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INDIVIDUAL TAX RETURN PROJECT ISABELLA MARTINEZ INDIVIDUAL FEDERAL INCOME TAX RETURN 2021 ANNUAL EDITION ALL DATES RELATE TO YEAR 2021 UNLESS STATED OTHERWISE Isabella A. (age 47), SSN 111-11-1111, is a widow of Diego Martinez, SSN 123-45-6787, who passed away on June 21, 2020. Isabella resides at 26 Ottawa St, Ashville, NC 28801. Isabella works part-time as a personal trainer in a local gym (Pump You Up) and is self-employed. She owns her own personal training business that she operates in town. The following filing information relates to Isabella: - Isabella is not sure what filing status she should be in 2021 since her husband passed away in 2020. - Isabella elects to contribute to the Presidential Election Campaign Fund. - Isabella is a calendar year taxpayer. - Isabella follows the cash basis method. - Isabella prefer that any tax overpayment to be refunded to her. - Round all cents to the nearest dollar (Round up .50 Round down .49) No cents on the return. 1. Isabella's annual salaries from Pump You Up is included on the attached W-2's. Pump You Up does not provide any retirement benefits. Isabella has a retirement account that she contributes to through her business. 2. Isabella is a personal trainer who owns a personal training business called "Izzy's Personal Training". Isabella usually trains clients in a space she rents, but she also trains clients at various locations. She uses her personal car to drive to those locations. Her professional activity code is 713900 and her employer identification number is 011234567. Isabella collected $147,001 in revenues during 2021. This total includes a $1,250 payment for work she performed in 2020 and does not include $3,750 she billed in December for work performed in late 2021. In addition, Isabella has an unpaid invoice for $1,000 from a client for work done in 2018. This client has not been heard from since December 2018. Isabella has tried to locate this individual to no avail. Isabella feels certain that she will never collect the $1,000 she is owed. Isabella rents space at 1776 Main Street, Ashville, SC, where she trains clients. Her business expenses for 2021 are as follows: In addition, Isabella drove her personal use car, a Chevy (purchased on June 7, 2020) 3,755 miles to see her clients. Isabella does not know if she can take the standard mileage, actual cost allocated to the Chevy or both. Isabella drove the car a total of 13,125 miles in 2021. Isabella utilized the following assets in her catering business: All of the assets listed above were purchased new by Isabella on the date they were placed into service. For Assets placed in service in 2021, Isabella elected the cost recovery method that yielded the highest possible cost recovery deduction method for that year (Isabella does not want to take additional first year depreciation). For assets purchased prior to 2021, all of these assets were depreciated under the MACRS method (None were depreciated under Section 179 or with additional first year of depreciation). For each year of acquisition, the highest possible deduction under MACRS was elected. Accordingly the expense method of 179 and additional first year depreciation was not elected. 3. In December 2018 Isabella was hit by a car while walking her dog. The driver of the car was at fault and Isabella sued the driver for various damages. Isabella spent some time in the hospital to recover from her injuries. The court case didn't start until September 2020 and in early 2021 Isabella won the case. The driver of the car was determined to be at fault and Isabella was award damages totaling $405,000. The damages awarded were $275,000 for personal injury, $20,000 for punitive damages against the driver and $110,000 for loss of income because her injuries prevented her from working for some time. 4. A. Isabella did not sell any stock that was reported on Form 1099-B: B. Isabella also sold the following capital assets which are not reported on and Form 1099-B: - 4,565 shares of Puffy Times Corp. The shares were purchased by Isabella for $3,751 on the New York Stock Exchange on August 17, 2018. They were sold on the New York Stock Exchange for $5,120 on June 5 . - 1,200 shares of One Cent Bank. These shares were distributed to Isabella from the estate of Diego on September 12, 2020. The shares were worth $18,500 as of the date of Diego's death but were worth $20,250 on the date of distribution to Isabella. Isabella, acting as the executrix of Diego's estate did not elect the alternate valuation method. Diego bought the shares for $29,000 on June 14,2001 . Isabella sold the shares to an unrelated party on November 1 for $23,974. - 950 shares of Triple IPA Corporation. These shares were received by Isabella as a gift from her sister on February 9, 2017. Her sister's basis in the stock at the time of the gift was $12,110. The fair market value of the stock at the time of the gift was $14,754. No gift tax was paid on the transfer. The shares were sold to an unrelated party on May 9 for $18,123. - 5,780 shares of White Wash Corporation. The shares were purchased by Isabella on January 10, 2021 for \$5,600. During 2021, White Wash Corporation declared bankruptcy and liquidated. No assets were transferred to the shareholders during the liquidation. - Isabella has a long-term capital loss carryover of \$3,001 from 2020 All of the capital assets listed above were held by the Isabella for investment purposes. 5. In early 2021, Isabella learned that one of her business associates, Ed Falconer, who borrowed money to open a new business, passed away. Isabella loaned Ed $4,700 to help with the new business. Isabella had him sign a note due in one year. Shortly after Isabella loaned the money to Ed, he passed away. As of December 2021, Isabella has been told that there will be no payment on the note and it is completely worthless. 6. Besides the items previously noted, the Isabella had the following receipts for 2021: Interest income: Isabella was the beneficiary of a life insurance policy that his uncle purchased on his own life. Isabella's uncle passed away on April 25. Isabella collected $150,000 from the life insurance policy on July 19. 7. In addition to the items already noted, the Isabella had the following expenditures for 2021 : The life insurance premiums relate to the universal life insurance policies that Isabella owns. The first beneficiary on both policies is Isabella's daughter. Isabella contributed to the governor's campaign fund because she thinks his influence is key in getting catering business for various campaign events. In September 2021, the North Carolina Department of Revenue audited Isabella's state income tax return for 2019. She was assessed additional state income tax of $575 for that year. Surprisingly, no interest was included in the assessment. Isabella paid the taxes due promptly 8. Isabella's home was destroyed by a hurricane on January 2. Isabella purchased the home on 5/8/2016 for $250,000. The fair market value of the home before the tornado was $450,000. The proceeds from the insurance company were $225,000. The hurricane cause the area to be declared a Federally Declared Disaster area on January 4. The FEMA disaster declaration number is DR-2021-NC 9. Relevant Social Security numbers are as follows: Name and Social Security Number - Roland Martinez, SSN 123-45-6783, son of Isabella. Born November 13, 1999. Truck driver in Wilmington, NC prior to being laid off in October. Isabella provided none of his support. He lived in Wilmington for the entire year. His income consisted of wages of $32,000 and unemployment compensation of $3,000. - Pedro Martinez, SSN 123-45-6784, son of Isabella. Born February 9, 1998. Full-time student at University of North Carolina before graduating in May. Of his total support, Isabella provided 35 percent, Pedro provided 45 percent and the balance came from other sources. Pedro's sole income consisted of wages and tips aggregating $14,800 earned as a waiter. He lived with Isabella during the year. - Annabelle Martinez, SSN 123-45-6785, daughter of Isabella. Born December 24,2000 . Full-time student at the University of South Carolina. Isabella provided 75 percent of her support. Her income consisted solely of $10,500 earned from a part-time job as a computer analyst. She did live with Isabella for the year. - Daniel Martinez, SSN 123-45-6786 son of Isabella. Born December 12, 2003. Full-time student at Myrtle High School. Isabella provided 100 percent of his support. He earned no income. He lived with Isabella for the year. Isabella also supported the following person: - Abigail Ramirez, mother of Isabella, SSN 123-45-6787. Widow. Born October 7, 1948. Resided in Long Island, New York. Isabella provided 85 percent of her total support. Her sole income consisted of $2,980 of interest and dividends and $10,500 of Social Security benefits. - Jimmy Ryan, cousin of Isabella, SSN 123-45-6788. Widower. Born January 19, 1977. Resided in Columbia, SC. Isabella provided 65 percent of his total support. His sole income consisted of $7,900 of tax-exempt disability income paid by the State. 10. Isabella made the following deposits with the United States Treasury for their Federal income tax liability from their own personal checking account on the dates indicated: 11. You will need to complete Form 8995 to calculate the Qualified Business Income Deduction (Line 13 on Form 1040). The qualified business income for Isabella consist of the Schedule C income less the expenses associated with the business that are not deducted on the Schedule C. These expenses are the Deductions FOR AGI. You must reduce the Schedule C income by the three deductions for AGI, that relate to Isabella's business, to arrive at the qualified business income. 12. All source documents for wages, dividends, stock sales and interest paid are at the end. These items are not reported in any of the information above. 13. Form 8812 - Credit for Qualifying Children and Other Dependents does not have to be completed. You can put the dependent credit amount on line 21 of Form 1040. REQUIREMENT Prepare the Federal income tax return with all supporting schedules and attachments for Isabella Martinez for 2021 . Specifically, submit the following completed forms with required schedules (www.irs.gov/forms) in the order below: (99) 2021OMBNo.1545-0074 \begin{tabular}{|l|l|l|l|} U.S. Individual Income Tax Return & OMB No. 1545-0074 & IAS Use Only-Do not write or staple in tris space. \\ \hline \end{tabular} Filing Status Single Married filing jointly Married fliling separately (MFS) Head of household (HOH) Qualifying widow(er) (QW) Check only If you checked the MFS box, enter the name of your spouse. If you checked the HOH or QW box, enter the child's name if the qualifying one box. person is a child but not your dependent At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency? Yes No Standard Someone can claim: You as a dependent Your spouse as a dependent Deduction Spouse itemizes on a separate return or you were a dual-status alien Age/Blindness You: Were born before January 2, 1957 Are blind Spouse: Was born before January 2, 1957 is blind Dependents (see instructions): If more than four dependents, see instructions and check here For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11320B Form 1040 (2021) Form 1040 (2021) Page 2 19 Nonrefundable child tax credit or credit for other dependents from Schedule 8812 20 Amount from Schedule 3 , line 8 21 Add lines 19 and 20 . 22 Subtract line 21 from line 18. If zero or less, enter 0 - 23 Other taxes, including self-employment tax, from Schedule 2, line 21 24 Add lines 22 and 23 . This is your total tax 25 Federal income tax withheld from: a Form(s) W-2 b Form(s) 1099 . c Other forms (see instructions) d Add lines 25a through 25c. \begin{tabular}{|c|l} \hline 16 & \\ \hline 17 & \\ \hline 18 & \\ \hline 19 & \\ \hline 20 & \\ \hline 21 & \\ \hline 22 & \\ \hline 23 & \\ \hline 24 & \\ \hline & \\ \hline 32 & \\ \hline 32 & \\ \hline & \\ \hline 32 & \\ \hline \end{tabular} If you have a 26 2021 estimated tax payments and amount applied from 2020 return . qualifying child, attach Sch. EIC. Check here if you were born after January 1, 1998, and before January 2, 2004, and you satisfy all the other requirements for taxpayers who are at least age 18, to claim the EIC. See instructions b Nontaxable combat pay election c Prior year (2019) earned income . . . . . 27c 28 Refundable child tax credit or additional child tax credit from Schedule 8812 29 American opportunity credit from Form 8863, line 8. 30 Recovery rebate credit. See instructions. 31 Amount from Schedule 3, line 15 . \begin{tabular}{|l|} \\ 27a \\ \hline 28 \\ \hline 29 \\ \hline 30 \\ \hline 31 \\ \hline \end{tabular} 32 Add lines 27a and 28 through 31 . These are your total other payments and refundable credits 33 Add lines 25d, 26, and 32. These are your total payments 34 If line 33 is more than line 24 , subtract line 24 from line 33 . This is the amount you overpaid 35a Amount of line 34 you want refunded to you. If Form 8888 is attached, check here b Routing number d Account number See instructions. Savings Sign Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and Here belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. Go to www.irs.gov/Form 1040 for instructions and the latest information. Form 1040 (2021) INDIVIDUAL TAX RETURN PROJECT ISABELLA MARTINEZ INDIVIDUAL FEDERAL INCOME TAX RETURN 2021 ANNUAL EDITION ALL DATES RELATE TO YEAR 2021 UNLESS STATED OTHERWISE Isabella A. (age 47), SSN 111-11-1111, is a widow of Diego Martinez, SSN 123-45-6787, who passed away on June 21, 2020. Isabella resides at 26 Ottawa St, Ashville, NC 28801. Isabella works part-time as a personal trainer in a local gym (Pump You Up) and is self-employed. She owns her own personal training business that she operates in town. The following filing information relates to Isabella: - Isabella is not sure what filing status she should be in 2021 since her husband passed away in 2020. - Isabella elects to contribute to the Presidential Election Campaign Fund. - Isabella is a calendar year taxpayer. - Isabella follows the cash basis method. - Isabella prefer that any tax overpayment to be refunded to her. - Round all cents to the nearest dollar (Round up .50 Round down .49) No cents on the return. 1. Isabella's annual salaries from Pump You Up is included on the attached W-2's. Pump You Up does not provide any retirement benefits. Isabella has a retirement account that she contributes to through her business. 2. Isabella is a personal trainer who owns a personal training business called "Izzy's Personal Training". Isabella usually trains clients in a space she rents, but she also trains clients at various locations. She uses her personal car to drive to those locations. Her professional activity code is 713900 and her employer identification number is 011234567. Isabella collected $147,001 in revenues during 2021. This total includes a $1,250 payment for work she performed in 2020 and does not include $3,750 she billed in December for work performed in late 2021. In addition, Isabella has an unpaid invoice for $1,000 from a client for work done in 2018. This client has not been heard from since December 2018. Isabella has tried to locate this individual to no avail. Isabella feels certain that she will never collect the $1,000 she is owed. Isabella rents space at 1776 Main Street, Ashville, SC, where she trains clients. Her business expenses for 2021 are as follows: In addition, Isabella drove her personal use car, a Chevy (purchased on June 7, 2020) 3,755 miles to see her clients. Isabella does not know if she can take the standard mileage, actual cost allocated to the Chevy or both. Isabella drove the car a total of 13,125 miles in 2021. Isabella utilized the following assets in her catering business: All of the assets listed above were purchased new by Isabella on the date they were placed into service. For Assets placed in service in 2021, Isabella elected the cost recovery method that yielded the highest possible cost recovery deduction method for that year (Isabella does not want to take additional first year depreciation). For assets purchased prior to 2021, all of these assets were depreciated under the MACRS method (None were depreciated under Section 179 or with additional first year of depreciation). For each year of acquisition, the highest possible deduction under MACRS was elected. Accordingly the expense method of 179 and additional first year depreciation was not elected. 3. In December 2018 Isabella was hit by a car while walking her dog. The driver of the car was at fault and Isabella sued the driver for various damages. Isabella spent some time in the hospital to recover from her injuries. The court case didn't start until September 2020 and in early 2021 Isabella won the case. The driver of the car was determined to be at fault and Isabella was award damages totaling $405,000. The damages awarded were $275,000 for personal injury, $20,000 for punitive damages against the driver and $110,000 for loss of income because her injuries prevented her from working for some time. 4. A. Isabella did not sell any stock that was reported on Form 1099-B: B. Isabella also sold the following capital assets which are not reported on and Form 1099-B: - 4,565 shares of Puffy Times Corp. The shares were purchased by Isabella for $3,751 on the New York Stock Exchange on August 17, 2018. They were sold on the New York Stock Exchange for $5,120 on June 5 . - 1,200 shares of One Cent Bank. These shares were distributed to Isabella from the estate of Diego on September 12, 2020. The shares were worth $18,500 as of the date of Diego's death but were worth $20,250 on the date of distribution to Isabella. Isabella, acting as the executrix of Diego's estate did not elect the alternate valuation method. Diego bought the shares for $29,000 on June 14,2001 . Isabella sold the shares to an unrelated party on November 1 for $23,974. - 950 shares of Triple IPA Corporation. These shares were received by Isabella as a gift from her sister on February 9, 2017. Her sister's basis in the stock at the time of the gift was $12,110. The fair market value of the stock at the time of the gift was $14,754. No gift tax was paid on the transfer. The shares were sold to an unrelated party on May 9 for $18,123. - 5,780 shares of White Wash Corporation. The shares were purchased by Isabella on January 10, 2021 for \$5,600. During 2021, White Wash Corporation declared bankruptcy and liquidated. No assets were transferred to the shareholders during the liquidation. - Isabella has a long-term capital loss carryover of \$3,001 from 2020 All of the capital assets listed above were held by the Isabella for investment purposes. 5. In early 2021, Isabella learned that one of her business associates, Ed Falconer, who borrowed money to open a new business, passed away. Isabella loaned Ed $4,700 to help with the new business. Isabella had him sign a note due in one year. Shortly after Isabella loaned the money to Ed, he passed away. As of December 2021, Isabella has been told that there will be no payment on the note and it is completely worthless. 6. Besides the items previously noted, the Isabella had the following receipts for 2021: Interest income: Isabella was the beneficiary of a life insurance policy that his uncle purchased on his own life. Isabella's uncle passed away on April 25. Isabella collected $150,000 from the life insurance policy on July 19. 7. In addition to the items already noted, the Isabella had the following expenditures for 2021 : The life insurance premiums relate to the universal life insurance policies that Isabella owns. The first beneficiary on both policies is Isabella's daughter. Isabella contributed to the governor's campaign fund because she thinks his influence is key in getting catering business for various campaign events. In September 2021, the North Carolina Department of Revenue audited Isabella's state income tax return for 2019. She was assessed additional state income tax of $575 for that year. Surprisingly, no interest was included in the assessment. Isabella paid the taxes due promptly 8. Isabella's home was destroyed by a hurricane on January 2. Isabella purchased the home on 5/8/2016 for $250,000. The fair market value of the home before the tornado was $450,000. The proceeds from the insurance company were $225,000. The hurricane cause the area to be declared a Federally Declared Disaster area on January 4. The FEMA disaster declaration number is DR-2021-NC 9. Relevant Social Security numbers are as follows: Name and Social Security Number - Roland Martinez, SSN 123-45-6783, son of Isabella. Born November 13, 1999. Truck driver in Wilmington, NC prior to being laid off in October. Isabella provided none of his support. He lived in Wilmington for the entire year. His income consisted of wages of $32,000 and unemployment compensation of $3,000. - Pedro Martinez, SSN 123-45-6784, son of Isabella. Born February 9, 1998. Full-time student at University of North Carolina before graduating in May. Of his total support, Isabella provided 35 percent, Pedro provided 45 percent and the balance came from other sources. Pedro's sole income consisted of wages and tips aggregating $14,800 earned as a waiter. He lived with Isabella during the year. - Annabelle Martinez, SSN 123-45-6785, daughter of Isabella. Born December 24,2000 . Full-time student at the University of South Carolina. Isabella provided 75 percent of her support. Her income consisted solely of $10,500 earned from a part-time job as a computer analyst. She did live with Isabella for the year. - Daniel Martinez, SSN 123-45-6786 son of Isabella. Born December 12, 2003. Full-time student at Myrtle High School. Isabella provided 100 percent of his support. He earned no income. He lived with Isabella for the year. Isabella also supported the following person: - Abigail Ramirez, mother of Isabella, SSN 123-45-6787. Widow. Born October 7, 1948. Resided in Long Island, New York. Isabella provided 85 percent of her total support. Her sole income consisted of $2,980 of interest and dividends and $10,500 of Social Security benefits. - Jimmy Ryan, cousin of Isabella, SSN 123-45-6788. Widower. Born January 19, 1977. Resided in Columbia, SC. Isabella provided 65 percent of his total support. His sole income consisted of $7,900 of tax-exempt disability income paid by the State. 10. Isabella made the following deposits with the United States Treasury for their Federal income tax liability from their own personal checking account on the dates indicated: 11. You will need to complete Form 8995 to calculate the Qualified Business Income Deduction (Line 13 on Form 1040). The qualified business income for Isabella consist of the Schedule C income less the expenses associated with the business that are not deducted on the Schedule C. These expenses are the Deductions FOR AGI. You must reduce the Schedule C income by the three deductions for AGI, that relate to Isabella's business, to arrive at the qualified business income. 12. All source documents for wages, dividends, stock sales and interest paid are at the end. These items are not reported in any of the information above. 13. Form 8812 - Credit for Qualifying Children and Other Dependents does not have to be completed. You can put the dependent credit amount on line 21 of Form 1040. REQUIREMENT Prepare the Federal income tax return with all supporting schedules and attachments for Isabella Martinez for 2021 . Specifically, submit the following completed forms with required schedules (www.irs.gov/forms) in the order below: (99) 2021OMBNo.1545-0074 \begin{tabular}{|l|l|l|l|} U.S. Individual Income Tax Return & OMB No. 1545-0074 & IAS Use Only-Do not write or staple in tris space. \\ \hline \end{tabular} Filing Status Single Married filing jointly Married fliling separately (MFS) Head of household (HOH) Qualifying widow(er) (QW) Check only If you checked the MFS box, enter the name of your spouse. If you checked the HOH or QW box, enter the child's name if the qualifying one box. person is a child but not your dependent At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency? Yes No Standard Someone can claim: You as a dependent Your spouse as a dependent Deduction Spouse itemizes on a separate return or you were a dual-status alien Age/Blindness You: Were born before January 2, 1957 Are blind Spouse: Was born before January 2, 1957 is blind Dependents (see instructions): If more than four dependents, see instructions and check here For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11320B Form 1040 (2021) Form 1040 (2021) Page 2 19 Nonrefundable child tax credit or credit for other dependents from Schedule 8812 20 Amount from Schedule 3 , line 8 21 Add lines 19 and 20 . 22 Subtract line 21 from line 18. If zero or less, enter 0 - 23 Other taxes, including self-employment tax, from Schedule 2, line 21 24 Add lines 22 and 23 . This is your total tax 25 Federal income tax withheld from: a Form(s) W-2 b Form(s) 1099 . c Other forms (see instructions) d Add lines 25a through 25c. \begin{tabular}{|c|l} \hline 16 & \\ \hline 17 & \\ \hline 18 & \\ \hline 19 & \\ \hline 20 & \\ \hline 21 & \\ \hline 22 & \\ \hline 23 & \\ \hline 24 & \\ \hline & \\ \hline 32 & \\ \hline 32 & \\ \hline & \\ \hline 32 & \\ \hline \end{tabular} If you have a 26 2021 estimated tax payments and amount applied from 2020 return . qualifying child, attach Sch. EIC. Check here if you were born after January 1, 1998, and before January 2, 2004, and you satisfy all the other requirements for taxpayers who are at least age 18, to claim the EIC. See instructions b Nontaxable combat pay election c Prior year (2019) earned income . . . . . 27c 28 Refundable child tax credit or additional child tax credit from Schedule 8812 29 American opportunity credit from Form 8863, line 8. 30 Recovery rebate credit. See instructions. 31 Amount from Schedule 3, line 15 . \begin{tabular}{|l|} \\ 27a \\ \hline 28 \\ \hline 29 \\ \hline 30 \\ \hline 31 \\ \hline \end{tabular} 32 Add lines 27a and 28 through 31 . These are your total other payments and refundable credits 33 Add lines 25d, 26, and 32. These are your total payments 34 If line 33 is more than line 24 , subtract line 24 from line 33 . This is the amount you overpaid 35a Amount of line 34 you want refunded to you. If Form 8888 is attached, check here b Routing number d Account number See instructions. Savings Sign Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and Here belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. Go to www.irs.gov/Form 1040 for instructions and the latest information. Form 1040 (2021)