Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local Chamber of Commerce, and Wanda owns her own business. They file a joint return.

Personal items: Wages / Salaries $75,000 (Includes both Lance and Wanda)

Interest Income 1,100

Child support payments to John Allen 7,200

Lottery winnings 630

Federal income tax withholding 5,800

State income tax withheld 2,500

Wanda was previously married to John Allen, they divorced several years ago (prior to 2018). Under the divorce decree, Wanda was obligated to pay alimony to John. She paid him $7,200 throughout the year.

Wanda is the owner of her own business. Throughout the year she earned $20,000 of taxable income from this business (taxed as an S-Corp).

Additionally, Lance and Wanda had:

(1)Sale of LMN publically traded stock on 8/15/2020 for $8,000 (originally purchased for $7,000 on 1/15/2016)

(2)Sale of QRS publically traded stock on 10/15/2020 for $3,000 (originally purchased for $10,000 on 12/15/2019)

(3)Sale of a boat on 5/15/2020 for $10,000 used for personal recreation (originally purchased for $20,000 on 6/15/2015)

(4)Wanda inherited publically traded stock worth $30,000 from a deceased uncle on September 30, 2020

(5)Immediately after receiving this stock, Wanda sold it for $30,000. This stock was originally purchased by his uncle on January 15th, 2017 for $23,000

Prepare the 2020 Federal income tax return for Lance and Wanda Dean. This is an individual assignment. It is required that you submit both the (1) tax return and a (2) brief explanation for each line item on the return.

Please submit the following forms: a written explanation for each line item by form/schedule. The written explanation should include both calculations and justifications/reasons for each line item. Make sure the explanations match the numbers on the actual forms, if they do not I will deduct points. Normally, this tax return would require additional forms including schedule D, E, and form 8995. I do not want these additional forms prepared, I only want the forms listed above prepared. These additional forms would include the information that I expect to have in the explanations write-up (i.e. calculations, explanations, justifications, etc.).

Hints: 1)Gambling winnings are reported on Schedule 1 line 8.

2)The income from Wandas business will be reported on Schedule 1 line 5.

3)Capital gains/losses are reported on form 1040 line 7. Make sure to include a calculation.

4)The taxpayer has a tax obligation (i.e. not a refund). There should be something on line 37 form 1040.

5)Assume the taxpayers have adequate health insurance (i.e. ignore any health insurance items on the returns).

6)Do not forget the Qualified Business Income Deduction (new in 2018), line 13 form 1040. Assume Wanda qualifies for this deduction. In Chapter 15, we can discuss the rules in more detail. Assume that the QBID is a deduction equal to 20% of Qualified Business Income (QBI). With QBI being equal to net total of Schedule 1 line 5.

7)Take the standard deduction

8)S corps are not subject to Self-Employment Tax.

9)Dont forget to check the box for filing status (Single, MFJ, HOH, or MFS).