Question

Read the following letter and help Shady Slim with his tax situation. Please assume that his gross income is $172,900 (which consists only of salary) for purposes of this problem.

December 31, 2019

To the friendly student tax preparer:

Hi, it’s Shady Slim again. I just got back from my 55th birthday party, and I’m told that you need some more information from me in order to complete my tax return. I’m an open book! I’ll tell you whatever I think you need to know.

Let me tell you a few more things about my life. As you may recall, I am divorced from my wife, Alice. I know that it's unusual, but I have custody of my son, Shady, Jr. The judge owed me a few favors and I really love the kid. He lives with me full-time and my wife gets him every other weekend. I pay the vast majority of my son's expenses. I think Alice should have to pay some child support, but she doesn't have to pay a dime. The judge didn't owe me that much, I guess.

I had to move this year after getting my job at Roca Cola. We moved on February 3 of this year, and I worked my job at Roca Cola for the rest of the year. I still live in the same state, but I moved 500 miles away from my old house. I hired a moving company to move our stuff at a cost of $2,300, and I drove Junior in my car. Junior and I got a hotel room along the way that cost us $65 (I love Super 8!).

Can you believe I’m still paying off my student loans, even after 15 years? I paid a total of $900 in interest on my old student loans this year.

Remember when I told you about that guy that hit me with his car? I had a bunch of medical expenses that were not reimbursed by the lawsuit or by my insurance. I incurred a total of $20,000 in medical expenses, and I was only reimbursed for $11,000. Good thing I can write off medical expenses, right?

I contributed a lot of money to charity this year (and have receipt documentation for all contributions). I’m such a nice guy! I gave $1,000 in cash to the March of Dimes. I contributed some of my old furniture to the church. It was some good stuff! I contributed a red velvet couch and my old recliner. The furniture is considered vintage and is worth $5,000 today (the appraiser surprised me!), even though I only paid $1,000 for it back in the day. When I contributed the furniture, the pastor said he didn’t like the fabric and was going to sell the furniture to pay for some more pews in the church. Oh well, some people just have no taste, right? Roca Cola had a charity drive for the United Way this year and I contributed $90. Turns out, I don’t even miss it, because Roca Cola takes it right off my paycheck every month . . . $15 a month starting in July. My pay stub verifies that I contributed the $90 to the United Way. Oh, one other bit of charity from me this year. An old buddy of mine was down on his luck. He lost his job and his house. I gave him $500 to help him out.

I paid a lot of money in interest this year. I paid a total of $950 in personal credit card interest. I also paid $18,000 in interest on my $500,000 home mortgage that helped me buy my dream home. I also paid $2,000 in real estate taxes for my new house.

A few other things I want to tell you about this year. Someone broke into my house and stole my kid's brand new bicycle and my set of golf clubs. The total loss from theft was $900. I paid $125 in union dues this year. I had to pay $1,200 for new suits for my job. Roca Cola requires its managers to wear suits every day on the job. I spent a total of $1,300 to pay for gas to commute to my job this year.

Oh, this is pretty cool. I've always wanted to be a firefighter. I spent $1,400 in tuition to go to the local firefighter's school. I did this because someone told me that I can deduct the tuition as an itemized deduction, so the money would be coming back to me.

That should be all the information you need right now. Please calculate my taxable income and complete pages 1 and 2 of Form 1040 (through taxable income, line 10) and Schedule A. You're still doing this for free, right?

Answer 1

Taxable Income
Gross income		172900
AGI		172900
Itemized deductions:
Medical expenses	0
Mortgage interest	18000
Real Estate taxes	2000
Charitable contributions (1000+1000+90)	2090	22090
Taxable income		150810

Tax liability = 12962+(24%*(150810-84200)) = $28948

eturn 2019 MB No. 1545 c ETOA Department of the Treasury- mal Revenue Service la 2 1UYU U.S. Individual Income Tax Return LU T OMB No 1545-0074 R Us On-Do not write artaple in this space Filing Status Single Married filing jointly Married filing separately (MFS Head of household (HOH Qualitying widower) (OM) Check only you checked the MFS box, enter the name of spouse. If you checked the HOH or QW box, enter the child's name if the qualifying person is a child but not your dependent Your first name and middle initial Last name Your social security number Shady Slim 1 2 3 4 $ 6 7 8 9 If joint retur, spouse's first name and middle initial Last name Spouse's social security number Home address number and street). you have a P.O. box, see instructions. Apt. no. Presidential Election Campaign 19010 N.W. 135th Street Check here you, or your spouse of filing jointly want to go to this tund. City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below (see instructions Checking a box below will not change your Miami, FL 33054 tax or refund You Spouse Foreign country name Foreign province/state/county Foreign postal code of more than four dependents see instructions and here ► Standard Someone can claim you as a dependent Your spouse as a dependent Deduction Soguse itemizes on a separate return or you were a dual status alien Age/Blindness You: Were bom before January 2, 1966 Are blind Spouse: Was born before January 2, 1955 is blind Dependents (see instructions): 2) Social security number Relationship to you i qualified for see instruction (1) First name Last name Child tax credit Credit for other dependents Shady Slim Jr. Son 172900 2b 4d sb 1 Wages, salaries, tips, etc. Attach Formis) W-2 . . . . . . 2a Tax-exempt interest. . . 2a b Taxable interest. Attach Sch. Bit required 3a Qualified dividends. . . 3a b Ordinary dividends. Attach Sch. Bit required 4a IRA distributions 4 b Taxable amount . . . . . . + Single or Married Pensions and annuities. . 40 d Taxable amount . . . . . Sa Social security benefits. . . Sa b Tacable amount . . . . . . Marding 6 Capital gain or loss. Attach Schedule of required. If not required, check here . . . . jointly or Quying . . 7a Other Income from Schedule 1. line 9 . . . . . . . . . . . . . . . . $24.400 b Add lines 1. 2. 3. 4b, 4, 5, 6, and 7a. This is your total income . . . . . . . . household Ba Adjustments to income from Schedule 1, line 22 . . . . . . . . . . . . . . L b Subtract line 8a from line 7b. This is your adjusted gross income . . . . . arry box under 9 Standard deduction or itemized deductions from Schedule A). . . 22090 10 Qualified business income deduction. Attach Form 8995 or Form 8995-A. . . 10 11a Add lines 9 and 10 . . . . . . . . . . . . . . . . . . . b Taxable income. Subtract line 11a from line Bb. If zera or less, enter-O- . For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Cat No. 11320B 172900 . 172900 . . . . 11a 11b 22090 150B 10 Fom 1040 2019

I OMB 1945- 2019 N 07 Your wou 123456789 SCHEDULE A 1 Itemized Deductions Form 1040 or 104-SRO Go to www.lrs.gow Schedule A for instructions and the latest information w ary 2010 Attach to Form 1040 1040-SR Caution if you are claimingant Quid disaster loss on Form 4634, the instructions for in o n Form100 100-SR Shady Medical Caution: Do not include expenses reimbursed or paid by others. and 1 Medical and dental expenses see instructions Dental 2 Enter amount from Form 1040 or 1040-SR line 2 1 72900 Expenses Multiply line 2 by 7.5% 0.075) - - - - - - 4 Subtract line 3 from line 1. If line 3 is more than line 1. enter -0. Taxes You State and local taxes. Paid a State and local income taxes or general sales taxes. You may include either income taxes or general sales taxes on line 5a, but not both. you elect to include general sales taxes instead of income taxes, check this box. . . b State and local real estate taxes (see instructions . . . . .. . Sb State and local personal property taxes . . . . . . . ... Sc dAdd lines sa through 5c . . . . . . . . . . . . . . - e Enter the smaller of line 5d or $10.000 ($5,000 if married filing separately . . . . . . . . . . . . . . . . 6 Other taxes. List type and amount ... sa Se Interest You Paid Caution. Your 7 Add lines 5e and 6 8 Home mortgage interest and points. If you didn't use all of your home mortgage loans) to buy, build, or improve your home. See instructions and check this box . . . . . . . . . . . a Home mortgage interest and points reported to you on Form 1098. See instructions if limited . . . . . . . . . . . . . . b Home mortgage interest not reported to you on Form 1098. See instructions if limited. If paid to the person from whom you bought the home, see instructions and show that person's name, identifying no.. and address. . . . . . . . . . . . . . . . . - Points not reported to you on Form 1098. See instructions for special Gifts to d Mortgage insurance premiums (see instructions . . . Od e Add lines Ba through Bd. . . . .... Be 9 Investment interest. Attach Form 4952 if required. See instructions. 9 10 Add lines Be and 9 11 Gifts by cash or check you made any gift of $250 or more, see Charity instructions. . . . . . . . - - - - - - - Caution if you 12 Other than by cash or check. If you made any gift of $250 or more See instructions. You must attach Form 8283 if over $500.... ruction 13 Carryover from prior year - - - - - - - - - 13 14 Add lines 11 through 13... Casualty and 15 Casualty and theft losses from a federally declared disaster father than net qualified Theft Losses disaster losses. Attach Form 4684 and enter the amount from line 18 of that form. See instructions . .. 15 Other 16 Other-from list in instructions. List type and amount Itemired - --- Deductions Total 17 Add the amounts in the right column for lines 4 through 16. Also, enter this amount on Itemized Form 1040 1040-SR line 9 . . 17 Deductions 18 you clect to itemize deductions even though they are less than your standard deduction, check this box. . . . . . . . . . For Paperwork Reduction Act Notice, see the instructions for Forms 1040 and 1040-SR No 1714C Schedule A Form 100 100 2010