Individual Tax ReturnTax facts and the explanation of how to file

Cindy Miller (SSN 000-22-1111), age 65, is a marketing manager at a local company. Cindy is single. Cindys elderly parents live with her and Cindy provides them more than 50% of the support (both of her parents are qualified as Cindys dependents). Information about her income and expenses are as follows:

Income received
Salary	$132,000
Taxes withheld from salary: Federal income tax $21,120 State income tax 5,940 (Sch. A) Social Security tax 7,886 (not deductible) Medicare tax 1,914 (not deductible)
Interest income ($3,500 from corporate bonds, and $1,000 from local school bonds).	4,500
State income tax refund of 2020 state return (taxable because she filed itemized	400
Federal income tax refund of 2019 Federal return (not taxable)	1,560
long term capital gains	7,500
Short term capital loss	(1,800)
Gambling wining	1,500
Gift from her great aunt (not taxable)	18,000
Expenses paid:
dental and eye care costs sch. A	1,800
Medical insurance premium paid for herself (Sch. A)	3,000
medical expenses paid for her parents (Sch. A)	3,500
Property taxes on her home (Sch. A)	4,900
Contribution to traditional IRA (Sch. 1)	8,000
Fees paid to town for garbage pick-up (not deductible)	400
Gambling losses (schedule A only if has gambling winnings)	3,200
Dues paid to American Marketing Association (not deductible)	1,100
Fee for preparation of tax return and IRS audit assistance (not deductible)	2,000
Home mortgage interest (Sch. A)	10,000
Interest on credit card balances (not deductible)	890
Interest on car loan (not deductible)	1,100
Cash contribution to charity (Sch. A)	1,000

Cindy took itemized deduction in 2020 (her total itemized deduction was $22,600, and the standard deduction was $18,650 in 2020). Please help Cindy to file her 2021 Federal Income Tax Return (Form 1040 and Schedule A).

Explanation of the filing:

1. Filing status: Cindy is head of household because she is single and has qualified dependents.

2. Child or/and Dependent tax credits: both of her parents are qualified for dependent credit @$500. The total dependent credit is $1000 (report on line 19 of Form 1040)

3. Line 2a and 2b: She has $4500 interest income but $1000 is interest from municipal (not taxable, reported on line 2a), $3500 is taxable (reported on line 2b).

4. She has a net long-term capital gain of $5700 (reported on line 7, skip schedule D). Remember this gain is long-term capital gain that will subject to long-term capital gain tax rate.

5. She also has other income such as state income tax refund $400 and $1500 gambling winning. Thus, we need to file Schedule 1. Report those two other income on Schedule 1, totaled $1900 (then report the figure back to Form 1040 line 8).

6. Her For AGI deduction is only $8000 contribution to IRA. We report this figure on Schedule 1, part II line 20. Then report the figure back to Form 1040 line 10.

7. She is head of householder and her basic standard deduction is $18800, plus additional standard deduction of $1700 for her age. Her total standard deduction is $20500. Now we need to file Schedule A to figure out her total itemized deduction. Then we report the greater of itemized deduction or standard deduction.

8. File Schedule A.

Medical expense deduction is 0 because her 7.5% AGI base is greater than her qualified medical expenses.

Taxes deduction is $10000. Her total state and local taxes is $10840, but there is $10000 cap on the deductible amount.

Her interest deduction is $10000 mortgage interest

Her charitable contributions is $1000

He other itemized deduction is gambling losses. She has a gambling loss of $3200 but she can only deduct $1000 (to the extent of her gambling winnings).

9. So she will use itemized deduction because it is greater than her standard deduction

10. Calculate tax based on the taxable income of $112600 (line 15). Remember this figure includes $5700 longterm capital gain. Thus, we need to calculate the tax separately because they subject to different tax rates

First step: calculate tax on her long-term capital gain $5700.

5700*15%= $855

Second step: calculate tax on her ordinary taxable income (112600-5700)=106900

Use the tax table, look at the rates for Head of household.

The tax is $18224

The tax is 19079