Question

Instructions:

Please complete the 2018 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) W-2 to the front page of the Form 1040. If required information is missing, use reasonable assumptions to fill in the gaps.

Sarah Hamblin and her now ex-husband Kevin were legally divorced on March 1, 2018. 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 2018:

• 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

All applicable and appropriate payroll taxes were withheld by the employer.

During the year, Sarah also received the following:

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 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 2018. Bright Day Flowers, Inc.’s employer identification number is 56-3535353.

Sarah entered a contest sponsored by a radio station and won 10 tickets to the touring Broadway-style production of Wholesome. The value of the tickets was $200 each. Sarah took her friends from work to the production.

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 2018 (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.

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.

Answer 1

Question 1
Interpretations
1. Child support income will not be included in the gross calculation income
		Computation of Adjusted gross income
		Particulars	(Amount in $)	Remarks
		Salary income	34350
		Other income-
		Alimony amount received	16000
		Child support payment	-	Not taxable
		Interest income from U.S. treasury bond	400
		Help from father for legal payments	8500
		Interst payment from Madison bond	250
		Life insurance payment on death of mother	-	Not taxable
		Interst income from bank	165
		Total Income	59665
		Above the line deductions-	0
		Adjusted Gross Income	59665
Taxable income
Tax slab applicable
0	$    9,700	10% of taxable income	970
$    9,700	$ 39,475	$970 plus 12% of the excess over $9,700	3573
$ 39,475	$ 84,200	$4,543 plus 22% of the excess over $39,475	-8684.06
		Total tax	8984.8
		Taxes paid	9075
		Refund	90.2