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Complete Project 1 by hand on IRS tax forms (typed or handwritten).

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Project 1.docx Download Project 1.docx

Tax Forms: https://www.irs.gov/forms-instructions (Links to an external site.)

List of Forms Required:

  • Form 1040 (pages 1 and 2)
  • Schedule 1 (Additional Income and Adjustments to Income)
  • Schedule 2 (Additional Taxes)
  • Schedule 3 (Additional Credits and Payments)
  • Schedule B (Interest and Ordinary Dividends)
  • Schedule C (Profit or Loss From Business)
  • Schedule SE (Self-Employment Tax)
  • Form 2441 (Child and Dependent Care Expenses)
  • Schedule 8812 (Additional Child Tax Credit) – use this schedule to calculate the refundable portion of the Child Tax Credit (after calculating the nonrefundable portion)
  • Form 8863 (Education Credits)
  • Form 8995 (Qualified Business Income Deduction)

You will also need the worksheet on pages 6 and 7 in Publication 972  Download Publication 972in order to calculate the nonrefundable part of the Child Tax Credit.

Please use the 2020 tax tables (versus tax rate schedules) for calculating the tax liability (https://www.irs.gov/instructions/i1040tt#idm139919140467168

Tax Return-Individual Number Four (after Chapter 8)

Instructions:

Please complete the 2020 federal income tax return for Magdalena Schmitz. Ignore the requirement to attach the form(s) W-2 to the front page of the Form 1040. If required information is missing, use reasonable assumptions to fill in the gaps.

Magdalena Schmitz has undergone some major changes in her life recently. In 2019, at the age of 46, her husband, Roger, passed away. Magdalena has not remarried as of the end of 2020. Magdalena currently lives in Bedford, Pennsylvania. She was living in Pittsburgh when her husband passed away but she moved back to her childhood home so she could get help from her family raising her children. Magdalena was employed in Pittsburgh early in the year but left that job and relocated 100 miles away to pursue a new life and start her new job. Magdalena has three children (ages as of the end of the year): Alyssa (23), Tyler (16), and Connor (11). Magdalena would like to determine her federal income tax under the filing status that is most advantageous for her.

Magdalena reported the following information:

· Magdalena’s social security number is 294-83-2845

· Alyssa’s social security number is 824-84-8456

· Tyler’s social security number is 824-34-9584

· Connor’s social security number is 824-56-2984

· Magdalena’s mailing address is 623 S. Liberty Road Bedford, Pennsylvania 15522

Alyssa is unmarried and a full-time graduate student at Pennsylvania State University (PSU) (EIN 33-9876543). PSU’s address is 1250 Happy Valley, State College, PA 16801. She received her bachelor’s degree the year her father passed away. This year represents her fifth year of full-time higher education schooling. Alyssa works part-time in State College to help with some of her living expenses. Alyssa earned $2,300 in gross income during the year and had her income tax return prepared on campus by Volunteer Income Tax Assistance (VITA) volunteers. Magdalena provided support for Alyssa including paying for rent, books, tuition, food, clothes, medicine, and other support items. In total, Magdalena provided $12,700 of support for the year. PSU provided Alyssa with a Form 1098-T at year end.

Alyssa’s higher education expenses for her university studies were as follows:

Tuition $6,500

Books $2,000

In order to for Magdalena to maintain a full-time job, she sends Connor to a day care program after school five days a week. During the year, Magdalena paid the day care operator $4,250 for Connor’s care.

The day care details are as follows:

Horizon Day Care

452 S. Patriot Road

Bedford, PA 15522

EIN: 43-6598324

Magdalena’s W-2s for the year reported the following:

EmployerGross WagesFederal Income Tax WithholdingState Income Tax Withholding
Juniata Development Corporation$48,435$900$700
Pittsburgh Real Estate$2,450$200$125

Magdalena’s employers withheld all applicable and appropriate payroll taxes.

Magdalena received both Economic Impact Payments in 2020 and is not eligible for the Recovery Rebate Credit.

On January 1, 2019 (the prior year), Magdalena started a photography business in which she takes bridal and wedding photographs. She does not do any of the professional printing. However, she provides all the digital files to her clients on a password-protected web site as part of her service. This unique service, along with her skill and reputation, has allowed her to earn additional money on the weekends, primarily in the summer, to help support her daughter in college. Magdalena rents all the camera equipment and does not currently own any equipment herself. The photography business uses the cash method of accounting. The business did not have any obligation to file a Form 1099 to any payee during the year. Magdalena reported the following revenue and expenses for her business this year:

Gross Revenue $6,500

Photographic supplies $ 430

Camera rental $1,050

Web site hosting fee $ 200

Magdalena also received the following amounts in 2020:

Life Insurance Payment-Mutual Life (Mother’s passing) $150,000

Cash gift from her father $ 5,000

Interest income-First Bank of Bedford $ 310

Interest income-General Electric Bond $ 3,200

Interest income-Bedford School District Municipal Bond $ 2,500

Interest income-Johnstown Rural Improvement District Bond $ 1,300

PA state income tax refund* $ 325

*Refund was from state tax she paid in 2019. Magdalena deducted all her state taxes as itemized deductions, and received full tax benefit for the deductions, on her 2019 federal tax return.

Magdalena did not own, control or manage any foreign bank accounts, nor was she a grantor or beneficiary of a foreign trust during the tax year. She also did not acquire or dispose of any virtual currency in 2020.

Magdalena made the following payments during 2020:

Dentist (unreimbursed by insurance) $1,500

Doctors (unreimbursed by insurance) $ 475

Prescriptions (unreimbursed by insurance) $ 255

Real property taxes on residence $ 950

Vehicle registration fee based upon age of vehicle $ 175

Mortgage interest on principal residence (Form 1098 received) $6,845

Contribution to the American Lung Association $ 600

Contribution to the Habitat for Humanity $1,000

Contribution to Methodist Church of PA $3,000

Contribution to Penn State University $ 400

Magdalena wants to contribute to the Presidential Election Campaign Fund. She would like to receive a refund (if any) of any tax she may have overpaid for the year. Her preferred method of receiving the refund is by check.

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