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Review each scenario. Using the information provided, complete the required forms. We provide links to fillable forms in each scenario. Copies of the forms are

Review each scenario. Using the information provided, complete the required forms. We provide links to fillable forms in each scenario. Copies of the forms are also available in the workbook. Save a copy of each completed form, as you will need to refer to it to answer questions on the Test.

The following facts apply for each scenario. All the taxpayers are U.S. citizens. None of them are blind or disabled, and they may not be claimed as a dependent on anyone else's return. None of them are students, unless otherwise indicated. None of them have any financial interest in or authority over a foreign account or trust. None of them received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency.

Scenario 1 (Elaine)

Elaine (63) is filing as a single taxpayer. Her adjusted gross income during the year was $34,000. This is the amount entered on her Form 1040, line 8b. She will itemize deductions when she files her 2019 federal Form 1040.

To seek relief for a medical condition, Elaine traveled to a clinic in another state during the year. She incurred the following trip-related expenses:

  • $90 for a room in a hotel near the clinic (one night).
  • $450 for a round-trip airplane ticket.
  • $70 for taxi service to and from the clinic and the airport.
  • $80 for non-hospital meals while she was away from home.

Elaine is not eligible for employer-sponsored health insurance. In addition to the travel expenses, Elaine incurred the following non-trip related, out-of-pocket medical expenses:

  • $2,100 net out-of-pocket for health insurance premiums (paid with after-tax dollars).
  • $2,300 for prescriptions.
  • $350 in co-pays to her doctor.
  • $250 for new glasses.
  • $300 for dental x-rays.

Complete the Medical and Dental Expenses section of Elaine's Schedule A (Form 1040), Itemized Deductions. You will need to refer to the amounts reported on lines 14 of this section to answer questions about the scenario in Part I of the Final Test.

Scenario 2 (John and Cynthia)

John (45) and Cynthia (46) are married, and they will file a joint return. During the year, they earned investment income consisting of:

  • $200 interest income from a savings account with their local bank, reported on Form 1099-INT.
  • $350 interest income from a certificate of deposit held with another local bank, reported on Form 1099-INT.
  • $100 in dividends from a savings account with a local credit union, reported on Form 1099-INT.
  • $250 interest income from a U.S. Treasury note, reported on Form 1099-INT.
  • $500 tax-exempt interest income from a municipal bond investment, reported on Form 1099-INT.
  • $1,700 in ordinary dividends from a mutual fund investment, reported on Form 1099-DIV.

Complete John and Cynthia's Schedule B (Form 1040), Interest and Ordinary Dividends. You will need to refer to the completed Schedule B to answer questions about this scenario in Part I of the Final Test.

Scenario 3 (Anthony and Nicole)

Anthony (27) and Nicole (26) are married and filing a joint return. Both Anthony and Nicole were full-time students all year at State College, located at 11100 College Boulevard, Your City, Your State. During the year, Anthony paid $5,000 in tuition and fees, substantiated with Form 1098-T. Nicole paid $3,800 in tuition and fees, also substantiated with Form 1098-T. Both Anthony and Nicole have part-time jobs outside of school. They did not receive any scholarships during the year. Their adjusted gross income is $47,000. Their total tax on line 12a of their federal Form 1040 is $2,327. They had no additional taxes. Both Anthony and Nicole meet all the requirements to qualify for the American Opportunity Tax Credit.

Complete Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits) for Anthony and Nicole. You should also complete the Credit Limit Worksheet, shown below (a copy is also provided in the workbook). You will need to refer to the completed forms to answer questions about this scenario in Part I of the Final Test.

Scenario 4 (Jasmine)

Jasmine (29) is filing as a single taxpayer. In 2019, she received income from the following sources:

  • $36,000 in wages.
  • Unemployment income of $4,320.
  • $500 in gambling winnings from a winning lottery ticket.

Jasmine also paid $2,100 in eligible student loan interest during the year. She will claim the standard deduction.

Use Schedule 1 (Form 1040), Additional Income and Adjustments to Income, to help you complete the first page of Form 1040. It is not necessary to complete the entire form. You will need to refer to the completed portion of Form 1040 to answer questions about this scenario in Part I of the Final Test.

Scenario 5 (Diego)

Diego (32) is filing as a single taxpayer. He changed jobs during the year, and when he left his first job, he decided to take a distribution of funds from his 401(k). He used the funds to make a down payment on a new car. The taxable amount of this distribution, reported in box 2a of Form 1099-R, was $14,500. There was a code 1 in box 7 of the Form 1099-R.

Diego was also the beneficiary of one of his great-grandmother's traditional IRAs. She passed away during the year, and Diego took a $2,000 distribution from the IRA. He used the money to pay down his credit card debt. As far as he knows, all of his great-grandmother's contributions to the account were deductible. This distribution was reported to him on a Form 1099-R with a code 4 in box 7.

Diego's only other income during the year was $40,000 in wages. He will claim the standard deduction.

Complete Schedule 2 (Form 1040), Additional Taxes, for Diego. You may also need to complete Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. Then, enter the correct amounts on page 1 of Diego's Form 1040. It is not necessary to complete the entire Form 1040.

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