Final Tax Return

Faith and Tim are married and file a joint return. Faith works as an accountant at a local CPA firm. Her salary is $100,000 per year (see final paragraph for an amount that may affect the amount of the wage that is taxable). Her employer withheld $8,000 in federal income tax from her 2022 salary.

Tim is currently a year-round, full-time student. During 2022, he finished his fourth year of college. His tuition and fees for the Spring and Summer semester 2022 were $2,800, in total. His books cost $1,100. His tuition and fees for the Fall semester 2022 were $2,500. Again, his books cost $1,100. Tim receives a scholarship covering this period of time in the amount of $2,300 (Note the Regulations state that any amounts excluded from taxable income for a scholarship for payment of qualified educational expenses are first applied to tuition and fees).

Tim aspired to make it big in country music. He earned $300 every Friday night singing at local clubs for the first half of 2022 (gross income of $7,800). The clubs treated him as an independent contractor. The distance from Tims house to each club was exactly 20 miles one way. Tim became discouraged and sold his guitar on September 15, 2022 for $900. He had originally purchased it on May 4, 2020 at a cost of $2,000. He had been depreciating it over 5 years using MACRS.

In order to help make ends meet, Faith and Tim sold some stock during 2022. They sold 100 shares of IBM stock at a price of $85 on June 1, 2022 (commission of $200). They sold 100 shares of Southwest Airlines stock at a price of $35 on November 30, 2022 (commission of $100). They acquired their shares in each company in the following fashion:

IBM:

100 shares @ $60 August 31, 2015

100 shares @ $110 June 15, 2021

Southwest Airlines:

100 shares @ $10 July 7, 2019.

Faith and Tim use the FIFO method to identify the shares sold.

They have two children, Haley and Taylor, ages 4 and 1. The kids are at daycare while Faith is at work and Tim goes to school. The total cost of daycare is $9,000 for the two kids for 2022. Faith participates in a dependent care assistance plan in the amount of $4,000 (her $100,000 salary is before reduction for this amount).

Faith and Tim incur the following expenses:

Home Mortgage Interest $8,000

Charitable Contributions 4,000

Medical Expenses 500

State Income Taxes 800

Forms needed: Form 1040 and related schedules, Schedule A, Schedule C, Sch. D, Sch. SE, Form 4797, Form 4562, Form 8863, Form 2441

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