Tax Forms

Instructions

Form 1040

Schedule 1

Schedule 2

Schedule A

Schedule B

Schedule C

Schedule SE

Form 8995

Form 4562

2021 Tax Rate Schedules

Instructions

Question Content Area

Note: This problem is for the 2021 tax year.

Janice Morgan, age 24, is single and has no dependents. She is a freelance writer. In January 2021, Janice opened her own office located at 2751 Waldham Road, Pleasant Hill, NM 88135. She called her business Writers Anonymous. Janice is a cash basis taxpayer. She lives at 132 Stone Avenue, Pleasant Hill, NM 88135. Her Social Security number is 123-45-6782. Janice's parents continue to provide health insurance for her under their policy. Janice did not engage in any virtual currency transactions during the year and wants to contribute to the Presidential Election Campaign Fund. Janice received the appropriate coronavirus recovery rebates (economic impact payments); related questions in ProConnect Tax should be ignored.

During 2021, Janice reported the following income and expense items connected with her business.

Income from sale of articles	$95,000
Rent	16,500
Utilities	7,900
Supplies	1,800
Insurance	5,000
Travel (including restaurant meals of $600)	2,900

Janice purchased and placed in service the following fixed assets for her business. Janice wants to elect immediate expensing under 179, if possible.

• Furniture and fixtures (new) costing $21,000 on January 10
• Computer equipment (new) costing $12,400 on July 28

Janice's itemized deductions include:

State income tax	$2,950
Home mortgage interest paid to First National Bank	8,000
Property taxes on home	2,500
Charitable contribution to her alma mater, State College	1,200

Janice did not keep a record of the sales tax she paid. The amount allowed by the sales tax table is $437. Janice reports interest income of $4,000 on certificates of deposit at Second National Bank. She made estimated tax payments of $5,000 for 2021.

Required: Compute Janice Morgan's 2021 Federal income tax payable (or refund due).

• Make realistic assumptions about any missing data.
• If an amount box does not require an entry or the answer is zero, enter "0".
• Enter all amounts as positive numbers.
• The taxpayer wants $3 to go to the to Presidential Election Campaign.
• It may be necessary to complete the other tax forms and schedules before completing Form 1040.
• Use the tax schedules (not the tax tables) included with this problem to compute the tax.
• If required, round your final answers to the nearest dollar.

1

The calculation of taxable income begins with gross income. Gross income includes all income, unless the tax law provides for a specific exclusion. Individual taxpayers have two categories of deductions: (1) deductions for adjusted gross income (deductions from gross income to arrive at adjusted gross income) and (2) deductions from adjusted gross income. As a general rule, personal expenditures are disallowed as deductions in arriving at taxable income. However, Congress allows specified personal expenses as deductions from AGI (commonly referred to as itemized deductions). AGI is an important subtotal that serves as the basis for computing percentage limitations on certain itemized deductions such as medical expenses, charitable contributions, and certain casualty losses. Noncorporate taxpayers are allowed a deduction (subject to limitations) of qualified business income (QBI) from a partnership, S corporation, or sole proprietorship. The deduction is taken below the line, meaning it reduces taxable income but not adjusted gross income.