Reference no: EM133381232

Tax Return Project

1. Dona S. Parson (SSN 456-37-7685; DOB 5-7-1973) is a single mom who works full-time as a financial analyst at Trell Corp. Her daughter, Carla P. Gaffney (SSN 456-96-0756; DOB 1-22- 2003) is a full-time student at the University of Houston. Both Dona and Carla live at 8311 Fairview Lane, Houston, TX 77077. The phone number Dona wishes to show on her tax return is her daytime work number of 713-899-6654.

2. Dona did not receive an advance child tax payment. She did, however, receive a third economic impact payment of $2,800 in March 2021.

3. Both Dona and Carla were covered by health insurance from Blue Cross Blue Shield for 12 months of the year, as reported on their Forms 1095-B. Since Dona did not purchase insurance through a government-sponsored Marketplace, this information is not reported on the tax return.

4. Dona did not receive, sell, send, exchange, or otherwise dispose of any financial interest in any virtual currency during the year.

5. Dona wants to contribute $3 to the Presidential Election Campaign Fund.

6. Dona received a Form W-2 from her employer, Trell Corp., 8375 West Drive, Houston TX 77204 (EIN 65-1009503) which reported the following items:

Box 1: Gross wages and taxable benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $96,000
Box 2: Federal income tax withheld . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Box 3: Social Security wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,000
Box 4: Social Security tax withheld . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,952
Box 5: Medicare wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,000
Box 6: Medicare tax withheld . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,392

7. Dona received Forms 1099-INT reporting in box 1 (regular or OID interest) the following interest income during the year:
Chance Bank (savings account) $1,600
Whitemore Corp. (corporate bonds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Safe Logistics, Inc. (corporate bonds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,300

8. Dona has neither a foreign bank account nor a foreign trust, and she did not receive any distributions from a foreign trust during the year.

9. Dona received a Form 1099-MISC from Fleet State Title Co. (EIN 83-6941581) which reported
$900 in box 3 (other income). Dona was a member of a class-action lawsuit and the $900 represents her share of punitive damages assessed by the court against Fleet State Title Co. Dona incurred no direct legal expenses related to the settlement.

10. As a hobby, Dona paints abstract portraits. During the year, she sold one of her paintings at an art show for $200. She also incurred expenses of $500 for painting supplies.

11. Dona paid $16,000 of alimony to her former husband, Ned Gaffney (SSN: 451-84-1324). The written divorce decree is dated July 15, 2017.

12. Dona incurred and paid the following personal expenses during the year:
Taxes:
Sales tax rate (365 days in Texas; State 6.25%; Local 2.00%) . . . . . . . . . . . . 8.25%
Sales tax on new car (cost $31,840; 8.25% tax rate) . . . . . . . . . . . . . . . . . . . 2,627
Real estate property tax on home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,500
Automobile registration (based on weight and horsepower) . . . . . . . . . . . 150
Interest:
Mortgage used to purchase home (principal balance $300,000;
origination date July 15, 2017; reported by Chance Bank
on Form 1098 - see taxes, above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,900
Credit cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600
Auto loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,800
Cash contributions (all substantiated):
Museum of Fine Arts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500
Red Cross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
University of Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500
Democratic party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
Other:
Losing lottery tickets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

13. Carla graduated from Memorial City High School in May and attended the University of Houston on a full-time basis from August to December 2021. In August, Dona paid $9,000 in qualified tuition for Carla's first semester. In December, Dona paid another $9,000 in qualified tuition for Carla's second semester beginning in January 2022. Carla received a Form 1098-T from the University of Houston, 5000 Gulf Freeway, Houston 77004 (EIN 74-6001399) reporting payments received for qualified tuition and related expenses of $18,000 in box 1. Box 8 was check-marked to indicate that Carla is at least a half-time student. Carla has no earned income, and she has not been convicted of a felony for possessing or distributing a controlled substance.

14. If preparing the return with TaxAct Professional 2021 or similar professional tax preparation software for which you are considered a paid preparer, you may need to complete form 8867 ( Paid Preparer's Due Diligence Checklist). If so, assume you have interviewed Dona and asked the appropriate questions and obtained appropriate documentation to support the income, deductions, and credits claimed on the return, including Dona's filing status.

15. If you are using ProSeries 2021, please select "non-paid preparer" on part V (Return Preparer and Third Party Designee Information) of the Information Worksheet. This will eliminate error messages regarding the preparer and preparer's code, as well as avoid messages regarding form 8867 (Paid Preparer's Due Diligence Checklist).

16. If you are using ProSeries 2021, please do not attempt to change the preparer name. To remove the name of the University of Houston as the preparer, please see item 15, above.

17. Below are check figures to help you when preparing the return:
Total income (line 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $103,000
AGI (line 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,000
Taxable income (line 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,100
Tax overpaid (line 34) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166

Assignment
Complete Dona Parson's Federal income tax return for 2021. Assume that Dona is filing her return on time (before May 17, 2022). Allow her tax refund to be mailed to her rather than using electronic direct deposit. In preparing the return, you will need to use forms 1040, 8812 and 8863, and schedules 1, 3, A and B. If you are preparing the return as a tax professional, you will also need to include form 8867. The total tax return is 13 to 16 pages plus any statements detailing tax items that you wish to include.

Submit a PDF copy of your completed tax return for Dona Parson via Blackboard, assembled as it would be filed with the IRS. Statements providing detail or explanation of any tax items should be attached as appropriate, and tax forms should be assembled in the correct order (see #3, below). Please do not submit the client copy of the return, input sheets, or taxpayer worksheets.

You may prepare the project either individually or as a member of a team. Team should consist of no more than 3 students and all members of a team will receive the same grade. Teams should submit one project, with team members indicating the names of other team members in the comment area for the submission on Blackboard.

Notes
1. A link to install a free demo version of TaxAct tax preparation software is available on Blackboard. Tax Act requires Windows as your operating system. You must update the software online before use.
To print a PDF of the return in TaxAct, select Print, enter 1 for Federal Filing, click Print, and select to send Output to PDF (indicate the file location). Also check View PDF Output if you want the PDF document to pop-up on your screen. Do not worry if the return contains a watermark "DO NOT FILE." This watermark is typical for evaluation/free tax preparation software and it will not affect your grade.

2. If you are a Mac user or would like to use better tax preparation software, free assess to ProSeries is available in the Bauer College computer labs. To access the software, log on to your student account, enter your password, and click on the ProSeries icon. You will then need to enter the user name and the password. These are posted in the labs. If you do not see them, please ask the lab assistant.
To print a PDF of the return in ProSeries, select File, Print, and Print This Client. Then, check the boxes for File (PDF) and Display PDF after save. Select the Filing Copy, and Federal. Finally, select Print.
If you encounter difficulty logging in to ProSeries, it may be because another student has repeatedly entered an incorrect password. This will cause ProSeries to lock down access to the software, often on multiple workstations. If this occurs, please submit a verification email to Intuit/ProSeries and notify the lab assistant sothat he/she may check their email and provide the verification code for you to unlock the software.

3. The correct assembly order for the tax return is the order printed by TaxAct, ProSeries or other tax preparation software. If the return needs to be reassembled for any reason, organize the forms and schedules following the "attachment sequence numbers" listed in the top right-hand corner of each form or schedule, generally below the tax year.