Instructions:

Please complete the 2020 federal income tax return for Sarah Hamblin. Be sure to include only required tax forms when completing the tax return.

Due date: Wednesday October 20, 2021

Sarah Hamblin and her now ex-husband Kevin were legally divorced on March 1, 2020. As of the end of the year, Sarah was unmarried. Sarah and Kevin had only one child, an 11-year-old girl named Elizabeth. As part of the divorce decree, Sarah was given custody of Elizabeth and Kevin was required to pay 1) child support for Elizabeths care, and 2) alimony to Sarah until she remarries or dies. Because Kevin will be making child support payments, the divorce decree provided that Kevin will be permitted to claim the tax dependency exemption for Elizabeth until Elizabeth no longer qualifies as a tax dependent of either parent and the decree obligates Sarah to sign and/or file any required forms to cause this result to occur.

Sarah rents a home (separate from Kevin) that she pays for herself. Elizabeth lives with Sarah most of the time, but she visits and stays with her father every other weekend and most holidays. During the year, Elizabeth stayed at Kevins house a total of 74 nights.

Sarah provided the following information for 2020:

• Sarahs Social Security number is 123-43-4321
• Elizabeths Social Security number is 123-34-1234
• Sarahs mailing address is 1245 Rose Petal Drive, Middletown, Wisconsin 53562
• Elizabeth is a U.S. citizen

The following was reported on Sarahs Form W-2:

Employer	Gross Wages	Federal Income tax withholding	State Income tax withholding
Central Wisconsin heating and air	$34,350	$6,950	$2,125

All applicable and appropriate payroll taxes were withheld by the employer.

During the year, Sarah also received the following:

Child Support Payment from Kevin Hamblin $12,000

Alimony Payment from Kevin Hamblin $16,000

Gift from her father to help with legal bills $ 8,500

Interest income on U.S. Treasury Bond $ 400

Interest income of Madison City Bond (municipal bond) $ 250

Interest income from First Bank of Madison $ 165

Life insurance proceeds on the death of her mother $45,000

Sarah made a $200 donation to the American Red Cross in support of its COVID-19 relief efforts.

Sarah is a 50% owner in a friends company, Bright Day Flowers, Inc. Bright Day Flowers, Inc. (BDF) is a Subchapter S corporation. The company reported ordinary business income for the year of $22,000. Sarah acquired the stock several years ago. Sarah worked a total of 600 hours at the BDF shop in the evenings and on the weekends during 2020. Bright Day Flowers, Inc.s employer identification number is 56-3535353.

Sarah entered a contest sponsored by a radio station and won 10 gift cards to various restaurants. The value of the gift cards was $200 each. Sarah gave several of the gift cards away to her coworkers.

Sarah lost her job with Central Wisconsin Heating and Air on November 15 because of a reduction in work force. She collected $1,250 in unemployment benefits during the year. She is currently looking for another job.

Sarah received two Economic Impact Payments (stimulus checks) in the full amount before filing her 2020 tax return.

Sarah was provided with the following benefits as part of her employment:

• Group-term life insurance coverage of $50,000. The cost to cover Sarah for the company for the tax year is $150.

• Access to the company photocopy machine. Sarah estimates she made $14 worth of copies during the year primarily for use with her church group activities.

Sarah reported no itemized deductions other than any described above.

Sarah does not want 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.

Helpful Hints:

1. Use the year 2020 forms, rates, schedules
2. Consider if the Bright Day Flowers Inc. is eligible for the 20% QBI deduction
   1. Note that is an S Corp. The earnings are not subject to SE tax due to a loophole that we will discuss in a subsequent chapter
3. Consider if the daughter can be claimed for the Child Tax Credit. Note there is a worksheet on page 32 of the 2020 1040 instructions (see IRS.gov). For part 2 of that worksheet all entries for line 10 should be zero.
4. No need to attach the w-2 to the return or to complete form 858