Your parents have been bragging about how much you are learning. They told all of their friends that you are taking an income tax course and are now the family tax expert. Your parents' best friends, Cinda and Jim Davis asked if you would be able to prepare their 2020 Federal income tax return (Form 1040 and supporting schedules).

You will need some or all of the following forms and schedules: Required: Form 1040 Schedule A Schedule B Schedule C Schedule SE Schedule 1 Schedule 2 Schedule 3 Publication 972 Any other IRS instructions that you find useful. Form 8995 or 8995-A 2 Information

Provided by Cinda and Jim Assume that all information pertains to tax year 2020 unless otherwise indicated.

1) Cinda (age 50) and Jim (age 52) are happily married. They have three children, Hugo (age 8), Sebastian (age 12) and Paula (age 22), all of whom live at home. Paula is a part-time student at the University of Illinois. Paula also works part-time and earned $8,000 this year. This is less than half the cost of supporting Paula.

2) Cinda works at a marketing firm; she earned $160,000 in 2020. According to her W-2 forms, Cinda's employer withheld a total of $29,000 in federal income taxes from her paychecks during the tax year.

3) Jim is a custom home designer. He is the owner/operator of a sole proprietorship that handles all aspects of a custom home build, from initial architectural plans through custom interior design. The business uses the cash method of accounting. During 2020, Jim collected $155,000 in sales revenue (including $15,000 from invoices for services that he provided in 2019). Additionally, in 2020 he completed the landscaping for three clients that have not yet paid their invoices which total $32,000. Jim does not have any employees and made no payments requiring issuance of a Form 1099. Jims expenses include advertising costs of $5,000, legal and consulting fees of $3,500, business insurance of $3,000, landscape materials and supplies of $50,000 and office supplies $500. Jims business does not involve inventory. Jim has a truck that he uses 85% for business (15% personal). He purchased the truck in 2017 and has always used the standard mileage method to determine business expenses. In 2020, he drove the truck 25,800 total miles. He has supporting documentation for his business miles. Jim paid $3,500 each quarter in estimated payments for federal income tax. (There are four instalments in a year.) He did not make quarterly payments for Illinois state taxes.

4) Cinda and Jim received $700 of interest income from bonds issued by the City of Chicago and $1,100 of interest income from a money market account at Fidelity (Form 1099- INT). They also received qualified dividend income (Form 1099-DIV) from ABC Corp of $1,500.

5) Cinda and Jim may be eligible to claim a child tax credit. Complete the Child Tax Credit Worksheet on page 41 of the Form 1040 Instructions for 2020.

6) Cinda and Jim paid $10,250 in principal payments and $8,987 in interest payments on their home mortgage for their primary residence (Form 1098). They bought their home in 2014 and the acquisition indebtedness was $800,000. They also paid local real property taxes of $5,320 on their home.

7) Cinda and Jim paid $500 of interest related to credit card debt.

8) The Davis also paid $20,000 in tuition and fees for their daughter to attend UIUC.

9) The Davis made the following charitable contributions: $2,500 to St. Jude; $2,000 to the Red 3 Cross; $500 to the University of Illinois Alumni Association; and $750 contribution of household goods to Goodwill. Other than the Goodwill donation, all gifts were made by check. Appropriate documentation has been maintained for all charitable contributions.

10)Cinda and Jim incurred the following income/expenses during tax year 2020: a. $300 state personal property taxes on Cindas car b. $4,500 gambling winnings and $6,000 gambling losses c. $20,200 of qualified medical expenses d. $37,000 gift from Jims great uncle e. $0 payment/refund of state income taxes. In 2019 their withholding was exactly equal to their state income tax liability (which was amazing)

11)The Davis' live at 555 Tax Drive, Champaign, IL 61822. Their family SSNs are as follows:

Jim 123-44-5555

Cinda 123-55-6666

Paula 123-66-7777

Sebastian 123-77-8888

Hugo 123-88-9999

12)Additional information:

a. If Cinda and Jim overpaid their 2020 tax, they would like the entire overpayment to be refunded to them.

b. Cinda and Jim are not subject to AMT

c. They do not wish to contribute to the Presidential Election Campaign fund.

d. They do not have foreign bank accounts or other foreign investments.

e. The family had full-year minimum essential health coverage through Cinda's employer.