Activity 4.5: Individual Tax Return II To do: Make a submission To do: Receive a


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Activity 4.5: Individual Tax Return II
To do: Make a submission To do: Receive a grade
Resources
Read/review the following resources for this activity:
Textbook: Chapter 6, 7
File (.pdf): Presentation Chapter 6
File (.pdf): Presentation Chapter 7
Link: Internal Revenue Service
Introduction
You will continue to utilize the IRS website to search for, complete, and save appropriate forms to your computer.
Instructions
Please complete the 2020 federal income tax return for Sarah Hamblin. Be sure to include only required tax forms when completing the tax return. For purposes of this assignment, unless instructed otherwise, you do not need to attach Form 8582. Also, ignore the requirement to attach the Form(s) W2 to the front page of the Form 1040. If required information is missing, use reasonable assumptions to fill in the gaps.
Many of the forms on the IRS website have “fill-in” functionality. This allows you to type into the fields, then download and save the finished form onto your computer.
Tax Scenario
Sarah Hamblin and her now ex-husband Kevin were legally divorced on March 1, 2020. As of the end of the year, Sarah was unmarried. Sarah and Kevin had only one child, an 11-year-old girl named Elizabeth. As part of the divorce decree, Sarah was given custody of Elizabeth and Kevin was required to pay 1) child support for Elizabeth’s care, and 2) alimony to Sarah until she remarries or dies. Because Kevin will be making child support payments, the divorce decree provided that Kevin will be permitted to claim the tax dependency exemption for Elizabeth until Elizabeth no longer qualifies as a tax dependent of either parent and the decree obligates Sarah to sign and/or file any required forms to cause this result to occur.
Sarah rents a home (separate from Kevin) that she pays for herself. Elizabeth lives with Sarah most of the time, but she visits and stays with her father every other weekend and most holidays. During the year, Elizabeth stayed at Kevin’s house a total of 74 nights.
Sarah provided the following information for 2020:
Sarah’s Social Security number is 123-43-4321
Elizabeth’s Social Security number is 123-34-1234
Sarah’s mailing address is 1245 Rose Petal Drive, Middletown, Wisconsin 53562
Elizabeth is a U.S. citizen
The following was reported on Sarah’s Form W-2:
Employer Gross Wages Federal Income Tax Withholding State Income Tax Withholding
Central Wisconsin Heating and Air 34,350 6,950 2,125
During the year, Sarah also received the following:
Item Amount
Child Support Payment from Kevin Hamblin $12,000
Alimony Payment from Kevin Hamblin 16,000
Gift from her father to help with legal bills 8,500
Interest income on U.S. Treasury Bond 400
Interest income of Madison City Bond (municipal bond) 250
Interest income from First Bank of Madison 165
Life insurance proceeds on the death of her mother 45,000
Sarah made a $200 donation to the American Red Cross in support of its COVID-19 relief efforts.
Sarah is a 50% owner in a friend’s company, Bright Day Flowers, Inc. Bright Day Flowers, Inc. (BDF) is a Subchapter S corporation. The company reported ordinary business income for the year of $22,000. Sarah acquired the stock several years ago. Sarah worked a total of 600 hours at the BDF shop in the evenings and on the weekends during 2020. Bright Day Flowers, Inc.’s employer identification number is 56-3535353.
Sarah entered a contest sponsored by a radio station and won 10 gift cards to various restaurants. The value of the gift cards was $200 each. Sarah gave several of the gift cards away to her coworkers.
Sarah lost her job with Central Wisconsin Heating and Air on November 15 because of a reduction in work force. She collected $1,250 in unemployment benefits during the year. She is currently looking for another job.
Sarah had qualifying minimum health insurance coverage provided to her because of her employment with Central Wisconsin Heating and Air for each month in 2020 (the employer continued to cover her through the end of the year). Elizabeth had qualifying minimum health insurance coverage provided through Kevin through his work.
Sarah 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. Also, Sarah did not buy, sell, exchange, or otherwise acquire any financial interest in a virtual currency.
Sarah received two Economic Impact Payments (stimulus checks) in the full amount before filing their 2020 tax return.
Sarah was provided with the following benefits as part of her employment:
Group-term life insurance coverage of $50,000. The cost to cover Sarah for the company for the tax year is $150.
Access to the company photocopy machine. Sarah estimates she made $14 worth of copies during the year primarily for use with her church group activities.
Sarah reported no itemized deductions other than any described above.
Sarah does not want 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.
Grading and Assessment
This assignment will be graded by your instructor for accuracy.
Course Learning Outcome(s): 1, 2, 3
1. Articulate the rules of the Taxation System.
2. Identify taxability of items.
3. Prepare a comprehensive income tax return with tax software.
Due Date: By 11:55 pm ET on Sunday

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