Question

Tarek's Financial Journey Tarek's job is going great, and this past year he decided to work part-time so that he could go to school full-time for his master's degree. Tarek went to a highly ranked school, where tuition and fees were $15,000 for the year. He paid for his tuition and fees using a combination of savings, current income, scholarships, employer-provided tuition assistance, and student loans. It is the end of the year, and Tarek is filing his tax return. His total income and benefits are as follows: • Wages: $30,000 (as reported on his W-2). Employer-provided tuition assistance: $5,000. Scholarship: $2,000 • Student loan proceeds: $5,000. In addition to tuition, Tarek had the following expenditures: • Student loan interest: $1,000 (as reported to Tarek by his lender on Form 1098-E). • Books: $1,000 • Rent: $8,000. • Federal income taxes withheld: $4,000 (as reported on his W-2). It is now time for Tarek to complete his tax return. Tarek is single and is 26 years old Instructions (You may also want to reference IRS Publication 970.) 

a. What is Tarek's filing status and standard deduction amount for the tax year?

b. Which of the following income items, and what amount, are reported on Tarek's Form 1040 tax return? 1. Wages. 2. Employer-provided tuition assistance. 3. Scholarship 4. Student loan proceeds. 

c. What education tax credits are Tarek eligible to claim? 

d. For each of the following expenses indicate whether Tarek can claim a deduction and if so, the amount of the deduction. 1. Student loan interest paid. 2. Books. 3. Rent. e. Calculate Tarek's tax liability using Form 1040. Be sure to ac- count for federal income taxes withheld. Calculating the Cost of Life's Financial Journey

Answer 1

Answer 2

Ans D

Expenses	Deduction	Amount of Deduction
1. Student loan interest paid.	can claim deduction	$ 1,000
2. Books.	can claim deduction	$ 1000
3. Rent	cannot claim the deduction	$ 8,000
	Total	$ 10,000

So, Total Deduction is $ 1,000 + $ 1000= $ 2000

ans E)

Income Items	Inclusion/Exclusion	Amount
1. Wages.	Included in gross income	$ 30,000
2. Employer-provided tuition assistance.	Excluded in gross income	$ 5000
3. Scholarship.	Excluded in gross income	$ 2,000
4. Student loan proceeds	Included in gross income	$ 5000
	Total	$ 42000

So, Total gross income is $ 30000 + $ 5000= $ 35000

Tarek's tax liability using form 1040

Gross Total Income= Total Gross Income - Total Deduction

=$ 35000 - $ 2000

=$ 33000

Here, Federal income taxes withheld $ 4,000. So. total tax liability is

=Total Gross Income - Standard Deduction

=$ 33000 - $ 12,400

= $ 20600

(here standard deduction for single taxpayer for the year 2020 is $ 12400

Therefor, Total Tax Liability as per the tax bracket for $ 20600 is = ($ 987.5 + 1286.88) = 2274.38

So, Total tax liability is $ 2,274.38 and federal income taxes withheld is $ 4,000.

Hence, Total Tax Refund = Advanced Tax - Total tax liability

=$ 4,000- $ 2,274.38

= $ 1, 725.62

here

TAX RATE	SINGLE	total tax
10%	$0 to $9,875	$ 987.5
12%	$9,876 to $20600= 10724	$ 1286.88
	Total	$ 2274.38

Answer 3

Tarek’s job is going great, and this past year he decided to work part-time so that he could go to school full-time for his master’s degree. Tarek went to a highly ranked school, where tuition and fees were $15,000 for the year. He paid for his tuition and fees using a combination of savings, current income, scholarships, employer-provided tuition assistance, and student loans. It is the end of the year, and Tarek is filing his tax return. His total income and benefits are as follows:

• Wages: $30,000 (as reported on his W-2).

• Employer-provided tuition assistance: $5,000.

• Scholarship: $2,000.

• Student loan proceeds: $5,000.

In addition to tuition, Tarek had the following expenditures:

• Student loan interest: $1,000 (as reported to Tarek by his lender on Form 1098-E).

• Books: $1,000.

• Rent: $8,000.

• Federal income taxes withheld: $4,000 (as reported on his W-2).

It is now time for Tarek to complete his tax return. Tarek is single and is 26 years old.

Instructions

(You may also want to reference IRS Publication 970.)

1. What is Tarek’s filing status and standard deduction amount for the tax year?

2. Which of the following income items, and what amount, are reported on Tarek’s Form 1040 tax return?

1. Wages.

2. Employer-provided tuition assistance.

3. Scholarship.

4. Student loan proceeds.

3. What education tax credits is Tarek eligible to claim?