Scenario 4: Kendall and Siena King

Directions: Using the tax software, complete the tax return, including Form 1040 and all appropriate forms, schedules, and worksheets. Answer the questions following the scenario. When entering Social Security numbers (SSNs) or Employer Identification Numbers (EINs), replace the Xs as directed, or with any four digits of your choice.

Interview Notes:

Kendall and Siena are married and file a joint return.

Siena is a full-time science teacher at a local public middle school. She spent $600 of her own money to purchase supplies for labs she conducted with her students. She did not receive any reimbursement for these expenses.

Kendall is a self-employed driver for Delicious Deliveries. Kendall provided a statement from the food delivery service that indicated the number of miles driven and fees paid for the year. These fees are considered ordinary and necessary for the food delivery business:

4,786 miles driven while delivering food from 1/1/2022-6/30/2022

4,880 miles drived while delivering food from 7/1/2022-12/31/2022

Insulated box rental: $300

Vehicle safety inspection (required by Delicious Deliveries): $50

GPS device fee: $120

Kendalls record keeping application shows he also drove 4,833 miles between deliveries (2,393 miles from 1/1/2022-6/30/2022 and 2,440 miles from 7/1/2022-12/31/2022) and 4,062 miles (2,051 miles from 1/1/2022-6/30/2022 and 2,011 miles from 7/1/2022-12/31/2022) driven between his home and his first and last delivery point of the day. Kendall has a separate car for personal use. He bought and started using his second car for business on September 1, 2020.

Kendall also kept receipts for the following out-of-pocket expenses: $100 on tolls

$120 for car washes

$48 for parking tickets

$75 for Personal Protective Equipment (PPE) used during deliveries

$150 for snacks and lunches Kendall consumed while working

Kendall provided the Form 1099-NEC and Form 1099-K that he received from Delicious Deliveries.

Kendall also received $500 in cash tips that were not reported elsewhere.

Kendall was sick with Covid-19 and was unable to work for 14 days in May 2022.

Kendall purchased virtual currency through an electronic transfer of cash from his checking account. He had no other virtual currency transactions.

The U. S. federal student loan that Siena owed for postsecondary educational expenses was forgiven in 2022. The amount of student loan canceled was $15,000. Siena did not receive any tax form reporting this amount.

Kendall and Siena are U.S. citizens, have valid Social Security numbers, and lived in the United States all year. They have not taken distributions from any retirement plans.

Scenario 4: Test Questions

1. What is the amount of Siena and Kendall's retirement savings contributions credit? $__________

2. How is Siena's forgiven student loan treated on the tax return?

a. Canceled debt is out of scope for VITA/TCE, so Siena and Kendall should be referred to a professional tax preparer.

b. Siena has the option to spread the canceled debt income over three years.

c. The entire amount of the loan must be included on Schedule 1, Line 8c.

d. The forgiven student loan is excluded from income and does not need to be included on the return.

3. What is the amount of Kendalls Schedule C net profit?

a. $32,500

b. $23,080

c. $22,580

d. $20,623

4. Kendall can claim a credit for sick leave for certain self-employed individuals for 2022.

a. True

b. False

5. Kendall must check "Yes" to the digital asset question on Form 1040.

a. True

b. False

6. For 2022, how much can Siena take as an educator expense deduction for the lab supplies she purchased for her students?

a. $0

b. $250

c. $300

d. $600