning $3,200. Caitlyn paid for Elizabeth's rent, books, tuition, food, clothes, medicine, and other support items which totaled over $16,200 of support for the year. TAMUCC provided Elizabeth with a Form 1098-T at year end. Elizabeth's higher education expenses for her university studies were as follows: Tuition $6,875 Books $2,225 In order to for Caitlyn to maintain a full-time job, she sends Anthony to a day care program after school five days a week paying $4,600 for his care. The day care details are as follows: Legacy Preschool 902 Moore Ave Portland, TX EIN: 34-8324659 Caitlyn's W-2s for the year reported the following: Employer Gross Wages Federal Income Tax Workforce Commission $53,850 $4,310 Portland Real Estate $2,800 $290 Withholding Caitlyn's employers withheld all applicable and appropriate payroll taxes. On January 1, 2019 (prior year), Caitlyn started a side hustle selling Rodan and Fields. She doesn't have to carry inventory because everything is shipped directly from Corporate, but she does maintain a website and sends samples to her customers and potential customers. She also hosts an event each year to launch new products. This business has allowed her to earn additional money in her spare time to help support her daughter in college. She uses the cash method of accounting and did not have any obligation to file a Form 1099 to any payee during the year. Caitlyn reported the following revenue and expenses for her business this year: Gross Revenue $4,650 Sample supplies $ 375 New Product Launch Event $ 250 Web site hosting fee S 300 Caitlyn sold a couple of stocks she had been holding in order to send her kids to visit their grandparents this past summer. The sales were reported on form 1099-B to her and their basis reported to the IRS: Asset Date Purchase d Date Sold Purchas Selling c Price Price TXU Stock 4/4/19 5/17/20 $12.950 $7.550 $4,500 9/15/19 5/17/20 $3,250 Mohawk Industries stock Caitlyn also received the following amounts in 2020: Life Insurance Payment-Mutual Life (Father's passing) $182,000 Cash gift from her mom $ 9,500 Interest income-First Bank of Portland $ 550 Interest income-GE Bond $ 4,450 Interest income-G-PISD Municipal Bond $ 3,750 Interest income-San Pat County Improvement District Bond $ 1,250 LA state income tax refund* $ 375 *Refund was from state tax she paid in 2019. Caitlyn deducted all her state taxes as itemized deductions, and received full tax benefit for the deductions, on her 2019 federal tax return. Caitlyn made the following payments during 2020: Dentist (unreimbursed by insurance) $1,850 Doctors (unreimbursed by insurance) S 625 Prescriptions (unreimbursed by insurance) $ 190 Real property taxes on residence $7,700 State sales tax paid $2,550 Vehicle registration fee based upon age of vehicle S Mortgage interest on principal residence (Form 1098 received) $6,000 Interest on Mastercard credit card $2,500 Cash contribution to the American Cancer Society $ 525 Cash contribution to the United Way $1,000 Cash contribution to First Baptist Church Corpus Christi $3,650 Cash contribution to Baylor University 350 Caitlyn wants to contribute to the Presidential Election Campaign Fund. She would like to receive a refund (if any) of any tax she may have overpaid for the year. Her preferred method of receiving the refund is by check. 125 Instructions: Instructions: 1. Complete the 2020 federal income tax return for Caitlyn Smith. If required information is missing, use reasonable assumptions to fill in the gaps. Schedules C (business income), SE (self-employment tax), and 8812 (child tax credits) and Forms 2441 (child and dependent care credits) and 8863 (education credits) may be helpful to you when completing the necessary calculations for these forms, but do not need to be submitted. In excel, document any calculations you used to fill in the following required forms and schedules: a. 1040 b. Schedule 1 c. Schedule D d. Form 8949 e. Schedule 2 f. Schedule 3 2. Upload an excel file with your calculation of your tax liability. 3. Write a memo to Caitlyn explaining what her filing status is in 2020 and what it will be in 2021 assuming she does not remarry. Also explain to her why her standard deduction was used and how much more she would have had to spend in order to use her itemized deduction. If the standard deduction amount (and her spending) stays the same in 2021, should she expect to itemize? Give at least 2 reason as to how she should expect her tax liability to change next year and what will cause that change? Lastly, explain to her which Education Credit she was able to claim for Elizabeth and why. Chapter 8 Tax Return (covers material from chapters 4.5.6 and 8) In 2018, Caitlyn Smith's husband Ben passed away. The next year she moved from Louisiana to Texas. Caitlyn has not remarried as of the end of 2020 and currently lives in Portland, TX with her three children (ages as of the end of the year): Elizabeth (23), Joshua (16), and Anthony (11). Caitlyn would like to determine her federal income tax under the filing status that is most advantageous for her. Caitlyn reported the following information: . Caitlyn's social security number is 194-38-4528 Elizabeth's social security number is 842-48-5684 Joshua's social security number is 842-43-8495 Anthony's social security number is 842-65-8429 Caitlyn's mailing address is 23 Freedom Road Portland, Texas, 78374 Elizabeth is single and enrolled as a full-time graduate student at TAMUCC (EIN 33-9654387). TAMUCC's address is 6300 Ocean Dr., Corpus Christi, TX. 78412. She completed her bachelor's degree in 2019 and is in her fifth year of full-time higher education schooling. While at school, Elizabeth works part-time at TAMUCC to help with her living expenses earning $3,200. Caitlyn paid for Elizabeth's rent, books, tuition, food, clothes, medicine, and other support items which totaled over $16,200 of support for the year. TAMUCC provided Elizabeth with a Form 1098-T at year end. Elizabeth's higher education expenses for her university studies were as follows: Tuition $6,875 Books $2,225 In order to for Caitlyn to maintain a full-time job, she sends Anthony to a day care program after school five days a week paying $4,600 for his care. The day care details are as follows: Legacy Preschool 902 Moore Ave Portland, TX EIN: 34-8324659 Caitlyn's W-2s for the year reported the following: Employer Gross Wages Federal Income Tax Workforce Commission $53,850 $4,310 Portland Real Estate $2,800 $290 Withholding Caitlyn's employers withheld all applicable and appropriate payroll taxes. On January 1, 2019 (prior year), Caitlyn started a side hustle selling Rodan and Fields. She doesn't have to carry inventory because everything is shipped directly from Corporate, but she does maintain a website and sends samples to her customers and potential customers. She also hosts an event each year to launch new products. This business has allowed her to earn additional money in her spare time to help support her daughter in college. She uses the cash method of accounting and did not have any obligation to file a Form 1099 to any payee during the year. Caitlyn reported the following revenue and expenses for her business this year: Gross Revenue $4,650 Sample supplies $ 375 New Product Launch Event $ 250 Web site hosting fee S 300 Caitlyn sold a couple of stocks she had been holding in order to send her kids to visit their grandparents this past summer. The sales were reported on form 1099-B to her and their basis reported to the IRS: Asset Date Purchase d Date Sold Purchas Selling c Price Price TXU Stock 4/4/19 5/17/20 $12.950 $7.550 $4,500 9/15/19 5/17/20 $3,250 Mohawk Industries stock Caitlyn also received the following amounts in 2020: Life Insurance Payment-Mutual Life (Father's passing) $182,000 Cash gift from her mom $ 9,500 Interest income-First Bank of Portland $ 550 Interest income-GE Bond $ 4,450 Interest income-G-PISD Municipal Bond $ 3,750 Interest income-San Pat County Improvement District Bond $ 1,250 LA state income tax refund* $ 375 *Refund was from state tax she paid in 2019. Caitlyn deducted all her state taxes as itemized deductions, and received full tax benefit for the deductions, on her 2019 federal tax return. Caitlyn made the following payments during 2020: Dentist (unreimbursed by insurance) $1,850 Doctors (unreimbursed by insurance) S 625 Prescriptions (unreimbursed by insurance) $ 190 Real property taxes on residence $7,700 State sales tax paid $2,550 Vehicle registration fee based upon age of vehicle S Mortgage interest on principal residence (Form 1098 received) $6,000 Interest on Mastercard credit card $2,500 Cash contribution to the American Cancer Society $ 525 Cash contribution to the United Way $1,000 Cash contribution to First Baptist Church Corpus Christi $3,650 Cash contribution to Baylor University 350 Caitlyn wants to contribute to the Presidential Election Campaign Fund. She would like to receive a refund (if any) of any tax she may have overpaid for the year. Her preferred method of receiving the refund is by check. 125 Instructions: Instructions: 1. Complete the 2020 federal income tax return for Caitlyn Smith. If required information is missing, use reasonable assumptions to fill in the gaps. Schedules C (business income), SE (self-employment tax), and 8812 (child tax credits) and Forms 2441 (child and dependent care credits) and 8863 (education credits) may be helpful to you when completing the necessary calculations for these forms, but do not need to be submitted. In excel, document any calculations you used to fill in the following required forms and schedules: a. 1040 b. Schedule 1 c. Schedule D d. Form 8949 e. Schedule 2 f. Schedule 3 2. Upload an excel file with your calculation of your tax liability. 3. Write a memo to Caitlyn explaining what her filing status is in 2020 and what it will be in 2021 assuming she does not remarry. Also explain to her why her standard deduction was used and how much more she would have had to spend in order to use her itemized deduction. If the standard deduction amount (and her spending) stays the same in 2021, should she expect to itemize? Give at least 2 reason as to how she should expect her tax liability to change next year and what will cause that change? Lastly, explain to her which Education Credit she was able to claim for Elizabeth and why