Solution Manual with Appendix For Income Tax Fundamentals 2023, 41st Edition By Gerald E. Whittenbur by digitaldownload87

CHAPTER 1 THE INDIVIDUAL INCOME TAX RETURN Group 1 – Multiple Choice Questions 1. D The income tax includes elements of social and economic policy (LO 1.1) 2. C The income tax was authorized by the 16th Amendment in 1913 (LO 1.1) 3. C The 1040A and 1040-EZ no longer exist and the 1120 is for corporations (LO 1.2) 4. D Partnerships use Form 1065 to report income tax information. A partner will report their share of income from a partnership on a Form1040 (LO 1.2) 5. D Capital gains and losses are reported directly on the face of the Form 1040 (from Schedule D) (LO 1.2) 6. D A partnership is not generally a tax-paying entity (LO 1.2) 7. C Student loan interest is a for AGI deduction. The other responses are all itemized (from AGI) deductions (LO 1.3) 8. B The deduction for IRA contributions is a for AGI deduction (LO 1.3) 9. D $98,000 – $13,000 (standard deduction is less than itemized deductions) (LO 1.3) 10. D For AGI adjustments are deducted to get to AGI (LO 1.3) 11. B The larger of the two may be deducted (LO 1.3) 12. A An exclusion reduces gross income (LO 1.3) 13. B Filing thresholds generally are the same as the standard deduction amount (LO 1.4) 14. D Ben’s income would need to exceed the standard deduction to require filing a tax return (LO 1.4) 15. D $25,900 + $1,400 (LO 1.4) 16. C Single dependent over 65 and blind threshold is $4,500 for unearned income (LO 1.4) 17. C Joan qualifies as either single or head of household; however, head of household is more advantageous (LO 1.5) 18. D Although Dorothy does not live with Glenda, since Dorothy is a parent that Glenda supports, Glenda may file as head of household (LO 1.5) 19. D Taxpayer may file married filing jointly in year of spouse’s death (LO 1.5)

20. C Surviving spouse is preferred to head of household (LO 1.5) 21. E Either Margaret or her sister (but not both) may claim the mother as a dependent under a multiple support agreement (LO 1.6) 22. D The daughter fails the age test to be a qualifying child and she fails the gross income test ($4,400 in 2022) to be a qualifying relative (LO 1.6) 23. D The child tax credit in 2022 is $2,000 (LO 1.6) 24. B The child tax credit for the 13-year-old child is $2,000. The mother does not meet the support test and cannot be claimed (LO 1.6) 25. B Must be age 16 or under for child tax credit (LO 1.6) 26. A Head of household standard deduction plus additional standard deduction for age 65 ($19,400 + $1,750) (LO 1.7) 27. B Taxpayers age 65 or older are eligible for an additional standard deduction amount (LO 1.7) 28. B Taxpayers that are blind are eligible for an additional standard deduction amount (LO 1.7) 29. D Earned income plus $400 (LO 1.7) 30. E Standard deduction may not exceed typical amount (LO 1.7) 31. D Business inventory is not considered a capital asset (LO 1.8) 32. A Gain of $15,000 ($25,000 amount realized less $10,000 adjusted basis) has been held for more than 12 months and is long-term (LO 1.8) 33. C $10,000 = $240,000 – ($270,000 – $40,000) (LO 1.8) 34. A $43,000 – $3,000. Net capital losses of up to $3,000 may be deducted from ordinary income for individual taxpayers (LO 1.8) 35. C Line 7 is capital gain or (loss) (LO 1.9) 36. B Preparers must get a signed authorization to e-file from the taxpayer. (LO 1.10) 37. B About 90% of returns are filed electronically (LO 1.10) 1-1

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Chapter 1 – The Individual Income Tax Return

Group 2 – Problems 1. a. Raising revenue to operate the government. b. Furthering economic goals such as reducing unemployment. c. Furthering social goals such as encouraging contributions to charities. (LO 1.1) 2. a. b. c. d. e. f. g. h. i.

Form 1040 Schedule B Schedule D Schedule A Schedule 2 Schedule E Schedule 3 Schedule C Schedule 1 (LO 1.2)

3. a. $36,300 = $42,000 + $300 – $6,000. b. $25,900, the greater of itemized deductions or the standard deduction of $25,900. c. $10,400 = $36,300 – $25,900. (LO 1.3) 4. a. $25,000. b. $12,950, the greater of total itemized deductions or the standard deduction amount. c. $12,050 = $25,000 – $12,950. (LO 1.3) 5. a. $53,800 = $54,000 + $2,800 – $3,000 ($7,000 capital loss limited to $3,000). b. $12,950 c. $40,850 = $53,800 – $12,950. (LO 1.3 and 1.8) 6. a. b. c. d.

$47,500 = $48,000 + $2,500 – $3,000. $25,900, the greater of itemized deductions or the standard deduction of $25,900. $21,600 = $47,500 – $25,900. $2,184 (Tax Table) (LO 1.3, 1.5, and 1.7)

7. Adjusted gross income $18,000 Less: Itemized deductions –2,400 Taxable income $15,600 Marco’s tax liability from the Tax Table is $1,670. Note: because they are married and filing separately and Marco’s spouse Tatiana itemizes her deductions, Marco must also itemize his deductions, even though the itemized deductions total is less than the standard deduction he would be otherwise entitled to. (LO 1.3, 1.5, and 1.7) 8. Adjusted gross income ($13,200 + $1,450) $ 14,650 Less: Standard deduction –12,950 Taxable income $ 1,700 (LO 1.3, 1.5, and 1.7) (Note: See Chapter 6 for the tax credit computation for dependent college students under age 24.) 9. a. $34,050 = $47,000 – $12,950. b. Tax tables. Taxpayers with income up to $100,000 must use the tax tables. c. $3,884. (LO 1.3, 1.5, and 1.7) 10. a. b. c. d. e.

$66,000 = $50,000 + $8,000 + $5,000 + $3,000. $63,500 = $66,000 – $2,500. $27,000, the greater of itemized deductions or the standard deduction of $25,900. $36,500 = $63,500 – $27,000. $3,972 (LO 1.3, 1.5, and 1.7)

Solutions for Questions and Problems – Chapter 1

1-3

11. a. $89,400 = $85,400 + $4,000. b. $0. c. $63,500 = $89,400 – $25,900 (standard deduction). (LO 1.3, 1.5, 1.6, and 1.7) 12. Taxable income is: $28,050 = $41,000 – $12,950. Tax liability from the tax tables not the tax rate schedules: $3,164. (LO 1.3, 1.5, and 1.7) 13. Yes.

Since Griffin owes Social Security taxes on the unreported tips (greater than $400), he must file an income tax return. (LO 1.4)

14. a. No. b. Yes. c. No. d. Yes. e. Yes. 15. a. b. c. d. e.

Income is less than the $19,400 standard deduction. Although not required to file, Helen is likely to be eligible for refundable credits and should. Unearned income was more than $1,150. Also, gross income is more than the larger of $1,150 or $1,950 (earned income of $1,550 plus $400). Their income is under the $27,300 standard deduction [$25,900 + $1,400 (over 65 years old)]. Gross income is greater than $25,900, the 2022 standard deduction. His earnings exceeded the $400 limit for self-employed persons. (Note: All answers can be found in the figures in LO 1.4.)

Allen Boyd Caldwell Dell Evans

$2,396. $34,600 – $12,950 = $21,650 $2,702. $37,175 – $12,950 = $24,225 $4,008. $62,710 – $25,900 = $36,810 $3,322. $49,513 – $19,400 = $30,113 $5,391. $57,397 – $12,950 = $44,447 (LO 1.5)

16. a. D b. A

The mother is a qualifying person for head of household. The significant other is not a qualifying person as this individual is not one of the relatives that can be considered a qualifying person for head of household. c. A The brother does not qualify as a dependent (support test). d. B or C MFJ can be claimed in the year of the spouse’s death and is probably preferable. e. A, D or E. Surviving spouse is likely to be preferable but single or head of household are also possible. (LO 1.5 and 1.6)

17. a. Because their income exceeds $100,000, the tax rate schedules must be used. b. $14,554 = $9,615 + 22% x ($106,000 – $83,550). (LO 1.5) 18. Jonas could qualify as either a qualifying child or qualifying relative. The qualifying child tests should be applied first: 1. Relationship test: Confirm Jonas’ relationship to Karl. 2. Domicile test: Where did Jonas live during the tax year? Was it more than one-half of the year with Karl? 3. Age test: What is Jonas’ age and is he a full-time student? 4. Joint return test: What type of tax return does Jonas file (if any)? If MFJ, is this only to obtain a refund? 5. Citizenship test: Is Jonas a US citizen or a tax resident of the US, Canada, or Mexico? 6. Support test: How much of Jonas’ support is provided by Jonas? Is it more than one-half? If Jonas is a qualifying child, then he need not meet the citizenship test to be a qualifying person for head of household filing status. If Jonas is not a qualifying child, he might be a qualifying relative which would prompt the following questions: 1. Relationship or member of household test: If Jonas is Karl’s brother, this test has been confirmed in the qualifying child questions. If Jonas is not one of the qualifying relatives, the remaining tests need not apply since a person that is a qualifying relative by living in the taxpayer’s household is not a qualifying person for purpose of the head of household test.

1-4

Chapter 1 – The Individual Income Tax Return

The following test need only be applied if Jonas is not Karl’s brother but is a qualifying relative for reasons other than living in Karl’s home. 2. Gross income test: What is Jonas’ 2022 income? Is it less than $4,400? 3. Support test: Does Karl provide more than one-half of Jonas’ support? The other two tests (joint return and citizenship) were subject to inquiry under qualifying child. Karl should also be asked if he is unmarried at year end. (LO 1.5 and 1.6) 19. Head of household. Maggie’s parents meet the tests to qualify as her dependents. Maggie is single. Additionally, she provides a home for her parents. Parents are an exception to the requirement that dependents must live in the same household as the taxpayer to qualify the taxpayer for head of household status. (LO 1.5 and 1.6) 20. Single. Unmarried with no dependent. Head of household. Single or abandoned spouse, with qualifying dependent. Surviving spouse [qualified widow(er)]. Spouse died within the past 2 years and has a qualifying dependent. (LO 1.5) 21. a. Yes, his son qualifies as a dependent, meeting the tests of a qualifying relative. b. No. To be a qualifying person, his son must live in the same household as Marquez, so Marquez cannot use the head of household filing status. (LO 1.5 and 1.6) 22. a. Yes b. No (must be below $4,400 gross income test) c. Yes d. Yes e. No

$500 other dependent credit $0 $2,000 child tax credit $500 other dependent credit $0 (LO 1.6)

23. $0. Exemptions were suspended for tax years 2018–2025. $2,500. The 11-year-old child qualifies for the $2,000 child tax credit (under age 17). The 17-year-old qualifies for the other dependent credit of $500. (LO 1.6) 24. No. Because Charles is self-supporting, his parents may not claim him as a dependent. The self-support test is applied to both children and relatives who otherwise qualify, so Charles is disqualified either way. (LO 1.6) 25. No. Phillip cannot be claimed as a dependent because he is not a U.S. citizen or a resident of the U.S., Canada, or Mexico. (LO 1.6) 26. The standard deduction is a specific dollar amount that varies with filing status, age and vision, but not by type of individual deduction. Total itemized deductions depend on the amount and type of items, with some items having limitations based on AGI. They include medical expenses, certain taxes, certain interest expenses, charitable contributions and miscellaneous deductions. A taxpayer should claim the larger of the standard deduction or the total allowed itemized deductions to reduce the taxpayer’s income subject to tax as much as possible. (LO 1.7) 27. i. The “statutory” amount of $1,150. ii. The earned income of the dependent plus $400 iii. The “typical” standard deduction for a taxpayer of that filing status (e.g., $12,950 for a single taxpayer that is under age 65 and not blind) (LO 1.7) 28. A spouse in a married filing separate situation when the other spouse is itemizing; most nonresident aliens; an individual filing a short-year return. (LO 1.7)

Solutions for Questions and Problems – Chapter 1

29. a. b. c.

Gain/(loss) Realized $5,000 ($5,000) ($7,000)

Gain/(loss) Recognized $5,000 ($3,000) ($3,000)

($4,000)

$4,000

1-5

Long-term/ Short-term Long-term. Short-term. The excess $2,000 loss can be carried forward. Long-term. The net capital loss deduction is $3,000 regardless of filing status. The excess $4,000 loss can be carried forward. Short-term. Losses on the sale of personal use property are not deductible. Long-term. Gains on the sale of personal use property are taxable.

(LO 1.8) 30. The answer will vary depending on the date the problem is assigned and completed. The purpose of the problem is to familiarize the student with the IRS website. (LO 1.9) 31. Form 8949 is Sales and Other Dispositions of Capital Assets. (LO 1.9) 32. A number of articles in the blog indicate the limit for student loan interest deduction is $2,500. (LO 1.9) 33. Tax returns are electronically signed through the use of a PIN. PINs can be generated by either the taxpayer or by the ERO. Self-selected PINs require the prior year AGI or PIN to authenticate the taxpayer. Before a PIN can be created by the ERO, the preparer must obtain a signed copy of an IRS E-file signature authorization (Form 8878 or 8879). (LO 1.10) 34. Form 8453, copies of Forms W-2, W-2G, and 1099-R, a copy of the consent to disclose tax information form, a copy of the electronic return that could be retransmitted, an acknowledgment file for IRS accepted returns, Forms 8878 and 8879. (LO 1.10)

Group 3 – Writing Assignments 1. Research Solution: Whittenburg and Gill, CPAs San Diego, CA February 20, 20xx Mr. and Mrs. William Carson 3276 Lakeline Drive San Diego, CA Dear William and Sheila, Thank you for requesting my advice concerning the tax treatment of your brother Jerry. I have researched your question and am sorry to say that you cannot claim Jerry as a qualifying child. Although Jerry meets the domicile, age, joint return, citizenship, and self-support test, he does not meet the relationship test. Even though he is William’s brother, in order to be your qualifying child, he must be younger than at least one of you. Although you cannot claim Jerry as a qualifying child, there is a possibility that you could claim him as a qualifying relative if he earns less than $4,400.

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Chapter 1 – The Individual Income Tax Return

My conclusion is based upon the facts that you have provided me. I’m sorry that the news was not more favorable. If you have any questions or would like further explanation, please do not hesitate to call me. Sincerely, Trevor Malcolm for Whittenburg and Gill, CPAs 2. Ethics Solution: To: JasonandMary@email.com Subject: Inquiry on filing status: single v. married filing jointly Jason and Mary, Thank you for your e-mail regarding your filing status for 2022. Let me also say, I really enjoyed your wedding ceremony and reception. Thank you for inviting me. Your e-mail stated that you had prepared your 2022 taxes as both single and married filing jointly and found that your refund would be larger if both of you filed as single. Unfortunately, the tax law is very clear on this issue. Individuals who are married as of the last day of the tax year are considered to be married. Married taxpayers have only two filing status options: married filing jointly or married filing separately. In order to file as single, taxpayers must be unmarried or legally separated from their spouse as of the last day of the tax year. Not only would it be unethical for you to file as single, it would be against the law. The additional tax that married couples sometimes encounter is known as the “marriage penalty.” Hopefully you are finding that your wedded bliss outweighs the tax penalty! If you have any questions or would like further explanation, please do not hesitate to call me. Your friend, Trevor Malcolm For Whittenburg and Gill, CPAs Group 4 – Comprehensive Problems 1A. See Pages 1-7 and 1-8. 1B. See Pages 1-9 to 1-11. 2A. See Pages 1-12 and 1-13. 2B. See Pages 1-14 and 1-15. Group 5 – Cumulative Software Problem The solution to the Cumulative Software Problem is posted on the website for the textbook at www.cengage.com/login.

Solutions for Questions and Problems – Chapter 1

Form

Comprehensive Problem 1A

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status X Single Check only one box.

Married filing jointly

OMB No. 1545-0074

Married filing separately (MFS)

IRS Use Only—Do not write or staple in this space.

Head of household (HOH)

Qualifying surviving spouse (QSS) If you checked the MFS box, enter the name of your spouse. If you checked the HOH or QSS 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

Maria

Your social security number

Tallchief

466 33 1234

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Spouse’s social security number

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

543 Space Drive

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Houston

Foreign country name

77099

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Standard Deduction for— • Single or Married filing separately, $12,950 • Married filing jointly or Qualifying surviving spouse, $25,900 • Head of household, $19,400 • If you checked any box under Standard Deduction, see instructions.

Spouse:

(2) Social security number

Last name

. . .

Credit for other dependents

. . .

1a 1b 1c

d e f

Medicaid waiver payments not reported on Form(s) W-2 (see instructions) . Taxable dependent care benefits from Form 2441, line 26 . . . . . Employer-provided adoption benefits from Form 8839, line 29 . . . .

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

If you elect to use the lump-sum election method, check here (see instructions) Capital gain or (loss). Attach Schedule D if required. If not required, check here Other income from Schedule 1, line 10 . . . . . . . . . . . .

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

Standard deduction or itemized deductions (from Schedule A) . . . . . Qualified business income deduction from Form 8995 or Form 8995-A . . . . Add lines 12 and 13 . . . . . . . . . . . . . . . . . . . Subtract line 14 from line 11. If zero or less, enter -0-. This is your taxable income

. . . .

12 13 14

4a 5a 6a

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Child tax credit

. . .

. . 2a 3a

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Was born before January 2, 1958

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

X No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

. . .

. .

. . .

Cat. No. 11320B

22,114

22,114 22,114 12,950 12,950 9,164 Form 1040 (2022)

1-7

1-8

Chapter 1 – The Individual Income Tax Return

Comprehensive Problem 1A, cont. Page 2

Form 1040 (2022)

Tax and Credits

16 17

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

35a b d 36

Amount of line 34 you want refunded to you. If Form 8888 is attached, check here . Routing number c Type: Checking Account number Amount of line 34 you want applied to your 2023 estimated tax . . . 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

918

16 17

. . .

18 19 20

. . .

21 22 23

918

25d

1,199

. .

32 33 34

918

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

. . .

. . 27 28 29 30 31

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

1,199

Phone no.

. Savings

35a

Yes. Complete below.

1,199 281 281

Personal identification number (PIN)

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. Your signature

Date

If the IRS sent you an Identity Protection PIN, enter it here (see inst.)

Your occupation

Cashier Spouse’s signature. If a joint return, both must sign.

Date

Phone no.

Email address

Preparer’s name

Preparer’s signature

Spouse’s occupation

Date

If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 1

Form

Comprehensive Problem 1B

1040-SR U.S. Tax Return for Seniors

2022

Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

OMB No. 1545-0074

IRS Use Only—Do not write or staple in this space.

X Single

Married filing jointly Married filing separately (MFS) Head of household (HOH) Qualifying surviving spouse (QSS) If you checked the MFS box, enter the name of your spouse. If you checked the HOH or QSS 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

DRAFT AS OF September 21, 2022 DO NOT FILE { Maria

Tallchief

If joint return, spouse’s first name and middle initial

466 33 1234

Last name

Spouse’s social security number

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

543 Space Drive

City, town, or post office. If you have a foreign address, also complete spaces below.

Houston

Check here if you, or your spouse if filing jointly, want $3 to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

State

ZIP code

77099

Foreign province/state/county

Foreign country name

Presidential Election Campaign

You

At any time during 2022, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)? (See instructions.) . . . . . . You as a dependent Your spouse as a dependent Standard Someone can claim: Spouse itemizes on a separate return or you were a dual-status alien Deduction

Digital Assets

Age/Blindness

X Were born before January 2, 1958

You: Spouse:

X No

Are blind Is blind

Was born before January 2, 1958

(2) Social security number (3) Relationship to (4) Check the box if qualifies for (see instructions): you Child tax credit Credit for other dependents

Dependents (see instructions): (1) First name

Yes

Spouse

Last name

If more than four dependents, see instructions and check here

Income

1a Total amount from Form(s) W-2, box 1 (see instructions) . . . . . . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld. If you did not get a Form W-2, see instructions.

b Household employee wages not reported on Form(s) W-2 . . . . . .

c Tip income not reported on line 1a (see instructions)

. . . . . . . .

d Medicaid waiver payments not reported on Form(s) W-2 (see instructions)

e Taxable dependent care benefits from Form 2441, line 26

f Employer-provided adoption benefits from Form 8839, line 29

. . . .

. . . . . . . . . . . . . . . . .

h Other earned income (see instructions) . . . . . . . . . . . . . .

g Wages from Form 8919, line 6 i

Attach Schedule B if required.

. . . . . .

Nontaxable combat pay election (see instructions)

22,114

z Add lines 1a through 1h . . . . . . . . . . . . . . . . . . . .

2a Tax-exempt interest

b Taxable interest

. .

3a Qualified dividends . .

b Ordinary dividends .

4a IRA distributions . . .

b Taxable amount

. .

5a Pensions and annuities

b Taxable amount

. .

6a Social security benefits .

b Taxable amount

. .

22,114

c If you elect to use the lump-sum election method, check here (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . 7

Capital gain or (loss). Attach Schedule D if required. If not required, check here . . . . . . . . . . . . . . . . . . . . . . . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

Cat. No. 71930F

7 Form 1040-SR (2022)

1-9

1-10

Chapter 1 – The Individual Income Tax Return

Comprehensive Problem 1B, cont. Page 2

Form 1040-SR (2022)

Other income from Schedule 1, line 10 . . . . . . . . . . . . . .

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . .

Adjustments to income from Schedule 1, line 26 . . . . . . . . . .

Subtract line 10 from line 9. This is your adjusted gross income

Standard Deduction 12

. . .

22,114 22,114 14,700

DRAFT AS OF September 21, 2022 DO NOT FILE See Standard Deduction Chart on the last page of this form.

Tax and Credits

. . .

Qualified business income deduction from Form 8995 or Form 8995-A .

Add lines 12 and 13

. . . . . . . . . . . . . . . . . . . . .

Subtract line 14 from line 11. If zero or less, enter -0-. This is your taxable income . . . . . . . . . . . . . . . . . . . . . . .

7,414

. . . . . . .

743

Amount from Schedule 2, line 3 . . . . . . . . . . . . . . . . .

Add lines 16 and 17

Child tax credit or credit for other dependents from Schedule 8812

. .

Amount from Schedule 3, line 8 . . . . . . . . . . . . . . . . .

Add lines 19 and 20 . . . . . . . . . . . . . . . . . . . . . .

Subtract line 21 from line 18. If zero or less, enter -0- . . . . . . . .

Other taxes, including self-employment tax, from Schedule 2, line 21 . .

Add lines 22 and 23. This is your total tax

743

d Add lines 25a through 25c . . . . . . . . . . . . . . . . . . .

25d

1,199

2022 estimated tax payments and amount applied from 2021 return . .

Earned income credit (EIC) . . . . . . . . . . .

Additional child tax credit from Schedule 8812 . . .

American opportunity credit from Form 8863, line 8 .

Reserved for future use . . . . . . . . . . . .

Amount from Schedule 3, line 15

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits . . . . . . . . . . . . . . . . . . . . . .

Add lines 25d, 26, and 32. These are your total payments . . . . . .

Tax (see instructions). Check if any from: 1

Payments 25

If you have a qualifying child, attach Sch. EIC.

Standard deduction or itemized deductions (from Schedule A)

Form(s) 8814

Form(s) 4972

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . .

743

Federal income tax withheld from: 25a

b Form(s) 1099

. . . . . . . . . . . . . . . .

25b

c Other forms (see instructions) . . . . . . . . . .

25c

a Form(s) W-2 . . . . . . . . . . . . . . . . .

. . . . . . . .

Go to www.irs.gov/Form1040SR for instructions and the latest information.

1,199

Form 1040-SR (2022)

Solutions for Questions and Problems – Chapter 1

Comprehensive Problem 1B, cont. Page 3

Form 1040-SR (2022)

Refund 34

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid . . . . . . . . . . . . . . . . . . . . .

456

35a Amount of line 34 you want refunded to you. If Form 8888 is attached, check here . . . . . . . . . . . . . . . . . . . . . . . . 35a

456

b Routing number

Direct deposit? See instructions.

c Type:

Checking

Savings

DRAFT AS OF September 21, 2022 DO NOT FILE d Account number

Amount 37 You Owe 38

Third Party Designee

Sign Here

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

Amount of line 34 you want applied to your 2023 estimated tax . . . . . . . . . . . . . . . .

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions

Estimated tax penalty (see instructions) . . . . . .

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . .

Yes. Complete below.

Personal identification Designee’s Phone number (PIN) name no. Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. If the IRS sent you an Identity Your signature Date Your occupation Protection PIN, enter it here (see inst.)

Cashier Spouse’s signature. If a joint return, both must sign.

Date

Phone no.

Email address

Preparer’s name

Preparer’s signature

Spouse’s occupation

Date

If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

Check if:

PTIN

Self-employed Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040SR for instructions and the latest information.

Form 1040-SR (2022)

1-11

1-12

Chapter 1 – The Individual Income Tax Return

Form

Comprehensive Problem 2A

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

Single

X Married filing jointly

OMB No. 1545-0074

Married filing separately (MFS)

IRS Use Only—Do not write or staple in this space.

Head of household (HOH)

Your first name and middle initial

Last name

Dora

Your social security number

Knox

467 74 4451

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Hardy

Spouse’s social security number

Knox

466 47 3311

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

143 Maple Street

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Knoxville

Foreign country name

37932

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four Fort Knox dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

Was born before January 2, 1958

552 52 5552

Child tax credit

Credit for other dependents

Son

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

. . 2a 3a 4a 5a 6a

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

X No

Yes

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Spouse

. .

. . .

Cat. No. 11320B

52,300

52,300 52,300 25,900 25,900 26,400 Form 1040 (2022)

Solutions for Questions and Problems – Chapter 1

Comprehensive Problem 2A, cont. Page 2

Form 1040 (2022)

Tax and Credits

16 17

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

2,760

16 17

. . .

18 19 20

. . .

21 22 23

2,260

25d

3,155

2,760 500 500 2,260

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

. . .

. . 27 28 29 30 31

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

3,155

Phone no.

. Savings

35a

Yes. Complete below.

3,155 895 895

Personal identification number (PIN)

Date

If the IRS sent you an Identity Protection PIN, enter it here (see inst.)

Your occupation

Teacher Spouse’s signature. If a joint return, both must sign.

Date

Phone no.

Email address

Spouse’s occupation

Unemployed Preparer’s name

Preparer’s signature

Date

If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

1-13

1-14

Chapter 1 – The Individual Income Tax Return

Form

Comprehensive Problem 2B

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

Single

Married filing jointly

OMB No. 1545-0074

IRS Use Only—Do not write or staple in this space.

X Head of household (HOH)

Married filing separately (MFS)

Your first name and middle initial

Last name

Abigail

Your social security number

Boxer

676 73 3311

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Spouse’s social security number

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

3456 S Career Avenue

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Sioux Falls

Foreign country name

57107

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions):

(1) First name If more than four Helen Boxer dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

Was born before January 2, 1958

(2) Social security number

(3) Relationship to you

676 73 3312

Daughter

Last name

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

140

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Credit for other dependents

. . .

. . 2a 3a

. . .

Child tax credit

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

. .

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

X No

Yes

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Spouse

Cat. No. 11320B

60,403

60,403 250

60,653 60,653 19,400 19,400 41,253 Form 1040 (2022)

Solutions for Questions and Problems – Chapter 1

Comprehensive Problem 2B, cont. Page 2

Form 1040 (2022)

Tax and Credits

16 17

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

4,660

16 17

. . .

18 19 20

. . .

21 22 23

500 4,160

4,160

25d

4,589

4,660 500

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

. . .

. . 27 28 29 30 31

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

4,589

Phone no.

. Savings

35a

Yes. Complete below.

4,589 429 429

Personal identification number (PIN)

Your signature

Date

Your occupation

Spouse’s signature. If a joint return, both must sign.

Date

Spouse’s occupation

Phone no.

Email address

Accountant

Preparer’s name

Preparer’s signature

Date

If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

1-15

1-16

Chapter 1 – The Individual Income Tax Return

Key Number Tax Return Summary Chapter 1 Comprehensive Problem 1A Adjusted Gross Income (Line 11)

22,114

Taxable Income (Line 15)

9,164

Total Tax (Line 24)

918

Tax Refund (Line 35a)

281

Comprehensive Problem 1B Adjusted Gross Income (Line 11)

22,114

Standard Deduction or Itemized Deductions (Line 12)

14,700

Total Tax (Line 24)

743

Tax Refund (Line 35a)

456

Comprehensive Problem 2A Adjusted Gross Income (Line 11)

52,300

Standard Deduction or Itemized Deductions (Line 12)

25,900

Total Tax (Line 24)

2,260

Amount Overpaid (Line 34)

895

Comprehensive Problem 2B Adjusted Gross Income (Line 11)

60,653

Standard Deduction or Itemized Deductions (Line 12)

19,400

Credit for Other Dependents (Line 19)

500

Total Tax (Line 24)

4,160

Amount Overpaid (Line 34)

429

CHAPTER 2 GROSS INCOME AND EXCLUSIONS Group 1 – Multiple Choice Questions 1. C The definition of gross income is very broad and is designed to include all income not specifically excluded (LO 2.1) 2. E Proceeds from a life insurance policy paid to the beneficiary are generally excluded from gross income (LO 2.1) 3. A Damages paid for physical injury are not generally gross income (LO 2.1) 4. E Scholarships used for tuition are excluded from gross income (LO 2.1) 5. B Scholarships used to pay for room and board are not considered excludable. (LO 2.1) 6. B Box 1 of Form W-2 is used to report wages for income tax (LO 2.2) 7. D Classification is based on the law and is not intended to be a choice for an employer or employee to make (LO 2.2) 8. C Benefits are often reserved for employees making the provision of health care to a worker increase the chance of classification as an employee (LO 2.2) 9. D State income tax withheld is reported in Box 17 of Form W-2 (LO 2.2) 10. A Employer-paid health insurance (including dental) is excluded from gross income (LO 2.3) 11. A Payments for health care are generally excludable (LO 2.3) 12. E The meals appear to be provided for the convenience of the employer and thus are excludable (LO 2.4) 13. E All of these meals are either for the convenience or de minimis (LO 2.4) 14. D A graduate student may exclude a tuition reduction as long as they are teaching or researching for the school (LO 2.5) 15. C The transportation fringe benefit is excludable only to $280 per month. The excess is gross income (LO 2.5) 16. C 2022 limit is $2,850 (LO 2.5) 17. C $5,000 limit in total (LO 2.5) 18. D The bicycle transportation fringe is suspended through 2025 (LO 2.5) 19. B Group-term life up to $50,000 is excluded (LO 2.5)

20. A Parking can be offered to only highly compensated employees (LO 2.5) 21. A Service awards of less than $400 can be excluded (LO 2.6) 22. A Service awards given in cash and a number of other forms including tickets to sporting events are not excludable (LO 2.6) 23. C $94,500/210 = $450 x 4 = $1,800 (LO 2.7) 24. D Once the entire investment is recovered, the remaining payments are treated as income (LO 2.7) 25. C The sale of a life insurance policy for consideration is likely to generate income to the individual selling the policy (LO 2.8) 26. A Life insurance proceeds are generally not taxable to the beneficiary (LO 2.8) 27. A Series I bonds are generally not taxable until redeemed or maturity unless an election is made (LO 2.9) 28. D Interest from U.S. obligations is taxable for federal income tax (LO 2.9) 29. C U.S. government interest is taxable federally but exempt for state income taxes (LO 2.9) 30. D None of the redemption value is taxable (LO 2.9) 31. D Jerry can reduce the interest payment by interest accrued and paid to the seller (LO 2.9) 32. A The price of the bond will decrease creating discount (LO 2.9) 33. B The below market loan creates deemed interest income for the lender (LO 2.9) 34. D $375 x 20% (LO 2.10) 35. C Qualified dividends enjoy preferential rates (LO 2.10) 36. C Transfers from employers to employees are almost always taxable (LO 2.11) 37. B Scholarships used for room and board are not excludable (LO 2.12) 38. A Alimony related to divorces after 2018 is not deductible or includable (LO 2.13) 39. D Transfers of property incident to a divorce do not generally result in income (LO 2.13) 40. B $2,000/$5,000 x $1,400 (LO 2.14)

2-1

2-2

Chapter 2 – Gross Income and Exclusions

41. B

Contributions to 529 plans are not deductible. If distributions are used to pay qualified higher education expenses, they are not taxable (LO 2.14) If distributions from a 529 plan are used to pay qualified higher education expenses, they are not taxable (LO 2.14) Unlike Coverdell accounts, there is no income threshold for contributions to a 529 plan (LO 2.14) Unlike Coverdell accounts, there is no income threshold for contributions to a 529 plan (LO 2.14) [$110,000 – ($91,500 + $11,000)/$15,000] x $2,000 (LO 2.14) $15,450 + $1,600 + $1,400 Unemployment is taxable (LO 2.15)

42. A

43. D

44. D

45. C 46. D

47. E

The maximum percentage of Social Security benefits that are taxable is 85% (LO 2.16) 48. A Tax-exempt income is added back to compute modified AGI for determining the taxability of Social Security benefits (LO 2.16) 49. E ($45,000 + $25,000)/2 (LO 2.17) 50. B A minor child’s home does not impact the allocation of income for a married couple in a community property state (LO 2.17) 51. B $12,000 loan balance before cancellation less $11,500 after cancellation (LO 2.18) 52. A Cancellation of debt income on a primary residence is excludable from gross income (LO 2.18) 53. A Student loan forgiveness is excluded from gross income through 2025 (LO 2.18)

Group 2 – Problems 1. a. b. c. d.

Excluded Included Included Included

e. f. g. h.

Excluded Included Included Excluded

i. Excluded j. Excluded k. Included

(LO 2.1)

2. The non-cash payment of a truck for services performed is includable income to Jane. The tax law states that gross income is “all income from whatever source derived.” There is no exception in the law for non-cash items received in exchange for services. The amount of gross income is the market value on the date of the payment which is $6,000. Jane may be able to recognize the $800 loss on the sale of the truck since it was business property. (LO 2.1) 3. a. $300. Gross income includes “all income from whatever source derived.” The value of the hair styling is income to Larry for the performance of services. There is no gross income exception in the tax law for “barter” income. b. $300. Gross income includes “all income from whatever source derived.” The value of the tax return is income to Sheila for the performance of services. There is no gross income exception in the tax law for “barter” income. (LO 2.1) 4. Illegal income is still taxable since there is no exception excluding it in the tax code. When there is not an explicit exception, gross income is “all income from whatever source derived.” (LO 2.1) 5. a. $61,700. Taxable wages are taken from Box 1. b. It would appear that Kristen made $3,500 of contributions toward her employer’s 401(k) plan. The health care and group term life insurance benefits do not create a difference between Box 1 and wages taxable for Social Security and Medicare in Boxes 3 and 5. (LO 2.2) 6. Student responses are likely to vary. The 10 behavioral factors and an example are: 1. Instruction. When a worker is told when, where, and how work is to be completed, that is indicative of an employee.

Solutions for Questions and Problems – Chapter 2

2-3

2. Training. An employee receives training on how to perform the job to company standards. 3. Personally rendered. An employee does not generally have the ability to hire subcontractors for their own work. 4. Hiring and supervising assistants. An employee does not generally have the authority to hire additional assistance to increase the likelihood of completing a job on time. 5. Continuing relationship. An employee works for the same business for a long period of time, whereas an independent contractor works on a contract or project basis. 6. Work hours. Employees generally work during hours set by their supervisor whereas independent contractors can complete work at a time suitable to them. 7. Time required. An employee works for the business full-time, 40 hours per week. 8. Workplace. An employee is required to report to the workplace each day to complete the work. 9. Sequence of work. Employees generally have a structure and order to workflow while independent contractors can complete a project in the order that suits them. 10. Reports. An employee provides frequent reports of progress and performance. (LO 2.2) 7. None of the cost of the insurance or amounts paid by the insurance company for surgery or treatment are taxable to Skyler. These amounts are specifically excluded from taxable income under the tax law. (LO 2.3) 8. $0. Taxpayers may exclude the total amount received for payment or reimbursement of medical expenses. Premiums for health insurance paid by the taxpayer’s employer are also excluded from the taxpayer’s gross income. (LO 2.3) 9. a. No. b. No. c. Yes. d. $0.

The meals are furnished by the employer on the business premises of the employer during working hours because the employer limits the employee to short meal periods. The meals are furnished by the employer on the business premises of the employer during working hours because the taxpayer must be available for emergency calls. The meals are not furnished for the convenience of the employer. Because Karrie’s employer provides meals for the convenience of the employer to more than one-half of the employees, all the employees are eligible for the benefit. (LO 2.4)

10. $4,850 = $850 + $4,000. The value of the airline tickets is excluded from gross income under the noadditional-cost services rule for employees and their families. The $30 of personal typing is excluded under the de minimis fringe benefits rule. The $850 worth of employee discount coupons for hotel rooms is included in gross income since the hotel division is a different line of business than that in which Linda is employed. The $4,000 tuition payment must be included in gross income since Richard is working on a graduate degree and not providing teaching or research activities. (LO 2.5) 11. Yes. Tom will be better off reducing his taxable income by $2,850 by using the health care flexible spending account. Since his income will be $2,850 less, he will pay less tax than he would otherwise. (LO 2.5) 12. a. b. c. d.

$7,600. $300. A non-qualified plan award may only be excluded up to $400; thus, $300 is taxable. $1,000,000. $30,000. (LO 2.6)

13. a. $4,000. b. $14,500. c. $0. (LO 2.6, 2.12)

2-4

14.

Chapter 2 – Gross Income and Exclusions

SIMPLIFIED METHOD WORKSHEET 1) Enter total amount received this year. 2) Enter cost in the plan at the annuity starting date. 3) Age at annuity starting date Enter 55 and under 360 56–60 310 61–65 260 66–70 210 71 and older 160 4) Divide line 2 by line 3. 5) Multiply line 4 by the number of monthly payments this year. If the annuity starting date was before 1987, also enter this amount on line 8; and skip lines 6 and 7. Otherwise go to line 6. 6) Enter the amount, if any, recovered tax free in prior years. 7) Subtract line 6 from line 2. 8) Enter the smaller of line 5 or 7. 9) Taxable amount this year: Subtract line 8 from line 1. Do not enter less than zero. (LO 2.7)

1) $ 7,000 2) $48,300

210

4) $

230

5) $ 1,610 6) $ 0 7) $48,300 8) $ 1,610 9) $ 5,390

15. $58,000 = $100,000 – $30,000 – $12,000. Since the policy was transferred for valuable consideration, the proceeds are taxable to the extent that they exceed the sum of the cash value at the time of transfer plus the premiums paid. (LO 2.8) 16. $500. A beneficiary, must include the entire amount of interest received with respect to the policy proceeds in gross income. The $9,000 principal amount may be excluded from gross income. (LO 2.8) 17. None. David has received an accelerated death benefit or viatical settlement which is excluded from taxable income. (LO 2.8) 18. None of the payment is taxable. Life insurance proceeds are generally considered to be tax-free and specifically excluded from taxable income. (LO 2.8) 19. The taxpayer can either (1) report the interest in the year the bonds are cashed or in the year they mature, whichever is earlier (no election is required to use this method), or (2) the taxpayer may elect to report the increase in redemption value each year. (LO 2.9) 20. Yorick’s purchase price is affected by two items: (1) Yorick pays Hamlet for his share of accrued interest at the time of sale between interest payments. This is $123 ($10,000 x 5% ÷ 365 x 90 days since last interest payment). Yorick will report the entire interest payment he receives and also report an offsetting reduction of $123. The price of the bond without the interest is therefore $9,438 ($9,561 – $123). Because of the change in interest rates, the bond is now subject to market discount of $562 ($10,000 – $9,438). The discount can be either included in gross income ratably each year or included when sold or matured. (LO 2.9) 21. 5.77% = 4.5% ÷ (100% – 22%). (LO 2.9) 22. The tax-exempt municipal bond has the same 5% before and after-tax rate of return. The corporate bond has an after-tax return of 4.55% [7% x (1 – 35%)]. Karen should invest in the tax-exempt municipal bond due to the higher after-tax rate of return. (LO 2.9)

Solutions for Questions and Problems – Chapter 2

2-5

23. Qualified dividends are taxed at either 0%, 15%, or 20% depending on income and filing status. For example, a single taxpayer with income below $41,675 has a capital gain rate of 0%. Income over $41,675 but below $459,750 pays at 15% and the capital gains rate is 20% for income above that. A 3.8% Medicare tax on net investment income will be added to the rates for certain high-income taxpayers. (LO 2.10) 24. a. See Schedule B on Page 2-6. b. Line 2a is $400, Line 2b is $1,900 c. Line 3a is $6,094, Line 3b is $6,100 (LO 2.10) 25. $5,600. Inheritances are excluded from taxable income; however, subsequent earnings on inherited property must be included in income. (LO 2.11) 26. $10,000 is taxable. This gift is clearly bonus income in a business setting so it does not qualify for tax-free gift treatment, even if Gwen’s client calls the payment a gift. (LO 2.11) 27. None of the gift is taxable. Gifts are excluded from the taxable income of the person receiving the gift. (LO 2.11) 28. $8,000 is taxable since there is no exclusion for payments made for room and board. $12,000 is not taxable, since scholarships for tuition are specifically excluded from taxable income. (LO 2.12) 29. a. (1) $450. (2) $450. (3) $0.

b. (1) $0. (2) $425,000. (LO 2.13)

30. Arlen does not deduct the alimony or child support. Jane does not report the alimony or child support as income. (LO 2.13) 31. No gain is taxable to Cindy on the transfer of the house since it is part of a property settlement related to a divorce. Allen has a basis of $90,000 in the house for calculating tax on any future sale of the house. (LO 2.13) 32. $11,172; Tuition, reasonable room and board, and books. (LO 2.14) 33. $0; All distributions are used for qualifying expenses. (LO 2.14) 34. $3,250. Unemployment benefits received are included in gross income. (LO 2.15) 35. $6,460. See calculation on the worksheet on Page 2-7. (LO 2.16) 36. a. Yes. Tax-free municipal bond income is added to AGI in the formula to determine the amount of taxable Social Security benefits. b. Zero. The taxpayer’s income is below the threshold amount used in the formula to determine whether Social Security is taxable. c. 85%. High-income taxpayers must include 85% of Social Security benefits in taxable income. (LO 2.16) 37. a. Kelly $43,800. One half of total wages and joint investment income and all of the inherited investment income. Kerry $35,800. b. $39,800. Kelly and Kerry both report one-half of all income (LO 2.17) 38. Son will not recognize any cancellation of debt income. This is cancellation of qualified principle residence debt and thus can be excluded. He will need to reduce his basis in the home by the amount of excluded income. (LO 2.18)

2-6

Chapter 2 – Gross Income and Exclusions

Group 2: Problem 24 SCHEDULE B

OMB No. 1545-0074

Interest and Ordinary Dividends

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Go to www.irs.gov/ScheduleB for instructions and the latest information. Attach to Form 1040 or 1040-SR.

Name(s) shown on return

Attachment Sequence No. 08 Your social security number

Sally and Charles Colonel Part I Interest (See instructions and the Instructions for Form 1040, line 2b.) Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm’s name as the payer and enter the total interest shown on that form.

313-13-1313

DRAFT AS OF July 7, 2022 DO NOT FILE Porcine Bank River Bank

1,200 700

2 3

Part II Ordinary Dividends

Amount

List name of payer. If any interest is from a seller-financed mortgage and the buyer used the property as a personal residence, see the instructions and list this interest first. Also, show that buyer’s social security number and address:

Add the amounts on line 1 . . . . . . . . . . . . . . . . . . . Excludable interest on series EE and I U.S. savings bonds issued after 1989. Attach Form 8815 . . . . . . . . . . . . . . . . . . . . . 4 Subtract line 3 from line 2. Enter the result here and on Form 1040 or 1040-SR, line 2b Note: If line 4 is over $1,500, you must complete Part III. List name of payer: 5

1,900

2 3 4

1,900 Amount

Kentucky East Corp Altus, Inc. Buller Corporation Gene Corporation

(See instructions and the Instructions for Form 1040, line 3b.)

700 2,000 400 3,000 5

Note: If you received a Form 1099-DIV or substitute statement from a brokerage firm, list the firm’s name as the payer and enter the ordinary 6 Add the amounts on line 5. Enter the total here and on Form 1040 or 1040-SR, line 3b dividends shown on that form. Note: If line 6 is over $1,500, you must complete Part III.

6,100

Part III You must complete this part if you (a) had over $1,500 of taxable interest or ordinary dividends; (b) had a foreign account; or (c) received a distribution from, or were a grantor of, or a transferor to, a foreign trust. Foreign Accounts Yes No and Trusts 7a At any time during 2022, did you have a financial interest in or signature authority over a financial Caution: If required, failure to file FinCEN Form 114 may result in substantial penalties. Additionally, you may be required to file Form 8938, Statement of Specified Foreign Financial Assets. See instructions.

account (such as a bank account, securities account, or brokerage account) located in a foreign country? See instructions . . . . . . . . . . . . . . . . . . . . . . . . If “Yes,” are you required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), to report that financial interest or signature authority? See FinCEN Form 114 and its instructions for filing requirements and exceptions to those requirements . . . . . .

b If you are required to file FinCEN Form 114, list the name(s) of the foreign country(-ies) where the financial account(s) are located: 8

During 2022, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If “Yes,” you may have to file Form 3520. See instructions . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 17146N

Schedule B (Form 1040) 2022

Solutions for Questions and Problems – Chapter 2

2-7

Group 2: Problem 35 1.

Enter the total amount of social security income

$7,600

Enter one-half of line 1

3,800

Enter the total of taxable income items on Form 1040 except social security income

14,700

Enter the amount of tax exempt interest income

30,000

Add lines 2, 3, and 4

48,500

Enter all adjustments for AGI except for student loan interest and the tuition and fees deduction

-0-

Subtract line 6 from line 5. If zero or less, stop here, none of the social security benefits are taxable

48,500

Enter $25,000 ($32,000 if married filing jointly; $0 if married filing separately and living with spouse at any time during the year)

25,000

Subtract line 8 from line 7. If zero or less, enter -0-

23,500

10. Enter $9,000 ($12,000 if married filing jointly; $0 if married filing separately and living with spouse at any time during the year)

10.

9,000

11. Subtract line 10 from line 9. If zero or less, enter -0-

11.

14,500

12. Enter the smaller of line 9 or line 10

12.

9,000

13. Enter one-half of line 12

13.

4,500

14. Enter the smaller of line 2 or line 13

14.

3,800

15. Multiply line 11 by 85% (.85). If line 11 is zero, enter -0-

15.

12,325

16. Add lines 14 and 15

16.

16,125

17. Multiply line 1 by 85% (.85)

17.

6,460

18. Taxable benefits. Enter the smaller of line 16 or line 17

18.

$6,460

Note: If line 9 is zero or less, stop here; none of your benefits are taxable. Otherwise, go on to line 10.

2-8

Chapter 2 – Gross Income and Exclusions

Group 3 – Writing Assignment Research Solution: Whittenburg and Gill, CPAs San Diego, CA 92111 August 3, 20xx Ms. Vanessa Lazo 1550 Mesa Rosa Drive San Diego, CA 92182 Dear Ms. Lazo, Thank you for requesting my advice concerning the tax treatment of your scholarship and employment at Prestige Private University (PPU). I have researched your question and have determined that a portion of your scholarship is taxable, but a portion is excluded from gross income. The tuition reduction from $43,000 to $13,000 is not considered gross income that you must report as taxable. The reduction simply represents a lower negotiated price for tuition in much the same way you may negotiate a price below the sticker price for a new car. That purchase price reduction is not income. PPU is providing you with a $20,000 scholarship. The portion you use for tuition ($13,000) is excluded from gross income as a qualified scholarship; however, the additional $7,000 being used for room and board is taxable and must be included in gross income. Lastly, a payment for services such as the $1,500 you are receiving for serving as a lab assistant, is compensation and is included in gross income. As a result, your total gross income from PPU will be $8,500 and the excludable scholarship is $13,000. My conclusion is based upon the facts that you have provided me. If you have any questions or would like further explanation, please do not hesitate to call. Sincerely, Trevor Malcolm for Whittenburg and Gill, CPAs Group 4 – Comprehensive Problems 1. See Pages 2-9 through 2-12. 2A. See Pages 2-13 through 2-18. 2B. See Pages 2-19 through 2-22. Group 5 – Cumulative Software Problem The solution to the Cumulative Software Problem is posted on the website for the textbook at www.cengage.com/login.

Solutions for Questions and Problems – Chapter 2

Form

Comprehensive Problem 1

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

OMB No. 1545-0074

IRS Use Only—Do not write or staple in this space.

Single X Married filing jointly Married filing separately (MFS) Head of household (HOH) Qualifying surviving spouse (QSS) If you checked the MFS box, enter the name of your spouse. If you checked the HOH or QSS 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

Donna

Your social security number

Hoser

465 74 3322

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Chris

Spouse’s social security number

Hoser

465 57 9935

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

1313 W. Washington Street

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Stephenville

Foreign country name

76401

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

. . .

Credit for other dependents

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

122 320

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Child tax credit

. . .

. . 2a 3a

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Was born before January 2, 1958

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

X No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

. . .

. .

. . .

Cat. No. 11320B

53,398

53,398 624 320

10,000 64,342 64,342 25,900 25,900 38,442 Form 1040 (2022)

2-9

2-10

Chapter 2 – Gross Income and Exclusions

Comprehensive Problem 1, cont. Page 2

Form 1040 (2022)

Tax and Credits

16 17

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

4,164

16 17

. . .

18 19 20

. . .

21 22 23

4,164

25d

4,170

4,164

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

. . .

29 30 31

Phone no.

. Savings

35a

Yes. Complete below.

4,170 6 6

Personal identification number (PIN)

Date

If the IRS sent you an Identity Protection PIN, enter it here (see inst.)

Your occupation

Nurse Spouse’s signature. If a joint return, both must sign.

Date

Spouse’s occupation

Student Phone no.

Paid Preparer Use Only

. . .

. . 27 28

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

4,170

Preparer’s name

If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

Email address Preparer’s signature

Date

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 2

Comprehensive Problem 1, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

Donna and Chris Hoser Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

465-74-3322

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i 10,000 Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

* Calculated on Qualified Dividends and Capital Gains Worksheet.

10,000 10,000

Schedule 1 (Form 1040) 2022

2-11

2-12

Chapter 2 – Gross Income and Exclusions

Comprehensive Problem 1, cont. Donna and Chris Hoser

38,442 320

0 X 320 38,122 $41,675 $83,350 $55,800

$459,750 $258,600 $517,200 $488,500

83,350 38,442 38,122 320 320 320 0 517,200 38,442 38,442 0 0 0 320 0 0 4,164 4,164 4,200 4,164

This worksheet adapted from the 2021 worksheet.

Solutions for Questions and Problems – Chapter 2

Form

Comprehensive Problem 2A

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

Single

X Married filing jointly

OMB No. 1545-0074

Married filing separately (MFS)

IRS Use Only—Do not write or staple in this space.

Head of household (HOH)

Your first name and middle initial

Last name

Ray

Your social security number

Gomez

469 21 5523

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Maria

Spouse’s social security number

Gomez

444 65 9912

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

1610 Sonora Avenue

City, town, or post office. If you have a foreign address, also complete spaces below.

State

McAllen

Foreign country name

78503

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four Jaime dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

Last name

(2) Social security number

Gomez

721 34 1134

Was born before January 2, 1958 Child tax credit

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

x .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

. . 2a 3a 4a 5a 6a

400 1,000

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Credit for other dependents

Son

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

X No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

. .

. . .

Cat. No. 11320B

75,980

75,980 1,348 1,000

60 1,000 79,388 2,400 76,988 25,900 25,900 51,088 Form 1040 (2022)

2-13

2-14

Chapter 2 – Gross Income and Exclusions

Comprehensive Problem 2A, cont. Page 2

Form 1040 (2022)

Tax and Credits

16 17

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

5,592

16 17

. . .

18 19 20

. . .

21 22 23

3,592

25d

7,651

. .

32 33 34

5,592 2,000 2,000 3,592

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

. . .

29 30 31

Phone no.

. Savings

35a

Yes. Complete below.

7,651 4,059 4,059

Personal identification number (PIN)

Date

Your occupation

Spouse’s signature. If a joint return, both must sign.

Date

Spouse’s occupation

Maintenance Supervisor Cashier Phone no.

Paid Preparer Use Only

. . .

. . 27 28

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

7,651

Preparer’s name

If the IRS sent you an Identity Protection PIN, enter it here (see inst.) If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

Email address Preparer’s signature

Date

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 2

Comprehensive Problem 2A, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

Ray and Maria Gomez Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

469-21-5523

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b 1,000 Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

1,000 1,000

Schedule 1 (Form 1040) 2022

2-15

2-16

Chapter 2 – Gross Income and Exclusions

Comprehensive Problem 2A, cont. Page 2

Schedule 1 (Form 1040) 2022

Part II Adjustments to Income 11 12 13 14 15 16 17 18 19a b c 20 21 22 23 24 a b c d e f g h i

j k z 25 26

Educator expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 . . . . . . . . . . . . . . . . . . . . . . . . 12 Health savings account deduction. Attach Form 8889 . . . . . . . . . . . . . . 13 Moving expenses for members of the Armed Forces. Attach Form 3903 . . . . . . . 14 Deductible part of self-employment tax. Attach Schedule SE . . . . . . . . . . . 15 Self-employed SEP, SIMPLE, and qualified plans . . . . . . . . . . . . . . . . 16 Self-employed health insurance deduction . . . . . . . . . . . . . . . . . . 17 Penalty on early withdrawal of savings . . . . . . . . . . . . . . . . . . . . 18 Alimony paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19a Recipient’s SSN . . . . . . . . . . . . . . . . . . . . . . 566 74 8765 Date of original divorce or separation agreement (see instructions): 1/27/2016 IRA deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Student loan interest deduction . . . . . . . . . . . . . . . . . . . . . . 21 22 Reserved for future use . . . . . . . . . . . . . . . . . . . . . . . . . Archer MSA deduction . . . . . . . . . . . . . . . . . . . . . . . . . 23 Other adjustments: Jury duty pay (see instructions) . . . . . . . . . . . . . . 24a Deductible expenses related to income reported on line 8l from the rental of personal property engaged in for profit . . . . . . . . 24b Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 8m . . . . . . . . . . 24c Reforestation amortization and expenses . . . . . . . . . . . 24d Repayment of supplemental unemployment benefits under the Trade Act of 1974 . . . . . . . . . . . . . . . . . . . . . . 24e Contributions to section 501(c)(18)(D) pension plans . . . . . . . 24f Contributions by certain chaplains to section 403(b) plans . . . . 24g Attorney fees and court costs for actions involving certain unlawful discrimination claims (see instructions) . . . . . . . . . . . . 24h Attorney fees and court costs you paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations . . . . . . . . . . . . . . . . . . . 24i Housing deduction from Form 2555 . . . . . . . . . . . . . 24j Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041) . . . . . . . . . . . . . . . . . . . . . . . . 24k Other adjustments. List type and amount: 24z Total other adjustments. Add lines 24a through 24z . . . . . . . . . . . . . . . 25 Add lines 11 through 23 and 25. These are your adjustments to income. Enter here and on Form 1040 or 1040-SR, line 10, or Form 1040-NR, line 10a . . . . . . . . . . . . 26

DRAFT AS OF July 27, 2022 DO NOT FILE

2,400

Schedule 1 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 2

Comprehensive Problem 2A, cont. SCHEDULE B

OMB No. 1545-0074

Interest and Ordinary Dividends

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Go to www.irs.gov/ScheduleB for instructions and the latest information. Attach to Form 1040 or 1040-SR.

Name(s) shown on return

Attachment Sequence No. 08 Your social security number

Ray and Maria Gomez Part I Interest (See instructions and the Instructions for Form 1040, line 2b.) Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm’s name as the payer and enter the total interest shown on that form.

469-21-5523

DRAFT AS OF July 7, 2022 DO NOT FILE McAllen State Bank Friar Tuck Investments

724 24

Friar Tuck US Govt

600

2 3

Part II Ordinary Dividends

Amount

1,348

2 3 4

1,348 Amount

Friar Tuck Investments

1,000

(See instructions and the Instructions for Form 1040, line 3b.)

1,000

b If you are required to file FinCEN Form 114, list the name(s) of the foreign country(-ies) where the financial account(s) are located: 8

During 2022, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If “Yes,” you may have to file Form 3520. See instructions . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 17146N

Schedule B (Form 1040) 2022

Note: Form B is not required since neither Interest nor Dividend income exceeds $1,500. Provided for informational purposes only.

2-17

2-18

Chapter 2 – Gross Income and Exclusions

Comprehensive Problem 2A, cont. Ray and Maria Gomez

51,088 1,000

60 X 1,060 50,028 $41,675 $83,350 $55,800

$459,750 $258,600 $517,200 $488,500

83,350 51,088 50,028 1,060 1,060 1,060 0 517,200 51,088 51,088 0 0 0 1,060 0 0 5,592 5,592 5,718 5,592

This worksheet adapted from the 2021 worksheet.

Solutions for Questions and Problems – Chapter 2

Form

Comprehensive Problem 2B

Note: Carl is age 65 or over and thus can file using Form 1040-SR also.

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

Single

X Married filing jointly

OMB No. 1545-0074

Married filing separately (MFS)

IRS Use Only—Do not write or staple in this space.

Head of household (HOH)

Your first name and middle initial

Last name

Carl

Your social security number

Conch

835 21 5423

Last name

Spouse’s social security number

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Mary

Duval

633 65 7912

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

1234 Mallory Square

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Key West

Foreign country name

33040

Foreign province/state/county

You

Digital Assets Standard Deduction

X Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

. . .

Credit for other dependents

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

13,400 7,600

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Child tax credit

. . .

. . 2a 3a

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Was born before January 2, 1958

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

X No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

. . .

. .

. . .

Cat. No. 11320B

23,000

13,400 5,926 6,301 48,627 48,627 27,300 27,300 21,327 Form 1040 (2022)

2-19

2-20

Chapter 2 – Gross Income and Exclusions

Comprehensive Problem 2B, cont. Page 2

Form 1040 (2022)

Tax and Credits

2,148

. . . .

18 19 20

2,148

. . .

21 22 23

2,148

25d

4,300

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

16 17

. . .

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

. . .

29 30 31

Phone no.

. Savings

35a

Yes. Complete below.

4,300 2,152 2,152

Personal identification number (PIN)

Your signature

Date

Your occupation

Spouse’s signature. If a joint return, both must sign.

Date

Spouse’s occupation

Baker Unemployed Phone no.

Paid Preparer Use Only

. . .

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

. . 27 28

2,400 1,900

Preparer’s name

If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

Email address Preparer’s signature

Date

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 2

Comprehensive Problem 2B, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

Carl Conch and Mary Duval Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

835-21-5423

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b 4,000 Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

2,301

4,000 6,301

Schedule 1 (Form 1040) 2022

2-21

2-22

Chapter 2 – Gross Income and Exclusions

Comprehensive Problem 2B, cont.

SIMPLIFIED TAXABLE SOCIAL SECURITY WORKSHEET (FOR MOST PEOPLE) 1. Enter the total amount of Social Security income.

7,600

2. Enter one-half of line 1.

3,800

3. Enter the total of taxable income items on Form 1040 except Social Security income.

42,701

4. Enter the amount of tax-exempt interest income.

5. Add lines 2, 3, and 4.

46,501

6. Enter all adjustments for AGI except for student loan interest deduction.

7. Subtract line 6 from line 5. If zero or less, stop here, none of the Social Security benefits are taxable.

46,501

8. Enter $25,000 ($32,000 if married filing jointly; $0 if married filing separately and living with spouse at any time during the year).

32,000

9. Subtract line 8 from line 7. If zero or less, enter –0–.

14,501

10. Enter $9,000 ($12,000 if married filing jointly; $0 if married filing separately and living with spouse at any time during the year).

10.

12,000

11. Subtract line 10 from line 9. If zero or less, enter –0–.

11.

2,501

12. Enter the smaller of line 9 or line 10.

12.

12,000

13. Enter one-half of line 12.

13.

6,000

14. Enter the smaller of line 2 or line 13.

14.

3,800

15. Multiply line 11 by 85% (.85). If line 11 is zero, enter –0–.

15.

2,126

16. Add lines 14 and 15.

16.

5,926

17. Multiply line 1 by 85% (.85).

17.

6,460

18. Taxable benefits. Enter the smaller of line 16 or line 17.

18.

5,926

Note: If line 9 is zero or less, stop here; none of your benefits are taxable. Otherwise, go on to line 10.

Solutions for Questions and Problems – Chapter 2

2-23

Key Number Tax Return Summary Chapter 2 Comprehensive Problem 1 Adjusted Gross Income (Line 11)

64,342

Taxable Income (Line 15)

38,442

Total Tax (Line 24)

4,164

Amount Overpaid (Line 34)

Comprehensive Problem 2A Adjusted Gross Income (Line 11)

76,988

Taxable Income (Line 15)

51,088

Total Tax (Line 24)

3,592

Amount Overpaid (Line 34)

4,059

Comprehensive Problem 2B Adjusted Gross Income (Line 11)

48,627

Taxable Income (Line 15)

21,327

Total Tax (Line 24)

2,148

Amount Overpaid (Line 34)

2,152

2-24

Chapter 2 – Gross Income and Exclusions

CHAPTER 3 BUSINESS INCOME AND EXPENSES Group 1 – Multiple Choice Questions 1. B Deductible business expenses must be ordinary, necessary, and reasonable but need not lead to a sale (LO 3.1) 2. D A profitable sole proprietor will need to complete a Schedule SE to report self-employment taxes (LO 3.1) 3. E Each of these are important tax considerations for a small business (LO 3.1, 3.3, 3.4, 3.5) 4. C Professional training is generally deductible (LO 3.1) 5. A Expenses to bring a business into compliance are generally deductible (LO 3.1) 6. E All of these are acceptable methods to account for inventory for a cash-basis taxpayer (LO 3.2) 7. D $45,000 + $175,000 – $25,000 (LO 3.2) 8. D Standard mileage method is not available for fleets, or when depreciation is claimed (LO 3.3) 9. E (450 x $0.585) + (475 x $0.625) (LO 3.3) 10. C Travel from a main job site to a temporary job site is generally deductible work travel (LO 3.3) 11. C Travel costs are generally those in which the employee travels away from their tax home for business purposes (LO 3.4) 12. D Business gifts are not considered a travel expense (LO 3.4) The high-low method assigns a per diem for 13. C all locations except high cost locations (LO 3.4) 14. C If the trip has a greater than 50% business purpose, travel may be deducted for the business portion of the trip (LO 3.4) 15. E Entertainment costs are not deductible (LO 3.5) 16. A Tickets to a play are non-deductible entertainment (LO 3.5) 17. C The bagels and the travel snacks are limited to 50%. All others can be deducted in full (LO 3.5)

18. A A real estate course for a CPA is preparing the CPA for a new job and is not deductible (LO 3.6) 19. A The additional training is required by law and does not prepare the taxpayer for a new job (LO 3.6) 20. E Subscriptions for journals related to the business of the taxpayer are generally deductible (LO 3.7) 21. D Uniforms that can be worn for ordinary use are not generally deductible but specialized safety equipment is deductible (LO 3.8) 22. B A gift to an employee is likely to be treated as compensation unless a safety or service award. Under both circumstances, the cost is deductible up to $400 (LO 3.9) 23. A The annual limit is $25 per donee. (LO 3.9) 24. C Bad debts cannot be deducted until worthless (LO 3.10) 25. C A nonbusiness bad debt is treated as shortterm capital loss. Net capital losses may only be deducted up to $3,000 for an individual taxpayer (LO 3.10) 26. C The home office deduction may not create a loss (except for interest and taxes) and any excess can be carried forward (LO 3.11) 27. C Employees may not deduct a home office and the home office must be used regularly for performing work (LO 3.11) 28. D Home office deduction limited to income before the home office deduction ($4,000 – $1,300) (LO 3.11) 29. E All of these are factors to consider in classifying an activity as a hobby (LO 3.12) 30. B Hobby expenses are not deductible whereas the business can report a loss. Brian can report a loss of $1,000 whereas Stewie must report his hobby income only (LO 3.12)

Group 2 – Problems 1. See Pages 3-2 through 3-4. (LO 3.1, 3.3, 3.5, 3.7)

3-1

3-2

Chapter 3 – Business Income and Expenses

Group 2: Problem 1 SCHEDULE C (Form 1040)

Profit or Loss From Business

Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

2022

(Sole Proprietorship) Go to www.irs.gov/ScheduleC for instructions and the latest information.

Attachment Sequence No. 09

Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.

Name of proprietor

Social security number (SSN)

Principal business or profession, including product or service (see instructions)

B Enter code from instructions

Business name. If no separate business name, leave blank.

Business address (including suite or room no.)

F G

City, town or post office, state, and ZIP code Riverside, CA 92860 (2) Accrual (3) Other (specify) Accounting method: (1) x Cash Did you “materially participate” in the operation of this business during 2022? If “No,” see instructions for limit on losses

x Yes

H I J

If you started or acquired this business during 2022, check here . . . . . . . . . . . Did you make any payments in 2022 that would require you to file Form(s) 1099? See instructions . If “Yes,” did you or will you file required Form(s) 1099? . . . . . . . . . . . . . .

. . .

Yes Yes

Scott Butterfield

644-47-7833

Accounting Services

Part I 1

5 4 1 2 1 1

DRAFT AS OF July 15, 2022 DO NOT FILE

D Employer ID number (EIN) (see instr.)

678 Third Street

. . .

x No No

Income

2 3 4

Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on Form W-2 and the “Statutory employee” box on that form was checked . . . . . . . . . Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold (from line 42) . . . . . . . . . . . . . . . . . . . . . .

1 2 3 4

5 6 7

Gross profit. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) . Gross income. Add lines 5 and 6 . . . . . . . . . . . . . . . . . . .

. . .

5 6 7

Office expense (see instructions) . Pension and profit-sharing plans .

18 19

Rent or lease (see instructions): Vehicles, machinery, and equipment Other business property . . .

20a 20b

12,000

Repairs and maintenance . . . Supplies (not included in Part III) . Taxes and licenses . . . . .

21 22 23

1,302 3,398

Travel and meals: Travel . . . .

24a

900

Deductible meals (see instructions) . . . . . . . Utilities . . . . . . . . Wages (less employment credits)

24b 25 26

Part II

Advertising .

Car and truck expenses (see instructions) . . . Commissions and fees . Contract labor (see instructions)

12 13

Depletion . . . . . Depreciation and section 179 expense deduction (not included in Part III) (see instructions) . . . .

Employee benefit programs (other than on line 19) . Insurance (other than health) Interest (see instructions): Mortgage (paid to banks, etc.)

15 16 a b

. . .

135,300 135,300 135,300

Expenses. Enter expenses for business use of your home only on line 30.

10 11

. . .

135,300

250

8 9 10 11

18 19

2,420

20 a b

21 22 23

24 a

14 15

900 25 26

16a

17 28

Other . . . . . . 16b 27a Other expenses (from line 48) . Legal and professional services 17 b Reserved for future use . . Total expenses before expenses for business use of home. Add lines 8 through 27a . . . . . .

. . .

27a 27b 28

Tentative profit or (loss). Subtract line 28 from line 7 .

Expenses for business use of your home. Do not report these expenses elsewhere. Attach Form 8829 unless using the simplified method. See instructions. Simplified method filers only: Enter the total square footage of (a) your home:

and (b) the part of your home used for business: Method Worksheet in the instructions to figure the amount to enter on line 30

Net profit or (loss). Subtract line 30 from line 29.

• If a profit, enter on both Schedule 1 (Form 1040), line 3, and on Schedule SE, line 2. (If you checked the box on line 1, see instructions.) Estates and trusts, enter on Form 1041, line 3. • If a loss, you must go to line 32. If you have a loss, check the box that describes your investment in this activity. See instructions. • If you checked 32a, enter the loss on both Schedule 1 (Form 1040), line 3, and on Schedule SE, line 2. (If you checked the box on line 1, see the line 31 instructions.) Estates and trusts, enter on Form 1041, line 3. • If you checked 32b, you must attach Form 6198. Your loss may be limited.

Note: See Page 3-4 for details of solution.

. Use the Simplified . . . . . . .

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

}

300

1,450 3,000 35,000 550 61,470 73,830

32a 32b

73,830

All investment is at risk. Some investment is not at risk. Schedule C (Form 1040) 2022

Solutions for Questions and Problems – Chapter 3

Group 2: Problem 1 (continued) Page 2

Schedule C (Form 1040) 2022

Part III

Cost of Goods Sold (see instructions)

Method(s) used to value closing inventory:

Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . .

Cost

Lower of cost or market

Other (attach explanation) Yes

DRAFT AS OF July 15, 2022 DO NOT FILE

Inventory at beginning of year. If different from last year’s closing inventory, attach explanation .

Purchases less cost of items withdrawn for personal use

Cost of labor. Do not include any amounts paid to yourself .

Materials and supplies

Other costs .

Add lines 35 through 39 .

Inventory at end of year .

Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 .

Part IV

Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses on line 9 and are not required to file Form 4562 for this business. See the instructions for line 13 to find out if you must file Form 4562.

01 / 01 /2019

When did you place your vehicle in service for business purposes? (month/day/year)

Of the total number of miles you drove your vehicle during 2022, enter the number of miles you used your vehicle for: a

Business

4,000

3,250

b Commuting (see instructions)

4,500

c Other

x Yes 46 Do you (or your spouse) have another vehicle available for personal use?. . . . . . . . . . . . . . x Yes 47a Do you have evidence to support your deduction? . . . . . . . . . . . . . . . . . . . . x Yes b If “Yes,” is the evidence written? . . . . . . . . . . . . . . . . . . . . . . . . . x Yes

Was your vehicle available for personal use during off-duty hours?

Part V

No No No No

Other Expenses. List below business expenses not included on lines 8–26 or line 30.

Continuing education

500

Printing

Total other expenses. Enter here and on line 27a

550 Schedule C (Form 1040) 2022

Note: See Page 3-4 for details of solution.

3-3

3-4

Chapter 3 – Business Income and Expenses

Group 2: Problem 1 (continued)

Income Statement Scott Butterfield, CPA Income Statement 12/31/2022 Current Period 1/1/2022 to 12/31/2022

Prior Period 1/1/2021 to 12/31/2021

REVENUES Tax Services Accounting Services Other Consulting Services TOTAL REVENUES

$ 76,124 49,081 10,095 135,300

$ 75,067 48,860 10,115 134,042

COST OF SERVICES Salaries Payroll Taxes Supplies TOTAL COST OF SERVICES

35,000 3,098 a 1,302 39,400

30,100 2,387 1,548 34,035

GROSS PROFIT (LOSS)

95,900

100,007

OPERATING EXPENSES Advertising and Promotion Business Licenses and Permits Charitable Contributions Continuing Education Dues and Subscriptions Insurance Meals and Entertainment Office Expense Postage and Delivery Printing and Reproduction Office Rent Travel Utilities TOTAL OPERATING EXPENSES

250 300 400 500 2,800 900 4,400 200 100 50 12,000 900 3,000 25,800

NET INCOME (LOSS)

$ 70,100

a b c d e e

350 250 275 300 3,500 875 5,500 150 50 100 14,000 865 2,978 29,193 $ 70,814

a - Combined into Taxes and Licenses Line 23 b - Nondeductible political contribution c - Nondeductible country club membership (entertainment) d - Greens fees ($2,500) and 50% of bagels and doughnuts ($450) are nondeductible e - Combined into Office Expense Line 18 Reconcilation of book income to taxable income: Book income $70,100 Nondeductible dues 2,800 Nondeduct. political contrib. 400 Mileage deduction (2,420) Nondeduct. entertainment 2,500 Nondeduct. meals 450 Taxable income $73,830

Solutions for Questions and Problems – Chapter 3

2. Gross income Expenses: Travel Political contribution Transportation: 2,650 miles x $0.585 2,650 miles x $0.625 Entertainment in total 9 gifts at $50 each, limited to $25 each Rent and utilities allocated to home office 25% x $10,500 Total expenses Taxable business income

$45,000 $ 1,000 0 1,550 1,656 0 225 2,625 7,056 $37,944 (LO 3.1, 3.3, 3.4, 3.5, 3.9, 3.11)

3. a. FIFO inventory valuation: 10,000 boxes at $1.70 per box 6,000 boxes at $1.65 per box Ending inventory Cost of goods sold: Beginning inventory Add: Purchases ($15,500 + $33,000 + $17,000) Cost of goods available for sale Less: Ending inventory Cost of goods sold b. LIFO inventory valuation: 10,000 boxes at $1.50 per box 6,000 boxes at $1.55 per box Ending inventory Cost of goods sold: Beginning inventory Add: Purchases ($15,500 + $33,000 + $17,000) Cost of goods available for sale Less: Ending inventory Cost of goods sold 4. Part III

$ 17,000 9,900 $ 26,900 $ 15,000 65,500 $ 80,500 –26,900 $ 53,600 $ 15,000 9,300 $ 24,300 $ 15,000 65,500 $ 80,500 –24,300 $ 56,200 (LO 3.2)

Cost of Goods Sold (see instructions)

Method(s) used to value closing inventory:

Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . .

x Cost

Lower of cost or market

Other (attach explanation) .

Yes

DRAFT AS OF July 15, 2022 DO NOT FILE

x No

Inventory at beginning of year. If different from last year’s closing inventory, attach explanation .

60,000

Purchases less cost of items withdrawn for personal use

579,000

Cost of labor. Do not include any amounts paid to yourself .

Materials and supplies

Other costs .

Add lines 35 through 39 .

639,000

Inventory at end of year .

80,000

Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 .

559,000

(LO 3.2)

3-5

3-6

Chapter 3 – Business Income and Expenses

5. Frank has three options: 1. He can use the accrual method for inventory in which he takes a year-end physical inventory to confirm ending inventory. 2. He can treat inventory as non-incidental materials and supplies and deduct the cost of the filters when they are sold. 3. He can treat the inventory the same as he does for books and records and deduct the cost as paid. Since Frank does not have applicable financial statements, he may not conform to those. (LO 3.2) 6. a. Standard mileage method: $5,776. (5,600 x $0.585) + (4,000 x $0.625) b. Actual automobile costs $6,400 Business percentage (9,600/12,000) x 80% Actual cost method $5,120 c. Since the standard mileage method yields the larger deduction, Teresa should use the standard mileage method to determine her deduction. Teresa is eligible to use either the standard mileage if used previously or change to the actual expense method this year. (LO 3.3) 7. $7,500 (15,000 miles/20,000 miles x $10,000 = $7,500). Since Art has always used the actual cost method, he must continue to use the actual cost method this year. (LO 3.3) 8. The business auto expense is $2,380 (3,000 x $0.585 + 1,000 x $0.625). The expense should be deducted on Martha’s Schedule C, Part II (Line 9, Car and Truck Expenses) and Part IV. (LO 3.3) 9. Round trip airfare to San Diego Hotel charges while on business Restaurant meals while on business ($260 x 100%) Car rental while on business Total travel expense deduction

$ 480 440 260 110 $1,290 (LO 3.4)

10. September 2022 per diem rates are as follows: Flagstaff, AZ $138 Palm Springs, CA $114 Atlanta, GA $163 Current rates can be found at https://www.gsa.gov/travel/plan-book/per-diem-rates. (LO 3.4) 11. $2,205. $1,400 + $500 + $300 + $5. 100% of all the costs except the snacks from the airport, which are 50% deductible. (LO 3.4, 3.5, 3.6) 12. $5,000. Grace may deduct 100% of the business meals, provided by restaurants. The remaining entertainment expenses are not deductible. Since Grace is self-employed, the deduction is claimed on Schedule C. (LO 3.5) 13. a. Business meals at the country club Business meals at various restaurants Total meals deduction

$1,400 1,900 $3,300

b. The dues to the country club and tennis club are not deductible. The tennis fees are a personal expense and are not deductible. (LO 3.5) 14. a. No. Law school prepares him to enter a new profession.

Solutions for Questions and Problems – Chapter 3

3-7

b. No. Although the course is designed to improve her skills in her current job and does not prepare her to enter a new profession, miscellaneous itemized deductions were eliminated in the TCJA. c. No. The educational expense is not paid to meet the requirements of law or regulation for keeping the taxpayer’s current job. The course would prepare her to enter a new profession. (LO 3.6) In some cases, these taxpayers may qualify for the lifetime learning credit discussed in LO 7.5. 15. Legal journal subscription Legal reference service Chicago Magazine (Not as clear cut as the other expenses but seems business related) Total deduction (LO 3.7) 16. a. Cooper’s uniforms Laundry for Cooper’s uniforms Alterations for Cooper’s uniforms Total deduction

$ 240 3,500 60 $3,800

$400 160 85 $645

b. Brandy may deduct $125 for the cost of her safety glasses and shoes. The cost of Brandy’s work clothes and her laundry costs for the work clothes are not deductible since the clothes are suitable for general wear. (LO 3.8) 17. Donee Ms. Sears Mr. Williams Mr. and Mrs. Sample Calendars Mr. Shiver Total business gift deduction (LO 3.9)

Amount Allowed $ 29 0 25 300 175 $529

18. a. $3,000. The loan was not for business purposes and is limited to $3,000 per year. b. The remaining $6,500 can be carried forward as a short-term capital loss and deducted in future years, subject to the $3,000 annual limitation. (LO 3.10) 19. No. A business bad debt deduction for services is allowed only to the extent the amount was previously included in income. (LO 3.10) 20. This is a nonbusiness bad debt. Assuming this is Carrie’s only capital gain or loss, she may claim a $3,000 short-term capital loss in the current year and carry the remaining $1,500 to the following year as a short-term capital loss. (LO 3.10) 21. a. Gross income from the business Total home office expenses allowed: Interest and taxes Utilities Depreciation Total home office deduction

$ 4,400 825 500 1,500 $2,825

3-8

Chapter 3 – Business Income and Expenses

b. Gross income from the business Total home office expenses allowed: Interest and taxes Utilities Depreciation (limited to $1,275) Total home office deduction The remaining unused $225 may be carried forward to offset income in future years. (LO 3.11) 22. Rent ($9,600 x 300/1200) Utilities other than telephone ($2,500 x 300/1200) Total home office expenses (LO 3.11)

$ 2,600 825 500 1,275 $2,600

$ 2,400 625 $3,025

23. Gross income from business $3,400 Less: supplies expense – 200 Home office deduction limit $3,200 Home office deduction under safe harbor method: 300 sq ft (maximum permitted) x $5 per sq ft rate = $1,500 Although actual home office deductions total $620 [($1,600 x 20%) + $300], Randi is permitted to use the larger safe harbor amount. (LO 3.11) 24. $1,600. The total costs of her apartment ($8,000, or $6,000 + $1,000 + $200 + $800) are multiplied by the 20% (200/1,000 square feet) home office allocation to arrive at a $1,600 deduction for home office expenses. (LO 3.11) 25. a. According to Publication 535, the IRS will consider the following factors: (1) carrying on the activity in a businesslike manner, (2) the time and effort put into the activity indicate you intend to make it profitable, (3) dependence on the income for the taxpayer’s livelihood, (4) whether the losses are due to circumstances beyond control (or are normal in the startup phase of this type of business), (5) attempts to change methods of operation to improve profitability, (6) the taxpayer or advisors have the knowledge needed to carry on the activity as a successful business, (7) success in making a profit in similar activities in the past, (8) the activity makes a profit in some years, and (9) the activity is expected to make a future profit from the appreciation of the assets used in the activity. b. $6,500 loss = $5,000 – $10,000 – $1,500. c. $0. The miscellaneous expense deduction for items subject to the 2 percent floor is suspended through 2025; thus, no miscellaneous hobby expenses are deductible. However, Lew will be required to include the $5,000 in sales on Schedule 1 to Form 1040. (LO 3.12)

Group 3 – Writing Assignments 1. Ethics Solution: It is important that Bobby be able to substantiate his transportation deduction. At a minimum, Bobby should provide written documentation that includes the amount (mileage for each business use and the total miles for the year), time (date of the use of the car), business destination, and purpose. An easy way for Bobby to keep this information would be in a vehicle log that he kept in his van. It is not acceptable for Bobby to approximate or estimate his business mileage. If he has not kept a log, supporting documentation must be provided in order to take the deduction. One way that Bobby could do this is by reviewing invoices of deliveries during the year. (Source: IRS Publication 463, Chapter 5)

Solutions for Questions and Problems – Chapter 3

3-9

2. Research Solution: Chabot and Chabot, CPAs Hayward, CA July 18, 20xx Mr. Randall Stevens 123 Eastern Promenade Portland, ME 04101 Dear Mr. Stevens, Thank you for your inquiry concerning the deductibility of your travel expenses associated with the North American Classic Marine Boat Show. I have researched your question and am happy to say that you are able to deduct some of your expenses. Travel expenses when attending a convention are deductible as long as you can prove that your attendance benefited your business. In order to deduct the cost of attending a convention, you need to be able to show that attending the convention benefits your business as a bank loan officer. You should obtain and keep a copy of the convention agenda which should show the purpose of the convention and that comparing the agenda to your duties as a loan officer confirms that your attendance was for business purposes. There are however, special rules related to attending conventions held outside of North America. Generally, if the convention is held outside of North America, the reasons for doing so need to meet a test to show why it is reasonable to attend the meeting outside North America. The coastal location may have met the “reasonableness” test; however, the good news is that according to IRS rules, Zihuatanejo, Mexico, the location of the conference (in spite of being a completely different country), is considered to be inside the North American area for purposes of deducting the costs of the conference. As a result, the registration, airfare, lodging and restaurant meals will be deductible. In order to maximize your tax deduction for meals, eat your meals in a restaurant or get take-out meals from a restaurant as they are 100 percent deductible in 2022. Other non-restaurant business meals can be deducted at 50 percent. My conclusion is based upon the facts that you have provided me. Enjoy your trip. If you have any questions or would like further explanation, please do not hesitate to call. Sincerely, Great Student for Chabot and Chabot, CPAs Group 4 – Comprehensive Problems 1. See Forms on Pages 3-10 through 3-16. 2A. See Forms on Pages 3-17 through 3-24. 2B. See Forms on Pages 3-25 through 3-29. Group 5 – Cumulative Software Problem The solution to the Cumulative Software Problem is posted on the website for the textbook at www.cengage.com/login.

3-10

Chapter 3 – Business Income and Expenses

Form

Comprehensive Problem 1

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

x Single

Married filing jointly

OMB No. 1545-0074

Married filing separately (MFS)

IRS Use Only—Do not write or staple in this space.

Head of household (HOH)

Your first name and middle initial

Last name

Gordon

Your social security number

Temper

242 11 6767

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Spouse’s social security number

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

116 S. 6th Street

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Laramie

Foreign country name

82070

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

. . .

Credit for other dependents

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

x .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

5,478

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Child tax credit

. . .

. . 2a 3a

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Was born before January 2, 1958

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

x No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

. . .

. .

. . .

Cat. No. 11320B

21,000

21,000 3,200 5,678

1,046 3,150 34,074 34,074 12,950 12,950 21,124 Form 1040 (2022)

Solutions for Questions and Problems – Chapter 3

Comprehensive Problem 1, cont. Gordon Temper

Form 1040 (2022)

Tax and Credits

242-11-6767

16 17

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

Page 2

1,550

16 17

. . .

18 19 20

. . .

21 22 23

1,550

25d

1,600

1,550

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

. . .

. . 27 28 29 30 31

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

1,600

Phone no.

. Savings

35a

Yes. Complete below.

1,600 50 50

Personal identification number (PIN)

Date

If the IRS sent you an Identity Protection PIN, enter it here (see inst.)

Your occupation

Chef Spouse’s signature. If a joint return, both must sign.

Date

Phone no.

Email address

Preparer’s name

Preparer’s signature

Spouse’s occupation

Date

If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

3-11

3-12

Chapter 3 – Business Income and Expenses

Comprehensive Problem 1, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

Gordon Temper Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

242-11-6767

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . 01/01/2017 Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

3,600 (450)

3,150

Schedule 1 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 3

Comprehensive Problem 1, cont. SCHEDULE B

OMB No. 1545-0074

Interest and Ordinary Dividends

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Go to www.irs.gov/ScheduleB for instructions and the latest information. Attach to Form 1040 or 1040-SR.

Name(s) shown on return

Attachment Sequence No. 08 Your social security number

Gordon Temper 1 List name of payer. If any interest is from a seller-financed mortgage and the Part I buyer used the property as a personal residence, see the instructions and list this Interest interest first. Also, show that buyer’s social security number and address: (See instructions Investcorp Bond Fund and the Instructions for Form 1040, line 2b.) Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm’s name as the payer and enter the total interest shown on that form.

Amount

DRAFT AS OF July 7, 2022 DO NOT FILE

3,200

2 3

Part II Ordinary Dividends

242-11-6767

3,200

2 3 4

3,200 Amount

Investcorp Small Cap Equity Fund

5,678

(See instructions and the Instructions for Form 1040, line 3b.)

5,678

b If you are required to file FinCEN Form 114, list the name(s) of the foreign country(-ies) where the financial account(s) are located: 8

During 2022, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If “Yes,” you may have to file Form 3520. See instructions . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 17146N

Schedule B (Form 1040) 2022

3-13

3-14

Chapter 3 – Business Income and Expenses

Comprehensive Problem 1, cont. SCHEDULE C (Form 1040)

Profit or Loss From Business

Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

2022

(Sole Proprietorship) Go to www.irs.gov/ScheduleC for instructions and the latest information.

Attachment Sequence No. 09

Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.

Name of proprietor

Social security number (SSN)

Principal business or profession, including product or service (see instructions)

B Enter code from instructions

Business name. If no separate business name, leave blank.

Business address (including suite or room no.)

F G

City, town or post office, state, and ZIP code Laramie, WY 82070 (2) Accrual (3) Other (specify) Accounting method: (1) x Cash Did you “materially participate” in the operation of this business during 2022? If “No,” see instructions for limit on losses

x Yes

H I J

. . .

Yes Yes

Gordon Temper

242-11-6767

Food truck

7 2 2 3 0 0

DRAFT AS OF July 15, 2022 DO NOT FILE

Mobile Peri Peri

Part I 1

D Employer ID number (EIN) (see instr.)

150 Erie Street

. . .

x No No

Income

2 3 4

1 2 3 4

5 6 7

. . .

5 6 7

Office expense (see instructions) . Pension and profit-sharing plans .

18 19

Rent or lease (see instructions): Vehicles, machinery, and equipment Other business property . . .

20a 20b

24,000 8,600

Part II

Advertising .

Car and truck expenses (see instructions) . . . Commissions and fees . Contract labor (see instructions)

12 13

Depletion . . . . . Depreciation and section 179 expense deduction (not included in Part III) (see instructions) . . . .

14 15 16 a b

. . .

78,000 40,800 37,200 37,200

Expenses. Enter expenses for business use of your home only on line 30.

10 11

. . .

78,000

Employee benefit programs (other than on line 19) . Insurance (other than health) Interest (see instructions): Mortgage (paid to banks, etc.)

500

18 19

400

9 10 11

21 22 23

Repairs and maintenance . . . Supplies (not included in Part III) . Taxes and licenses . . . . .

21 22 23

450

Travel and meals: Travel . . . .

24a

300

(b)

Deductible meals (see instructions) . . . . . . . Utilities . . . . . . . . Wages (less employment credits)

24b 25 26

100

(b)

300

a b

a 14 15

3,000 25 26

16a

17 28

. . .

27a 27b 28

Tentative profit or (loss). Subtract line 28 from line 7 .

and (b) the part of your home used for business: Method Worksheet in the instructions to figure the amount to enter on line 30

. Use the Simplified . . . . . . .

Net profit or (loss). Subtract line 30 from line 29.

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

}

(a)

37,650 (450)

(450)

32a x All investment is at risk. 32b Some investment is not at risk. Schedule C (Form 1040) 2022

(a) Gordon rents his food truck and therefore will not complete Part IV of Schedule C. In addition, Gordon did not keep track of his mileage from his apartment to or from either work location so he was unable to deduct any business-related mileage. (b) Gordon’s travel expenses are limited to one night’s hotel ($300) and restaurant meals ($100) for the day of his conference. Because he spent two of the three-day trip skiing, he cannot deduct the airfare.

Solutions for Questions and Problems – Chapter 3

Comprehensive Problem 1, cont. Gordon Temper

Schedule C (Form 1040) 2022

Part III

242-11-6767

Method(s) used to value closing inventory:

Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . .

x Cost

Lower of cost or market

Other (attach explanation)

x No

Yes

DRAFT AS OF July 15, 2022 DO NOT FILE

Inventory at beginning of year. If different from last year’s closing inventory, attach explanation .

5,600

Purchases less cost of items withdrawn for personal use

43,000

Cost of labor. Do not include any amounts paid to yourself .

Materials and supplies

Other costs .

Add lines 35 through 39 .

48,600

Inventory at end of year .

7,800

Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 .

40,800

Part IV

When did you place your vehicle in service for business purposes? (month/day/year)

Of the total number of miles you drove your vehicle during 2022, enter the number of miles you used your vehicle for: a

Page 2

Cost of Goods Sold (see instructions)

Business

b Commuting (see instructions)

c Other

Was your vehicle available for personal use during off-duty hours?

Yes

Do you (or your spouse) have another vehicle available for personal use?.

Yes

47a

Do you have evidence to support your deduction?

Yes

If “Yes,” is the evidence written?

Yes

Part V

Other Expenses. List below business expenses not included on lines 8–26 or line 30.

Dues

100

Uniforms

200

Total other expenses. Enter here and on line 27a

300 Schedule C (Form 1040) 2022

3-15

3-16

Chapter 3 – Business Income and Expenses

Comprehensive Problem 1, cont.

21,124 5,478

1,046

X 6,524 14,600 $41,675 $83,350 $55,800

$459,750 $258,600 $517,200 $488,500

41,675 21,124 14,600 6,524 6,524 6,524 0 459,750 21,124 21,124 0 0 0 6,524 0 0 1,550 1,550 2,330 1,550

This worksheet adapted from the 2021 worksheet.

Solutions for Questions and Problems – Chapter 3

Form

Comprehensive Problem 2A

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

OMB No. 1545-0074

IRS Use Only—Do not write or staple in this space.

Single Married filing jointly Married filing separately (MFS) Head of household (HOH) Qualifying surviving spouse (QSS) If you checked the MFS box, enter the name of your spouse. If you checked the HOH or QSS 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

Russell

Your social security number

Long

664 98 5678

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Linda

Spouse’s social security number

Long

554 98 3946

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

1234 Cherry Lane

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Nampa

Foreign country name

83687

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

. . .

Credit for other dependents

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

26,000

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Child tax credit

. . .

. . 2a 3a

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Was born before January 2, 1958

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

x No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

. . .

. .

. . .

Cat. No. 11320B

26,000

800 26,800 26,800 25,900 25,900 900 Form 1040 (2022)

3-17

3-18

Chapter 3 – Business Income and Expenses

Comprehensive Problem 2A, cont. Russell and Linda Long

Form 1040 (2022)

Tax and Credits

664-98-5678 2

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

Page 2

16 17

. . .

18 19 20

. . .

21 22 23

25d

. .

32 33 34

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

. . .

300

29 30 31

Phone no.

. Savings

35a

Yes. Complete below.

300 300 300

Personal identification number (PIN)

Date

If the IRS sent you an Identity Protection PIN, enter it here (see inst.)

Your occupation

Landscaper Spouse’s signature. If a joint return, both must sign.

Date

Spouse’s occupation

Homemaker Phone no.

Paid Preparer Use Only

. . .

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

. . 27 28

Preparer’s name

If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

Email address Preparer’s signature

Date

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 3

Comprehensive Problem 2A, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

664-98-5678

Russell and Linda Long Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

800

Schedule 1 (Form 1040) 2022

3-19

3-20

Chapter 3 – Business Income and Expenses

Comprehensive Problem 2A, cont. SCHEDULE B Department of the Treasury Internal Revenue Service

(See instructions and the Instructions for Form 1040, line 2b.) Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm’s name as the payer and enter the total interest shown on that form.

664-98-5678 Amount

DRAFT AS OF July 7, 2022 DO NOT FILE 1

2 3

Part II Ordinary Dividends

Attachment Sequence No. 08 Your social security number

Russell and Linda Long 1

2022

Go to www.irs.gov/ScheduleB for instructions and the latest information. Attach to Form 1040 or 1040-SR.

Name(s) shown on return

Part I Interest

OMB No. 1545-0074

Interest and Ordinary Dividends

(Form 1040)

2 3 4 Amount

Potato Dividend High Yield Fund

26,000

(See instructions and the Instructions for Form 1040, line 3b.)

26,000

b If you are required to file FinCEN Form 114, list the name(s) of the foreign country(-ies) where the financial account(s) are located: 8

During 2022, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If “Yes,” you may have to file Form 3520. See instructions . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 17146N

Schedule B (Form 1040) 2022

Solutions for Questions and Problems – Chapter 3

Comprehensive Problem 2A, cont. SCHEDULE C (Form 1040)

Profit or Loss From Business

Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

2022

(Sole Proprietorship) Go to www.irs.gov/ScheduleC for instructions and the latest information.

Name of proprietor

Social security number (SSN)

Russell Long A

664-98-5678

Principal business or profession, including product or service (see instructions)

B Enter code from instructions

5 6 1 7 3 0

Landscaping Services C

Attachment Sequence No. 09

Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.

DRAFT AS OF July 15, 2022 DO NOT FILE

Business name. If no separate business name, leave blank.

Lawns and Landscapes Unlimited

D Employer ID number (EIN) (see instr.)

3 2 1 4 5 6 7 8 9

1234 Cherry Lane Nampa, ID 83687

Business address (including suite or room no.)

F G

City, town or post office, state, and ZIP code (2) Accrual (3) Other (specify) Accounting method: (1) x Cash Did you “materially participate” in the operation of this business during 2022? If “No,” see instructions for limit on losses

x Yes

H I J

. . .

x Yes x Yes

No No

Part I 1

. . .

2 3 4

1 2 3 4

5 6 7

. . .

5 6 7

Office expense (see instructions) . Pension and profit-sharing plans .

18 19

Rent or lease (see instructions): Vehicles, machinery, and equipment Other business property . . .

20a 20b

Advertising .

Car and truck expenses (see instructions) . . . Commissions and fees . Contract labor (see instructions)

12 13

Depletion . . . . . Depreciation and section 179 expense deduction (not included in Part III) (see instructions) . . . .

14 15 16 a b

. . .

137,100 137,100 137,100 137,100

Expenses. Enter expenses for business use of your home only on line 30.

10 11

. . .

Income

Part II

. . .

Employee benefit programs (other than on line 19) . Insurance (other than health) Interest (see instructions): Mortgage (paid to banks, etc.)

8 9 10 11

1,500

18 19

617 (a) 20 a b

7,780

21 22 23

Repairs and maintenance . . . Supplies (not included in Part III) . Taxes and licenses . . . . .

21 22 23

Travel and meals: Travel . . . .

24a

Deductible meals (see instructions) . . . . . . . Utilities . . . . . . . . Wages (less employment credits)

24b 25 26

a 14 15

4,000 25 26

16a

12,500 8,300 6,800 865 1,500 85,000 7,260

17 28

. . .

27a 27b 28

Tentative profit or (loss). Subtract line 28 from line 7 .

136,122 978 (b)

978

and (b) the part of your home used for business: Method Worksheet in the instructions to figure the amount to enter on line 30

. Use the Simplified . . . . . . .

Net profit or (loss). Subtract line 30 from line 29.

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

}

32a 32b

All investment is at risk. Some investment is not at risk. Schedule C (Form 1040) 2022

(a) 200 miles x $0.585 + 800 miles x $0.625 (b) Book income $195 + $600 nondeductible political + $800 nondeductible entertainment – $617 mileage

3-21

3-22

Chapter 3 – Business Income and Expenses

Comprehensive Problem 2A, cont. Russell Long

Schedule C (Form 1040) 2022

Part III

664-98-5678

Page 2

Cost of Goods Sold (see instructions)

Method(s) used to value closing inventory:

Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . .

Cost

Lower of cost or market

Other (attach explanation) Yes

DRAFT AS OF July 15, 2022 DO NOT FILE

Inventory at beginning of year. If different from last year’s closing inventory, attach explanation .

Purchases less cost of items withdrawn for personal use

Cost of labor. Do not include any amounts paid to yourself .

Materials and supplies

Other costs .

Add lines 35 through 39 .

Inventory at end of year .

Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 .

Part IV

03 / 14 / 21

When did you place your vehicle in service for business purposes? (month/day/year)

Of the total number of miles you drove your vehicle during 2022, enter the number of miles you used your vehicle for: a

Business

1,000

2,300

b Commuting (see instructions)

3,000

c Other

Was your vehicle available for personal use during off-duty hours?

x Yes

Do you (or your spouse) have another vehicle available for personal use?.

x Yes

47a

Do you have evidence to support your deduction?

x Yes

If “Yes,” is the evidence written?

x Yes

Part V

Other Expenses. List below business expenses not included on lines 8–26 or line 30.

Business gifts

790

Clothing and safety shoes

660

Subscriptions

120

Telephone

2,015

Training

1,975

Other

1,700

Total other expenses. Enter here and on line 27a

7,260 Schedule C (Form 1040) 2022

Solutions for Questions and Problems – Chapter 3

Comprehensive Problem 2A, cont. Form

8829

Department of the Treasury Internal Revenue Service

Expenses for Business Use of Your Home

Russell Long

1 2 3 4 5 6 7

2022

File only with Schedule C (Form 1040). Use a separate Form 8829 for each home you used for business during the year. Go to www.irs.gov/Form8829 for instructions and the latest information.

Name(s) of proprietor(s)

Part I

OMB No. 1545-0074

Part of Your Home Used for Business

Attachment Sequence No. 176

Your social security number

Lawns and Landscapes

664-98-5678

DRAFT AS OF July 21, 2022 DO NOT FILE

Area used regularly and exclusively for business, regularly for daycare, or for storage of inventory or product samples (see instructions) . . . . . . . . . . . . . . . . . . . . Total area of home . . . . . . . . . . . . . . . . . . . . . . . . . . . Divide line 1 by line 2. Enter the result as a percentage . . . . . . . . . . . . . . . For daycare facilities not used exclusively for business, go to line 4. All others, go to line 7. Multiply days used for daycare during year by hours used per day . . 4 hr. If you started or stopped using your home for daycare during the year, 5 hr. see instructions; otherwise, enter 8,760 . . . . . . . . . . . Divide line 4 by line 5. Enter the result as a decimal amount . . . . 6 . Business percentage. For daycare facilities not used exclusively for business, multiply line 6 by line 3 (enter the result as a percentage). All others, enter the amount from line 3 . . . . . .

1 2 3

192 1,600 12 %

12 %

978

14 15

0 978

Part II Figure Your Allowable Deduction 8

Enter the amount from Schedule C, line 29, plus any gain derived from the business use of your home, minus any loss from the trade or business not derived from the business use of your home. See instructions. See instructions for columns (a) and (b) before completing lines 9–22.

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

(a) Direct expenses

(b) Indirect expenses

Casualty losses (see instructions) . . . . . . 9 Deductible mortgage interest (see instructions) . 10 Real estate taxes (see instructions) . . . . . 11 Add lines 9, 10, and 11 . . . . . . . . . 12 Multiply line 12, column (b), by line 7 . . . . . . . . . . . . 13 Add line 12, column (a), and line 13 . . . . . . . . . . . . . . . . . . . . . Subtract line 14 from line 8. If zero or less, enter -0- . . . . . . . . . . . . . . . . Excess mortgage interest (see instructions) . . 16 Excess real estate taxes (see instructions) . . . 17 Insurance . . . . . . . . . . . . . . 18 Rent . . . . . . . . . . . . . . . 19 13,200 Repairs and maintenance . . . . . . . . 20 Utilities . . . . . . . . . . . . . . 21 1,800 Other expenses (see instructions) . . . . . . 22 Add lines 16 through 22 . . . . . . . . . 23 15,000 Multiply line 23, column (b), by line 7 . . . . . . . . . . . . 24 1,800 Carryover of prior year operating expenses (see instructions) . . . . 25 Add line 23, column (a), line 24, and line 25 . . . . . . . . . . . . . . . . . . . Allowable operating expenses. Enter the smaller of line 15 or line 26 . . . . . . . . . . Limit on excess casualty losses and depreciation. Subtract line 27 from line 15 . . . . . . . Excess casualty losses (see instructions) . . . . . . . . . . 29 Depreciation of your home from line 42 below . . . . . . . . . 30 Carryover of prior year excess casualty losses and depreciation (see instructions) 31 Add lines 29 through 31 . . . . . . . . . . . . . . . . . . . . . . . . . Allowable excess casualty losses and depreciation. Enter the smaller of line 28 or line 32 . . . Add lines 14, 27, and 33 . . . . . . . . . . . . . . . . . . . . . . . . . Casualty loss portion, if any, from lines 14 and 33. Carry amount to Form 4684. See instructions . Allowable expenses for business use of your home. Subtract line 35 from line 34. Enter here and on Schedule C, line 30. If your home was used for more than one business, see instructions .

26 27 28

32 33 34 35 36

1,800 978

978 978

Part III Depreciation of Your Home 37 38 39 40 41 42

Enter the smaller of your home’s adjusted basis or its fair market value. See instructions . . . Value of land included on line 37 . . . . . . . . . . . . . . . . . . . . . . Basis of building. Subtract line 38 from line 37 . . . . . . . . . . . . . . . . . Business basis of building. Multiply line 39 by line 7 . . . . . . . . . . . . . . . . Depreciation percentage (see instructions) . . . . . . . . . . . . . . . . . . . Depreciation allowable (see instructions). Multiply line 40 by line 41. Enter here and on line 30 above

37 38 39 40 41 42

Part IV Carryover of Unallowed Expenses to 2023 43 44

Operating expenses. Subtract line 27 from line 26. If less than zero, enter -0- . . . . . . . Excess casualty losses and depreciation. Subtract line 33 from line 32. If less than zero, enter -0- .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 13232M

43 44

822 Form 8829 (2022)

3-23

3-24

Chapter 3 – Business Income and Expenses

Comprehensive Problem 2A, cont. Russell Long

900 26,000

0 X 26,000 0 $41,675 $83,350 $55,800

$459,750 $258,600 $517,200 $488,500

83,350 900 0 900 900 900 0 517,200 900 900 0 0 0 900 0 0 0 0 171 0

This worksheet adapted from the 2021 worksheet.

Solutions for Questions and Problems – Chapter 3

Form

Comprehensive Problem 2B

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

OMB No. 1545-0074

IRS Use Only—Do not write or staple in this space.

Your first name and middle initial

Last name

Christopher

Your social security number

Crosphit

565

12 6789

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Traynor

Spouse’s social security number

712

Crosphit

Home address (number and street). If you have a P.O. box, see instructions.

22 9881

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

4323 New Cut Road

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Spartanburg

Foreign country name

Foreign province/state/county

29303

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four Arnold dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

Crosphit

Was born before January 2, 1958

276 23 3954

Child tax credit

Credit for other dependents

Son

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

. . 2a 3a 4a 5a 6a

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

. .

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

x No

Yes

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Spouse

Cat. No. 11320B

48,040

3,500 51,540 51,540 25,900 25,900 25,640 Form 1040 (2022)

3-25

3-26

Chapter 3 – Business Income and Expenses

Comprehensive Problem 2B, cont. Christopher Crosphit

Form 1040 (2022)

Tax and Credits

565-12-6789 2

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

25d

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

Page 2

16 17

. . .

18 19 20

. . .

21 22 23

2,664 2,664 500 500 2,164

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

. . .

. . 27 28

2,200 500

29 30 31

Phone no.

. Savings

35a

Yes. Complete below.

2,700 536 536

Personal identification number (PIN)

Date

Your occupation

Health Club Owner Spouse’s signature. If a joint return, both must sign.

Date

Spouse’s occupation

Salesperson Phone no.

Paid Preparer Use Only

. . .

2,200

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

2,164

Preparer’s name

If the IRS sent you an Identity Protection PIN, enter it here (see inst.) If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

Email address Preparer’s signature

Date

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 3

Comprehensive Problem 2B, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

565-12-6789

Christopher and Traynor Crosphit Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c 4,000 ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j 500 Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

(1,000)

4,500 3,500

Schedule 1 (Form 1040) 2022

3-27

3-28

Chapter 3 – Business Income and Expenses

Comprehensive Problem 2B, cont. SCHEDULE C (Form 1040)

Profit or Loss From Business

Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

2022

(Sole Proprietorship) Go to www.irs.gov/ScheduleC for instructions and the latest information.

Name of proprietor

Social security number (SSN)

Christopher Crosphit A

565 - 12 - 6789

Principal business or profession, including product or service (see instructions)

Health Club C

B Enter code from instructions

8 1 2 1 9 0

DRAFT AS OF July 15, 2022 DO NOT FILE

Business name. If no separate business name, leave blank.

D Employer ID number (EIN) (see instr.)

Catawba Fitness

1 2 3 4 5 6 7 8 9

Business address (including suite or room no.)4321 New Cut Road

Attachment Sequence No. 09

Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.

F G

City, town or post office, state, and ZIP code Spartanburg, SC 29303 (2) Accrual (3) Other (specify) Accounting method: (1) x Cash Did you “materially participate” in the operation of this business during 2022? If “No,” see instructions for limit on losses

x Yes

H I J

. . .

x Yes x Yes

No No

Part I 1

. . .

2 3 4

1 2 3 4

5 6 7

. . .

5 6 7

Office expense (see instructions) . Pension and profit-sharing plans .

18 19

Rent or lease (see instructions): Vehicles, machinery, and equipment Other business property . . .

20a 20b

Advertising .

Car and truck expenses (see instructions) . . . Commissions and fees . Contract labor (see instructions)

12 13

. . .

216,000 216,000 216,000 216,000

Expenses. Enter expenses for business use of your home only on line 30.

10 11

. . .

Income

Part II

. . .

Depletion . . . . . Depreciation and section 179 expense deduction (not included in Part III) (see instructions) . . . .

4,000

18 19

9 10 11

21 22 23

Repairs and maintenance . . . Supplies (not included in Part III) . Taxes and licenses . . . . .

21 22 23

Travel and meals: Travel . . . .

24a

Deductible meals (see instructions) . . . . . . . Utilities . . . . . . . . Wages (less employment credits)

24b 25 26

a b

3,400 22,500 32,000 10,700 9,000 1,500

(a)

1,950 14,000 99,000 15,450

(b)

15 16 a

Employee benefit programs (other than on line 19) . Insurance (other than health) Interest (see instructions): Mortgage (paid to banks, etc.)

b 17 28

. . .

27a 27b 28

Tentative profit or (loss). Subtract line 28 from line 7 .

217,000 (1,000)

Expenses for business use of your home. Do not report these expenses elsewhere. Attach Form 8829 unless using the simplified method. See instructions. 1,800 Simplified method filers only: Enter the total square footage of (a) your home: 30

(1,000)

14 15

3,500 25 26

16a

171 and (b) the part of your home used for business: Method Worksheet in the instructions to figure the amount to enter on line 30

. Use the Simplified . . . . . . .

Net profit or (loss). Subtract line 30 from line 29.

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

}

32a x All investment is at risk. 32b Some investment is not at risk. Schedule C (Form 1040) 2022

(a) $2,500 less nondeductible airfare ($800) and meals ($200) for Traynor and Arnold. (b) $1,800 100% deductible meals (party and restaurant) plus $150 (50% x $300) for non-restaurant meals.

Solutions for Questions and Problems – Chapter 3

Comprehensive Problem 2B, cont. Christopher Crosphit

Schedule C (Form 1040) 2022

Part III

565-12-6789

Page 2

Cost of Goods Sold (see instructions)

Method(s) used to value closing inventory:

Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . .

Cost

Lower of cost or market

Other (attach explanation) Yes

DRAFT AS OF July 15, 2022 DO NOT FILE

Inventory at beginning of year. If different from last year’s closing inventory, attach explanation .

Purchases less cost of items withdrawn for personal use

Cost of labor. Do not include any amounts paid to yourself .

Materials and supplies

Other costs .

Add lines 35 through 39 .

Inventory at end of year .

Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 .

Part IV

When did you place your vehicle in service for business purposes? (month/day/year)

Of the total number of miles you drove your vehicle during 2022, enter the number of miles you used your vehicle for: a

Business

b Commuting (see instructions)

c Other

Was your vehicle available for personal use during off-duty hours?

Yes

Do you (or your spouse) have another vehicle available for personal use?.

Yes

47a

Do you have evidence to support your deduction?

Yes

If “Yes,” is the evidence written?

Yes

Part V

Other Expenses. List below business expenses not included on lines 8–26 or line 30.

Business gifts

500

Subscriptions

100

Cleaning

8,800

Telephone

2,700

Training

800

Uniforms

750

Other

1,800

Total other expenses. Enter here and on line 27a

15,450 Schedule C (Form 1040) 2022

(c)

3-29

3-30

Chapter 3 – Business Income and Expenses

Key Number Tax Return Summary Chapter 3 Comprehensive Problem 1 Adjusted Gross Income (Line 11)

34,074

Standard Deduction (Line 12)

12,950

Taxable Income (Line 15)

21,124

Total Tax (Line 24)

1,550

Comprehensive Problem 2A Adjusted Gross Income (Line 11)

26,800

Tentative Profit or (Loss), Schedule C (Line 29)

978

Allowable Expenses for Business Use of Your Home, Form 8829 (Line 36)

978

Total Tax (Line 24)

Amount Overpaid (Line 34)

300

Comprehensive Problem 2B Adjusted Gross Income (Line 11)

51,540

Tentative Profit or (Loss), Schedule C (Line 29)

(1,000)

Allowable Expenses for Business Use of Your Home, Form 8829 (Line 36)

978

Total Tax (Line 24)

2,164

Amount Overpaid (Line 34)

536

CHAPTER 4 ADDITIONAL INCOME AND THE QUALIFIED BUSINESS INCOME DEDUCTION Group 1 – Multiple Choice Questions 21. B ($550,000 – $350,000) – (18/24 x $250,000) (LO 4.6) 22. E All of these items are true with regard to rental real estate (LO 4.7) 23. A Rentals for 14 days or less are not includable in gross income (LO 4.7) 24. C Rental days divided by total days used (LO 4.7) 25. E $5,000 – (56 days/70 days) x ($5,000 + $850 + $900 + $3,500) (LO 4.7) 26. D $126,000 – $100,000 = $26,000; $25,000 – (50% x $26,000) (LO 4.8) 27. C Rental income is not considered portfolio income (LO 4.8) 28. A Generally income from a limited partnership interest will be passive (LO 4.8) 29. E Both self-employment income and wages are considered active income (LO 4.8) 30. C The actively managed real property exception permits losses of up to $25,000 for taxpayers with income under $100,000 (LO 4.8) 31. D Income is too high to be eligible for the $25,000 exception to passive loss limitations (LO 4.8) 32. A A real estate professional may treat rental losses as active losses (LO 4.8) 33. A Individual NOLs come from business losses and not from itemized deductions except casualty losses. (LO 4.9) 34. E An NOL generated in 2022 can only be carried forward (LO 4.9) 35. C [($45,000 x 0.9235) x 0.153] (LO 4.10) 36. A Capital gain income is not generally subject to self-employment tax (LO 4.10) 37. B Max SS with wages so 2.9% Medicare only on $9,235 of taxable profits (LO 4.10) 38. B Corporations are not eligible for the QBI deduction (LO 4.10) 39. D Non-business interest is not considered qualified business income (LO 4.10) 40. A Neither wages nor a loss are eligible for the QBI deduction (LO 4.10)

1. E Inventory is excluded from the definition of a capital asset (LO 4.1) 2. E Inventory, A/R, and intangibles are not capital assets (LO 4.1) 3. B Long-term holding period requires over 12 months (LO 4.2) 4. C Exclude acquisition and include disposition (LO 4.2) 5. D ($5,000 + $1,600 + $1,200 + $12,000) Amount realized is cash + FMV of property received + liabilities assumed less selling costs (LO 4.3) 6. C Original cost less accumulated depreciation (LO 4.3) 7. B FMV on date of death (LO 4.3) 8. B Basis carries over on gift of appreciated property (LO 4.3) 9. C Amount realized of $67,500 ($35,000 + $32,500) less adjusted basis of $55,000. (LO 4.3) 10. B The top preferential rate for long-term capital gains is 20% and collectibles are taxed at 28% (LO 4.4) 11. C $8,292 + $6,473. $10,850 ($83,350 – $72,500) is taxed at 0% and $43,150 ($54,000 – $10,850) is taxed at 15% (LO 4.4) 12. B The LT capital gains are taxed at 0% since total taxable income does not exceed the 0% bracket ($41,675) (LO 4.4) 13. B $30,000 – $3,000, the limit of net capital losses for individual taxpayers (LO 4.4, 4.5) 14. A Personal losses are not deductible (LO 4.5) 15. C Net capital losses are carried forward indefinitely for individual taxpayers (LO 4.5) 16. A Net LT capital loss of $4,000 of which $3,000 is used in 2022 (LO 4.5) 17. E Gain of $134,000 can be excluded (up to $250,000 for a single taxpayer). (LO 4.6) 18. B Only $250,000 of the $275,000 gain can be excluded. (LO 4.6) 19. A Gain of $170,000 can be excluded up to $250,000 for a single taxpayer (LO 4.6) 20. A They qualify for a $500,000 exclusion on a gain of $325,000 (LO 4.6)

4-1

4-2

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Group 2 – Problems 1. a. $11,000 long-term capital gain = $26,000 – $15,000. b. $11,000 short-term capital gain. (LO 4.1, 4.2, 4.3) 2. GM stock $10,000 – $13,000 = $3,000 long-term capital loss Home Depot stock $2,500 – $1,000 = $1,500 long-term capital gain Net long-term capital loss = $1,500 Ford Motor bonds $35,000 – $30,000 = $5,000 short-term capital gain $3,500 net short-term capital gain ($1,500 net long-term capital loss and $5,000 net short-term capital gain). (LO 4.1, 4.2, 4.3, 4.5) 3. See Schedule D on Pages 4-3 and 4-4. (LO 4.1, 4.2, 4.3, 4.5) 4. $640,000 = $700,000 + $65,000 – $125,000. (LO 4.3) 5. a. $3,200 gain = $11,200 – $8,000 b. $500 loss = $7,500 – $8,000. Note: since the fair market value of the gifted property exceeded the basis of the property at the date of the gift, the recipient’s basis for gain and loss is the same in both calculations. (LO 4.3) 6. a. $1,200 gain. Because the basis of the property exceeded its fair market value at the time of the gift, the dual basis rules apply. Since it was sold for more than its original basis, the basis at sale is carryover basis of $10,000. b. $500 loss. Because the basis of the property exceeded its fair market value at the time of the gift, the dual basis rules apply. Since it was sold for less than its value on the date of the gift, the basis is the value of $8,000. c. $0 gain or loss. Because the basis of the property exceeded its fair market value at the time of the gift, the dual basis rules apply. Since it was sold for a value between market value and basis, no gain or loss is recognized and the basis is $9,000. (LO 4.3) 7. a. $3,000. The amount of an individual taxpayer’s net capital losses which may be deducted against ordinary income is limited to $3,000 annually. b. $0 short-term capital loss carryforward = $1,700 – $1,700. $15,700 long-term capital loss carryforward = $17,000 – $1,300. c. The long-term loss may be carried forward indefinitely. (LO 4.4, 4.5) 8. a. $61,620 realized gain ($168,000 – $10,080 – $8,800 – $87,500). b. $0 recognized gain since he may exclude up to $250,000 from the sale of his personal residence. c. $155,000 adjusted basis of new residence. (LO 4.6) 9. a. $294,000 realized gain = $365,000 – $21,000 – $50,000. b. $44,000 recognized gain = $294,000 less the $250,000 exclusion. c. $225,000 cost of the new residence. (LO 4.6)

Solutions for Questions and Problems – Chapter 4

Group 2: Problem 3 SCHEDULE D

OMB No. 1545-0074

Capital Gains and Losses

(Form 1040) Department of the Treasury Internal Revenue Service Name(s) shown on return

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/ScheduleD for instructions and the latest information. Use Form 8949 to list your transactions for lines 1b, 2, 3, 8b, 9, and 10.

Attachment Sequence No. 12 Your social security number

Charu Khanna

x No Did you dispose of any investment(s) in a qualified opportunity fund during the tax year? Yes If “Yes,” attach Form 8949 and see its instructions for additional requirements for reporting your gain or loss. Part I

DRAFT AS OF July 15, 2022 DO NOT FILE

Short-Term Capital Gains and Losses—Generally Assets Held One Year or Less (see instructions)

See instructions for how to figure the amounts to enter on the lines below. This form may be easier to complete if you round off cents to whole dollars. 1a Totals for all short-term transactions reported on Form 1099-B for which basis was reported to the IRS and for which you have no adjustments (see instructions). However, if you choose to report all these transactions on Form 8949, leave this line blank and go to line 1b .

(d) Proceeds (sales price)

71,000

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part I, line 2, column (g)

80,700

1b Totals for all transactions reported on Form(s) 8949 with Box A checked . . . . . . . . . . . . . 2 Totals for all transactions reported on Form(s) 8949 with Box B checked . . . . . . . . . . . . . 3 Totals for all transactions reported on Form(s) 8949 with Box C checked . . . . . . . . . . . . . 4 Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824 . . 5 Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from Schedule(s) K-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss Carryover Worksheet in the instructions . . . . . . . . . . . . . . . . . . . . . . . . 7 Net short-term capital gain or (loss). Combine lines 1a through 6 in column (h). If you have any longterm capital gains or losses, go to Part II below. Otherwise, go to Part III on the back . . . . . .

Part II

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

(9,700)

4 5 6

(

)

(9,700)

Long-Term Capital Gains and Losses—Generally Assets Held More Than One Year (see instructions)

See instructions for how to figure the amounts to enter on the lines below. This form may be easier to complete if you round off cents to whole dollars. 8a Totals for all long-term transactions reported on Form 1099-B for which basis was reported to the IRS and for which you have no adjustments (see instructions). However, if you choose to report all these transactions on Form 8949, leave this line blank and go to line 8b .

(d) Proceeds (sales price)

27,500

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part II, line 2, column (g)

24,900

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

2,600

8b Totals for all transactions reported on Form(s) 8949 with Box D checked . . . . . . . . . . . . . 9 Totals for all transactions reported on Form(s) 8949 with Box E checked . . . . . . . . . . . . . 10 Totals for all transactions reported on Form(s) 8949 with Box F checked . . . . . . . . . . . . . . 11 Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or (loss) from Forms 4684, 6781, and 8824 . . . . . . . . . . . . . . . . . . . . . . . 12 Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from Schedule(s) K-1 13 Capital gain distributions. See the instructions . . . . . . . . . . . . . . . . . . . 14 Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss Carryover Worksheet in the instructions . . . . . . . . . . . . . . . . . . . . . . . . 15 Net long-term capital gain or (loss). Combine lines 8a through 14 in column (h). Then, go to Part III on the back . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 11338H

11 12 13 14 ( 15

)

2,600

Schedule D (Form 1040) 2022

4-3

4-4

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Group 2: Problem 3, cont. Schedule D (Form 1040) 2022

Part III 16

Charu Khanna

Page 2

Summary

Combine lines 7 and 15 and enter the result

(7,100)

• If line 16 is a gain, enter the amount from line 16 on Form 1040, 1040-SR, or 1040-NR, line 7. Then, go to line 17 below. • If line 16 is a loss, skip lines 17 through 20 below. Then, go to line 21. Also be sure to complete line 22. • If line 16 is zero, skip lines 17 through 21 below and enter -0- on Form 1040, 1040-SR, or 1040-NR, line 7. Then, go to line 22.

DRAFT AS OF July 15, 2022 DO NOT FILE

Are lines 15 and 16 both gains? Yes. Go to line 18. No. Skip lines 18 through 21, and go to line 22.

If you are required to complete the 28% Rate Gain Worksheet (see instructions), enter the amount, if any, from line 7 of that worksheet . . . . . . . . . . . . . . . . . .

If you are required to complete the Unrecaptured Section 1250 Gain Worksheet (see instructions), enter the amount, if any, from line 18 of that worksheet . . . . . . . . . .

Are lines 18 and 19 both zero or blank and you are not filing Form 4952? Yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 16. Don’t complete lines 21 and 22 below. No. Complete the Schedule D Tax Worksheet in the instructions. Don’t complete lines 21 and 22 below.

If line 16 is a loss, enter here and on Form 1040, 1040-SR, or 1040-NR, line 7, the smaller of: • The loss on line 16; or • ($3,000), or if married filing separately, ($1,500)

}

21 (

3,000

)

Note: When figuring which amount is smaller, treat both amounts as positive numbers. 22

Do you have qualified dividends on Form 1040, 1040-SR, or 1040-NR, line 3a? Yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 16.

x No. Complete the rest of Form 1040, 1040-SR, or 1040-NR. Schedule D (Form 1040) 2022

Solutions for Questions and Problems – Chapter 4

4-5

10. In order to exclude $500,000 of the gain on the sale of a principal residence, a married couple must meet the ownership (2 years) and use (2 out of the last 5 years) test. If both spouses meet both tests, the exclusion is raised to $500,000. However, if one spouse meets both, then that spouse can exclude $250,000 of the gain (as if they were single). With respect to Kendra’s home, since it was purchased on September 30, 2021, even by year-end of 2022, she will not have met the two-year ownership test (it will only have been owned for approximately 1.25 years). Although in certain circumstances, a prorated exclusion can be applied for unforeseen circumstances, it is not likely that getting married qualifies as an unforeseen circumstance. With respect to Lloyd’s home, since it was purchased in 2018 and he has lived there ever since, he does meet the 2 year use and ownership requirement. At any time in 2022, whether before or after they are married, Lloyd can exclude up to $250,000 of the gain. Since the house has appreciated by $45,000, all of the gain would be excluded. In summary, it appears that the best alternative would be for Kendra and Lloyd to move into Kendra’s home until at least October 1, 2023 (to let her meet the two-year requirement). In the meantime, they can sell Lloyd’s home and exclude the gain. In two or three years, when they plan on having children, they will be able to sell Kendra’s home and exclude $250,000 up through July 2, 2024, at which time both Kendra and Lloyd will meet the two-year requirement and they can exclude up to $500,000 after that time. (LO 4.6) 11. Rental income ($800 x 12 months) Expenses: Real estate taxes Mortgage interest Insurance Repairs Association dues Total expenses Net rental income (LO 4.7)

$9,600 $1,250 1,500 425 562 1,500 (5,237) $4,363

12. Step 1: Gross income Less expenses: Rental portion of taxes ($2,200 x 6/12) Rental portion of interest ($4,000 x 6/12) Balance to utilities, maintenance and depreciation

$6,000 (1,100) (2,000) $2,900

Step 2: Utilities and maintenance ($2,000 x 6/12) Balance to depreciation

(1,000) $1,900

Step 3: Depreciation ($4,500 x 6/12), but limited to $1,900 of remaining income Net income Loss carried forward to 2023 (LO 4.7)

(1,900) 0 $ $ 350

13. $9,000. Eight months of rent in 2022 at $1,000 per month plus collection of last month’s rent of $1,000 (LO 4.7) 14. a. $15,000 = $25,000 – [50% x ($120,000 – $100,000)]. b. $0, no loss is allowed since the amount is a passive loss and there is no passive income to offset it against. Also, the actively managed rental real estate exception does not apply. c. The unused losses of $35,000 ($30,000 from the partnership and $5,000 disallowed from rental) may be carried forward to future tax years indefinitely, to reduce passive income in those years. Any loss not previously utilized may be deducted when the taxpayer’s interest in the activity is sold. (LO 4.8)

4-6

Chapter 4 – Additional Income and the Qualified Business Income Deduction

15. See Form 8582 on Page 4-8. (LO 4.8) 16. $320. Under the temporary COVID provisions, Tyler can carryback $3,000 of his 2020 loss to 2019 leaving a NOL balance of $2,000 to carryforward into 2021. His use of the NOL in 2021 is limited to 80% of his 2021 income or $800 ($1,000 x 80%). He uses $800 of the NOL in 2021 leaving a NOL balance of $1,200 ($2,000 – $800) to carryforward into 2022. His NOL use is limited to 80% of his 2022 income or $880 ($1,100 x 80%). This leaves an NOL carryforward balance of $320 ($1,200 – $880) into 2023. (LO 4.9) 17. a. b. c.

$22,950 loss ($30,000 – $40,000 – $12,950) Business = $10,000 loss. ($30,000 – $40,000) Non-business = $12,950 loss. $10,000. (LO 4.9)

18. See Schedule SE on Page 4-9 (LO 4.10) 19. $16,000. Sanjay’s QBI deduction with no limitation is $17,400 ($87,000 x 20%); however, the QBI deduction is limited to taxable income x 20% ($16,000 = $80,000 x 20%). (LO 4.11) 20. a. Taxable income is $406,100 ($421,000 – $267,000 + $15,000 + $250,000 + $13,000 – $25,900) b. QBI is $154,000 ($421,000 – $267,000). The business capital gain is not part of QBI. c. QBI deduction without limitation is $154,000 x 20% = $30,800; however, the QBI deduction is limited to modified taxable income x 20% where modified taxable income is $406,100 – $28,000 (total longterm capital gain) = $378,100, which is greater than QBI; thus, this taxable income limit does not apply. However, their taxable income exceeds the $340,100 threshold for MFJ taxpayer by $66,000 ($406,100 – $340,100) and thus the QBI deduction is subject to the wage limitation. • The wage limit is $58,000 x 50% = $29,000 • The wage and capital limit is ($58,000 x 25%) + (2.5% x $300,000) = $22,000 The greater of the two is the wage limit of $29,000; thus, the excess QBI deduction is $1,800 (full QBI deduction of $30,800 less $29,000 wage limit). Because their taxable income exceeds the $340,100 by $66,000, 66% of the QBI excess is phased out. $1,800 x 66% = $1,188 $30,800 – $1,188 = $29,612 QBI deduction. d. See Form 8995-A on Pages 4-10 and 4-11. (LO 4.11) Group 3 – Writing Assignment Dear Sue, Thank you for your email. I also enjoyed your company on New Year’s Day and what an amazing streak of luck you continue to have! You pose a very interesting question and one that many taxpayers face when investing in stock. I have prepared a response based on the information you provided, but of course, you may respond with additional questions as needed. The first issue you need to consider is the difference between the taxes on a short-term capital gain versus a long-term capital gain. Short-term capital gains are taxed at “ordinary” rates. These are the tax rates you might be used to seeing on the Internet or in the tax form instructions. Although your current tax bracket is 12 percent based on your income, the rate changes (in 2022) to 22% when income exceeds $41,775 and thus the tax rate on any additional ordinary income you might have from the sale of the stock is 22 percent. If, on the other hand, you hold the stock for more than one year (which would mean selling the shares no sooner than early January of 2023), you will receive preferential long-term capital gain treatment. At your income level, the tax rate on long-term capital gains is 15 percent.

Solutions for Questions and Problems – Chapter 4

4-7

If you sell the stock at $240 per share, your gain will be $21,000 ($24,000 – $3,000). Short-term capital gains taxes would be approximately $4,620 ($21,000 x 22%). If you waited, long-term capital gain taxes would be approximately $3,150 ($21,000 x 15%). The difference in taxes between long-term and short-term is $1,470 favoring holding the stock until next year. If you hold the stock until next year and the price stays at $240, your sale proceeds, net of tax are $20,850 ($24,000 – $3,150), versus selling your stock before year-end and realizing sale proceeds of $19,380, net of tax ($24,000 – $4,620). If you assume the lower price you provided for next year of $220, then you will only receive $22,000 upon sale. Since you will have waited, long-term capital gains rates will apply, and the taxes will be approximately $2,850 ($22,000 – $3,000 x 15%) leaving you with $19,150. This amount is very similar to the amount of money you would keep after taxes if you sold today, assuming stock prices of $240 per share: $19,380 ($24,000 – $4,620). Of course, neither of us has a crystal ball and so we really do not know what the stock price might be after today! Given the relative similarity of the after-tax cash, if you believe that the worst-case scenario is a price of $220, then it might be worth the risk to wait until next year. The closer the price stays to $240, the better off you will be! One last thing to consider, if you sell the stock this year, you will owe the tax this year. You will probably need to make a tax payment by January 15 of next year. If you wait until next year to sell, your taxes will not be due until later in 2023. I hope this helps you with your decision. Please do not hesitate to contact me if you have any questions. Great Student

Group 4 – Comprehensive Problems 1. See Pages 4-12 through 4-20. 2A. See Pages 4-21 through 4-36. Rental expenses are allocated on Schedule E as follows: Days rented = 189 and personal use of 21 days is more than the greater of: (1) 14 days or (2) 10% of rented days (19 days) Allocation of expenses: 189/210 days or 90% 21/210 days 10% Total Business Personal Mortgage Interest $12,000 $10,800 $1,200 Homeowners’ Assoc. Dues 4,200 3,780 420 Maintenance 4,600 4,140 460 Utilities 4,400 3,960 440 2B. See Pages 4-37 through 4-56. Group 5 – Cumulative Software Problem The solution to the Cumulative Software Problem is posted on the website for the textbook at www.cengage.com/login.

4-8

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Group 2: Problem 15 Form

8582

Passive Activity Loss Limitations

OMB No. 1545-1008

2022

See separate instructions. Attach to Form 1040, 1040-SR, or 1041. Go to www.irs.gov/Form8582 for instructions and the latest information.

Department of the Treasury Internal Revenue Service

Attachment Sequence No. 858

Name(s) shown on return

Identifying number

Clifford Johnson Part I

2022 Passive Activity Loss Caution: Complete Parts IV and V before completing Part I.

DRAFT AS OF October 11, 2022 DO NOT FILE

Rental Real Estate Activities With Active Participation (For the definition of active participation, see Special Allowance for Rental Real Estate Activities in the instructions.) 1a b c d

Activities with net income (enter the amount from Part IV, column (a)) . . Activities with net loss (enter the amount from Part IV, column (b)) . . . Prior years’ unallowed losses (enter the amount from Part IV, column (c)) . Combine lines 1a, 1b, and 1c . . . . . . . . . . . . . . .

. . . .

1a 1b ( 1c ( . . . .

. . . .

2a 2b ( 2c ( . . . .

18,000 )

)

( 18,000 )

All Other Passive Activities 2a b c d

Activities with net income (enter the amount from Part V, column (a)) . Activities with net loss (enter the amount from Part V, column (b)) . . Prior years’ unallowed losses (enter the amount from Part V, column (c)) Combine lines 2a, 2b, and 2c . . . . . . . . . . . . . .

( 11,000 )

Combine lines 1d and 2d. If this line is zero or more, stop here and include this form with your return; all losses are allowed, including any prior year unallowed losses entered on line 1c or 2c. Report the losses on the forms and schedules normally used . . . . . . . . . . . . . . . . .

( 29,000 )

If line 3 is a loss and:

. . . .

11,000 )

)

• Line 1d is a loss, go to Part II. • Line 2d is a loss (and line 1d is zero or more), skip Part II and go to line 10.

Caution: If your filing status is married filing separately and you lived with your spouse at any time during the year, do not complete Part II. Instead, go to line 10.

Part II 4 5 6

7 8 9

Note: Enter all numbers in Part II as positive amounts. See instructions for an example. Enter the smaller of the loss on line 1d or the loss on line 3 . . . . . . . . . . . . . . Enter $150,000. If married filing separately, see instructions . . . . . . 5 150,000 Enter modified adjusted gross income, but not less than zero. See instructions 6 132,000 Note: If line 6 is greater than or equal to line 5, skip lines 7 and 8 and enter -0on line 9. Otherwise, go to line 7. Subtract line 6 from line 5 . . . . . . . . . . . . . . . . . 7 18,000 Multiply line 7 by 50% (0.50). Do not enter more than $25,000. If married filing separately, see instructions Enter the smaller of line 4 or line 8 . . . . . . . . . . . . . . . . . . . . . .

Part III 10 11

Special Allowance for Rental Real Estate Activities With Active Participation

18,000

8 9

9,000 9,000

Total Losses Allowed

Add the income, if any, on lines 1a and 2a and enter the total . . . . . . . . . . . . . . Total losses allowed from all passive activities for 2022. Add lines 9 and 10. See instructions to find out how to report the losses on your tax return . . . . . . . . . . . . . . . . . .

Part IV

10 11

9,000

Complete This Part Before Part I, Lines 1a, 1b, and 1c. See instructions. Prior years

Current year Name of activity

(a) Net income (line 1a)

(b) Net loss (line 1b)

Rental home

18,000

Total. Enter on Part I, lines 1a, 1b, and 1c

18,000

For Paperwork Reduction Act Notice, see instructions.

Overall gain or loss (d) Gain

(e) Loss

18,000

Cat. No. 63704F

Form 8582 (2022)

Solutions for Questions and Problems – Chapter 4

Group 2: Problem 18 SCHEDULE SE Department of the Treasury Internal Revenue Service

2022

Go to www.irs.gov/ScheduleSE for instructions and the latest information. Attach to Form 1040, 1040-SR, or 1040-NR.

Name of person with self-employment income (as shown on Form 1040, 1040-SR, or 1040-NR)

Attachment Sequence No. 17

Social security number of person with self-employment income

Tommy Staples Part I

OMB No. 1545-0074

Self-Employment Tax

(Form 1040)

Self-Employment Tax

DRAFT AS OF July 28, 2022 DO NOT FILE

Note: If your only income subject to self-employment tax is church employee income, see instructions for how to report your income and the definition of church employee income. A If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you had $400 or more of other net earnings from self-employment, check here and continue with Part I . . . . . . . . . Skip lines 1a and 1b if you use the farm optional method in Part II. See instructions. 1a Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), 1a box 14, code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b If you received social security retirement or disability benefits, enter the amount of Conservation Reserve Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code AH 1b ( ) Skip line 2 if you use the nonfarm optional method in Part II. See instructions. 2 Net profit or (loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than 128,000 2 farming). See instructions for other income to report or if you are a minister or member of a religious order 3 Combine lines 1a, 1b, and 2 . . . . . . . . . . . . . . . . . . . . . . . . . 3 128,000 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3 . 4a 118,208 Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions. b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here . . . . . 4b c Combine lines 4a and 4b. If less than $400, stop; you don’t owe self-employment tax. Exception: If 118,208 less than $400 and you had church employee income, enter -0- and continue . . . . . . . . 4c 5a Enter your church employee income from Form W-2. See instructions for definition of church employee income . . . . . . . . . . . . . 5a b Multiply line 5a by 92.35% (0.9235). If less than $100, enter -0- . . . . . . . . . . . . . 5b 6 Add lines 4c and 5b . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 118,208 7 Maximum amount of combined wages and self-employment earnings subject to social security tax or 147,000 the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2022 . . . . . . . . . . . 7 8a Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2) and railroad retirement (tier 1) compensation. If $147,000 or more, skip lines 8b through 10, and go to line 11 . . . . . . . . . . . . . . . 8a 29,000 b Unreported tips subject to social security tax from Form 4137, line 10 . . . 8b c Wages subject to social security tax from Form 8919, line 10 . . . . . . 8c d Add lines 8a, 8b, and 8c . . . . . . . . . . . . . . . . . . . . . . . . . . 8d 29,000 9 Subtract line 8d from line 7. If zero or less, enter -0- here and on line 10 and go to line 11 . . . . 9 118,000 10 Multiply the smaller of line 6 or line 9 by 12.4% (0.124) . . . . . . . . . . . . . . . . 10 14,632 11 Multiply line 6 by 2.9% (0.029) . . . . . . . . . . . . . . . . . . . . . . . . 11 3,428 12 Self-employment tax. Add lines 10 and 11. Enter here and on Schedule 2 (Form 1040), line 4 . . 12 18,060 13 Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50). Enter here and on Schedule 1 (Form 1040), line 15 . . . . . . . . . . . . . . . . . . . . . . . . 13 9,030

Part II

Optional Methods To Figure Net Earnings (see instructions)

Farm Optional Method. You may use this method only if (a) your gross farm income1 wasn’t more than $9,060, or (b) your net farm profits2 were less than $6,540. 14 Maximum income for optional methods . . . . . . . . . . . . . . . . . . . . . 15 Enter the smaller of: two-thirds (2/3) of gross farm income1 (not less than zero) or $6,040. Also, include this amount on line 4b above . . . . . . . . . . . . . . . . . . . . . . . . Nonfarm Optional Method. You may use this method only if (a) your net nonfarm profits3 were less than $6,540 and also less than 72.189% of your gross nonfarm income,4 and (b) you had net earnings from self-employment of at least $400 in 2 of the prior 3 years. Caution: You may use this method no more than five times. 16 Subtract line 15 from line 14 . . . . . . . . . . . . . . . . . . . . . . . . . 17 Enter the smaller of: two-thirds (2/3) of gross nonfarm income4 (not less than zero) or the amount on line 16. Also, include this amount on line 4b above . . . . . . . . . . . . . . . . . 1

From Sch. F, line 9; and Sch. K-1 (Form 1065), box 14, code B. 2 From Sch. F, line 34; and Sch. K-1 (Form 1065), box 14, code A—minus the amount you would have entered on line 1b had you not used the optional method.

For Paperwork Reduction Act Notice, see your tax return instructions.

6,040

16 17

From Sch. C, line 31; and Sch. K-1 (Form 1065), box 14, code A. 4 From Sch. C, line 7; and Sch. K-1 (Form 1065), box 14, code C. Cat. No. 11358Z

Schedule SE (Form 1040) 2022

4-9

4-10

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Group 2: Problem 20 Form

8995-A

Department of the Treasury Internal Revenue Service

OMB No. 1545-2294

Qualified Business Income Deduction

2021

a Attach to your tax return.

Attachment Sequence No. 55A

a Go to www.irs.gov/Form8995A for instructions and the latest information.

Name(s) shown on return

Your taxpayer identification number

Rob and Marie Wriggle Note: You can claim the qualified business income deduction only if you have qualified business income from a qualified trade or business, real estate investment trust dividends, publicly traded partnership income, or a domestic production activities deduction passed through from an agricultural or horticultural cooperative. See instructions.

DRAFT AS OF January 11, 2022 DO NOT FILE

Use this form if your taxable income, before your qualified business income deduction, is above $164,900 ($164,925 if married filing separately; $329,800 if married filing jointly), or you’re a patron of an agricultural or horticultural cooperative.

Part I

Trade, Business, or Aggregation Information

Complete Schedules A, B, and/or C (Form 8995-A), as applicable, before starting Part I. Attach additional worksheets when needed. See instructions. 1

A B C

(a) Trade, business, or aggregation name

(b) Check if specified service

(d) Taxpayer identification number

(e) Check if patron

Plumbing supply business

Part II

Determine Your Adjusted Qualified Business Income

Qualified business income from the trade, business, or aggregation. See instructions . . . . . . . . . . . . . . . . .

154,000

Multiply line 2 by 20% (0.20). If your taxable income is $164,900 or less ($164,925 if married filing separately; $329,800 if married filing jointly), skip lines 4 through 12 and enter the amount from line 3 on line 13 . . . . . . . . . . . . . . . . .

30,800

4 5 6

58,000 29,000 14,500

7 8 9 10

300,000 7,500 22,000 29,000

11 12

29,000 29,612

29,612

14 15

29,612

4 5 6 7 8 9 10 11 12 13 14 15 16

Allocable share of W-2 wages from the trade, business, or aggregation . . . . . . . . . . . . . . . . . . Multiply line 4 by 50% (0.50) . . . . . . . . . . . . Multiply line 4 by 25% (0.25) . . . . . . . . . . . . Allocable share of the unadjusted basis immediately after acquisition (UBIA) of all qualified property . . . . . . . . Multiply line 7 by 2.5% (0.025) . . . . . . . . . . . . Add lines 6 and 8 . . . . . . . . . . . . . . . . Enter the greater of line 5 or line 9 . . . . . . . . . . . W-2 wage and UBIA of qualified property limitation. Enter the smaller of line 3 or line 10 . . . . . . . . . . . . . Phased-in reduction. Enter the amount from line 26, if any . . . Qualified business income deduction before patron reduction. Enter the greater of line 11 or line 12 . . . . . . . . . . Patron reduction. Enter the amount from Schedule D (Form 8995-A), line 6, if any. See instructions . . . . . . . . . . . . Qualified business income component. Subtract line 14 from line 13 Total qualified business income component. Add all amounts reported on line 15 . . . . . . . . . . . . . . . a

For Privacy Act and Paperwork Reduction Act Notice, see separate instructions.

29,612 Cat. No. 71661B

Form 8995-A (2021)

Please go to www.irs.gov to download the latest Form 8995-A. The 2022 version of Form 8995-A was not available as we went to print. If using the prior year form included in the textbook, be sure and use updated income limits on Line 3 and Line 21 ($340,100 for married filing joint returns, $170,050 for all other returns).

Solutions for Questions and Problems – Chapter 4

4-11

Group 2: Problem 20, cont. Page 2

Form 8995-A (2021)

Part III

Phased-in Reduction

Complete Part III only if your taxable income is more than $164,900 but not $214,900 ($164,925 and $214,925 if married filing separately; $329,800 and $429,800 if married filing jointly) and line 10 is less than line 3. Otherwise, skip Part III. A 17 18 19 20 21

22 23 24 25 26

Enter the amounts from line 3 . . . . . . . . . . . . Enter the amounts from line 10 . . . . . . . . . . . . Subtract line 18 from line 17 . . . . . . . . . . . . Taxable income before qualified business income deduction . . . . . . . . 20 406,100 Threshold. Enter $164,900 ($164,925 if married filing separately; $329,800 if married filing jointly) . . . . . . . . . . 21 340,100 Subtract line 21 from line 20 . . . . 22 66,000 Phase-in range. Enter $50,000 ($100,000 if married filing jointly) . . . . . . . 23 100,000 Phase-in percentage. Divide line 22 by line 23 24 66 % Total phase-in reduction. Multiply line 19 by line 24 . . . . . Qualified business income after phase-in reduction. Subtract line 25 from line 17. Enter this amount here and on line 12, for the corresponding trade or business . . . . . . . . . . .

28 29 30 31 32 33 34 35 36 37 38 39 40

17 18 19

30,800 29,000 1,800

1,188

29,612

DRAFT AS OF January 11, 2022 DO NOT FILE

Part IV 27

Determine Your Qualified Business Income Deduction

Total qualified business income component from all qualified trades, businesses, or aggregations. Enter the amount from line 16 . . . . . . 27 29,612 Qualified REIT dividends and publicly traded partnership (PTP) income or 28 (loss). See instructions . . . . . . . . . . . . . . . . . . ) Qualified REIT dividends and PTP (loss) carryforward from prior years . . . 29 ( Total qualified REIT dividends and PTP income. Combine lines 28 and 29. If 30 less than zero, enter -0- . . . . . . . . . . . . . . . . . . REIT and PTP component. Multiply line 30 by 20% (0.20) . . . . . . . 31 Qualified business income deduction before the income limitation. Add lines 27 and 31 . . . . a 32 Taxable income before qualified business income deduction . . . . . . 33 406,100 (a) Net capital gain. See instructions . . . . . . . . . . . . . . . 34 28,000 Subtract line 34 from line 33. If zero or less, enter -0- . . . . . . . . . . . . . . . . 35 Income limitation. Multiply line 35 by 20% (0.20) . . . . . . . . . . . . . . . . . . 36 Qualified business income deduction before the domestic production activities deduction (DPAD) 37 under section 199A(g). Enter the smaller of line 32 or line 36 . . . . . . . . . . . . . a DPAD under section 199A(g) allocated from an agricultural or horticultural cooperative. Don’t enter more than line 33 minus line 37 . . . . . . . . . . . . . . . . . . . . . . . 38 Total qualified business income deduction. Add lines 37 and 38 . . . . . . . . . . . . a 39 Total qualified REIT dividends and PTP (loss) carryforward. Combine lines 28 and 29. If zero or greater, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 (

29,612 378,100 75,620 29,612 29,612 0

)

Form 8995-A (2021)

4-12

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Form

Comprehensive Problem 1

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

OMB No. 1545-0074

IRS Use Only—Do not write or staple in this space.

Filing Status X Single Check only one box.

Your first name and middle initial

Last name

Theodore E.

Your social security number

Lariat

775 89 9532

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Spouse’s social security number

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

140 Whitsett Road

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Nashville

Foreign country name

37210

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

. . .

Credit for other dependents

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Child tax credit

. . .

. . 2a 3a

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Was born before January 2, 1958

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

X No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

. . .

. .

. . .

Cat. No. 11320B

124,800

124,800 138

(500) (12,781) 111,657 111,657 12,950 12,950 98,707 Form 1040 (2022)

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 1, cont. Theodore E. Lariat

Form 1040 (2022)

Tax and Credits

775-89-9532 2

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

Page 2

16 17

17,530

16 17

. . .

18 19 20

. . .

21 22 23

17,530

25d

20,000

17,530

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

. . .

. . 27 28 29 30 31

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

20,000

Phone no.

. Savings

35a

Yes. Complete below.

20,000 2,470 2,470

Personal identification number (PIN)

Date

Your occupation

Soccer Coach Spouse’s signature. If a joint return, both must sign.

Date

Phone no.

Email address

Preparer’s name

Preparer’s signature

Spouse’s occupation

Date

If the IRS sent you an Identity Protection PIN, enter it here (see inst.) If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

4-13

4-14

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 1, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

Theodore E. Lariat Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

775-89-9532

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

(12,781)

Schedule 1 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 1, cont. SCHEDULE D

OMB No. 1545-0074

Capital Gains and Losses

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/ScheduleD for instructions and the latest information. Use Form 8949 to list your transactions for lines 1b, 2, 3, 8b, 9, and 10.

Name(s) shown on return

Attachment Sequence No. 12 Your social security number

Theodore E. Lariat

775-89-9532

Did you dispose of any investment(s) in a qualified opportunity fund during the tax year? Yes x No If “Yes,” attach Form 8949 and see its instructions for additional requirements for reporting your gain or loss.

Part I

DRAFT AS OF July 15, 2022 DO NOT FILE

Short-Term Capital Gains and Losses—Generally Assets Held One Year or Less (see instructions)

(d) Proceeds (sales price)

9,000

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part I, line 2, column (g)

8,800

Part II

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

200

4 5 6

(

)

200

Long-Term Capital Gains and Losses—Generally Assets Held More Than One Year (see instructions)

See instructions for how to figure the amounts to enter on the lines below. This form may be easier to complete if you round off cents to whole dollars.

(d) Proceeds (sales price)

(e) Cost (or other basis)

12,500

16,200

528,000

400,000

(g) Adjustments to gain or loss from Form(s) 8949, Part II, line 2, column (g)

(3,700)

(125,000)

11 Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or (loss) from Forms 4684, 6781, and 8824 . . . . . . . . . . . . . . . . . . . . . . . 12 Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from Schedule(s) K-1 13 Capital gain distributions. See the instructions . . . . . . . . . . . . . . . . . . . 14 Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss Carryover Worksheet in the instructions . . . . . . . . . . . . . . . . . . . . . . . . 15 Net long-term capital gain or (loss). Combine lines 8a through 14 in column (h). Then, go to Part III on the back . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 11338H

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

3,000

11 12 13 14 ( 15

)

(700)

Schedule D (Form 1040) 2022

4-15

4-16

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 1, cont. Schedule D (Form 1040) 2022

Part III 16

Theodore E. Lariat

775-89-9532

Page 2

Summary

Combine lines 7 and 15 and enter the result

(500)

DRAFT AS OF July 15, 2022 DO NOT FILE

Are lines 15 and 16 both gains? Yes. Go to line 18. No. Skip lines 18 through 21, and go to line 22.

If you are required to complete the 28% Rate Gain Worksheet (see instructions), enter the amount, if any, from line 7 of that worksheet . . . . . . . . . . . . . . . . . .

If you are required to complete the Unrecaptured Section 1250 Gain Worksheet (see instructions), enter the amount, if any, from line 18 of that worksheet . . . . . . . . . .

If line 16 is a loss, enter here and on Form 1040, 1040-SR, or 1040-NR, line 7, the smaller of: • The loss on line 16; or • ($3,000), or if married filing separately, ($1,500)

}

21 (

500

)

Note: When figuring which amount is smaller, treat both amounts as positive numbers. 22

Do you have qualified dividends on Form 1040, 1040-SR, or 1040-NR, line 3a? Yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 16.

x No. Complete the rest of Form 1040, 1040-SR, or 1040-NR. Schedule D (Form 1040) 2022

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2A, cont.

8949

Sales and Other Dispositions of Capital Assets

Department of the Treasury Internal Revenue Service

File with your Schedule D to list your transactions for lines 1b, 2, 3, 8b, 9, and 10 of Schedule D.

Form

Go to www.irs.gov/Form8949 for instructions and the latest information.

Name(s) shown on return

OMB No. 1545-0074

2022

Attachment Sequence No. 12A

Social security number or taxpayer identification number

Theodore E. Lariat

775-89-9532

Before you check Box A, B, or C below, see whether you received any Form(s) 1099-B or substitute statement(s) from your broker. A substitute statement will have the same information as Form 1099-B. Either will show whether your basis (usually your cost) was reported to the IRS by your broker and may even tell you which box to check.

Part I

DRAFT AS OF August 17, 2022 DO NOT FILE

Short-Term. Transactions involving capital assets you held 1 year or less are generally short-term (see instructions). For long-term transactions, see page 2. Note: You may aggregate all short-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS and for which no adjustments or codes are required. Enter the totals directly on Schedule D, line 1a; you aren’t required to report these transactions on Form 8949 (see instructions).

You must check Box A, B, or C below. Check only one box. If more than one box applies for your short-term transactions, complete a separate Form 8949, page 1, for each applicable box. If you have more short-term transactions than will fit on this page for one or more of the boxes, complete as many forms with the same box checked as you need. (A) Short-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS (see Note above) (B) Short-term transactions reported on Form(s) 1099-B showing basis wasn’t reported to the IRS (C) Short-term transactions not reported to you on Form 1099-B 1

(a) Description of property (Example: 100 sh. XYZ Co.)

(b) Date acquired (Mo., day, yr.)

(d) Proceeds (sales price) (see instructions)

Adjustment, if any, to gain or loss If you enter an amount in column (g), (e) (h) enter a code in column (f). Cost or other basis Gain or (loss) See the Note below See the separate instructions. Subtract column (e) and see Column (e) from column (d) and (f) (g) in the separate combine the result Code(s) from instructions. with column (g). Amount of instructions adjustment

2 Totals. Add the amounts in columns (d), (e), (g), and (h) (subtract negative amounts). Enter each total here and include on your Schedule D, line 1b (if Box A above is checked), line 2 (if Box B above is checked), or line 3 (if Box C above is checked) . .

Note: If you checked Box A above but the basis reported to the IRS was incorrect, enter in column (e) the basis as reported to the IRS, and enter an adjustment in column (g) to correct the basis. See Column (g) in the separate instructions for how to figure the amount of the adjustment. For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 37768Z

Form 8949 (2022)

4-17

4-18

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 1, cont. Attachment Sequence No. 12A

Form 8949 (2022) Name(s) shown on return. Name and SSN or taxpayer identification no. not required if shown on other side

Page 2

Social security number or taxpayer identification number

Theodore E. Lariat

775-89-9532

Before you check Box D, E, or F below, see whether you received any Form(s) 1099-B or substitute statement(s) from your broker. A substitute statement will have the same information as Form 1099-B. Either will show whether your basis (usually your cost) was reported to the IRS by your broker and may even tell you which box to check.

Part II

Long-Term. Transactions involving capital assets you held more than 1 year are generally long-term (see instructions). For short-term transactions, see page 1. Note: You may aggregate all long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS and for which no adjustments or codes are required. Enter the totals directly on Schedule D, line 8a; you aren’t required to report these transactions on Form 8949 (see instructions).

DRAFT AS OF August 17, 2022 DO NOT FILE

You must check Box D, E, or F below. Check only one box. If more than one box applies for your long-term transactions, complete a separate Form 8949, page 2, for each applicable box. If you have more long-term transactions than will fit on this page for one or more of the boxes, complete as many forms with the same box checked as you need. (D) Long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS (see Note above) (E) Long-term transactions reported on Form(s) 1099-B showing basis wasn’t reported to the IRS x (F) Long-term transactions not reported to you on Form 1099-B 1

(a) Description of property (Example: 100 sh. XYZ Co.)

Primary residence

Adjustment, if any, to gain or loss If you enter an amount in column (g), (e) (h) enter a code in column (f). Cost or other basis Gain or (loss) See the separate instructions. See the Note below Subtract column (e) and see Column (e) from column (d) and (f) (g) in the separate combine the result Code(s) from instructions. with column (g). Amount of instructions adjustment

(b) Date acquired (Mo., day, yr.)

(d) Proceeds (sales price) (see instructions)

01/05/21

01/06/22

528,000

400,000

528,000

400,000

(125,000) (a)

3,000

(125,000)

3,000

2 Totals. Add the amounts in columns (d), (e), (g), and (h) (subtract negative amounts). Enter each total here and include on your Schedule D, line 8b (if Box D above is checked), line 9 (if Box E above is checked), or line 10 (if Box F above is checked) . .

Note: If you checked Box D above but the basis reported to the IRS was incorrect, enter in column (e) the basis as reported to the IRS, and enter an adjustment in column (g) to correct the basis. See Column (g) in the separate instructions for how to figure the amount of the adjustment. Form 8949 (2022)

(a) Excluded gain on sale of primary residence. Single maximum of $250,000 x 1/2 because taxpayer sold home after 1 year but meets employment-related exception to 2-year rule.

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 1, cont. SCHEDULE E

Supplemental Income and Loss

(Form 1040)

OMB No. 1545-0074

Attach to Form 1040, 1040-SR, 1040-NR, or 1041. Go to www.irs.gov/ScheduleE for instructions and the latest information.

Department of the Treasury Internal Revenue Service Name(s) shown on return

Attachment Sequence No. 13 Your social security number

Theodore E. Lariat Part I

2022

(From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.)

775-89-9532

Income or Loss From Rental Real Estate and Royalties Note: If you are in the business of renting personal property, use Schedule C. See instructions. If you are an individual, report farm rental income or loss from Form 4835 on page 2, line 40.

A B

DRAFT AS OF July 22, 2022 DO NOT FILE

Did you make any payments in 2022 that would require you to file Form(s) 1099? See instructions . If “Yes,” did you or will you file required Form(s) 1099? . . . . . . . . . . . . . .

Physical address of each property (street, city, state, ZIP code)

A B C 1b

2300 Bransford Avenue, Nashville, TN 37204 Type of Property (from list below)

A 1 B C Type of Property: 1 Single Family Residence 2 Multi-Family Residence

For each rental real estate property listed above, report the number of fair rental and personal use days. Check the QJV box only if you meet the requirements to file as a qualified joint venture. See instructions.

3 Vacation/Short-Term Rental 4 Commercial

Fair Rental Days

A B C

5 Land 6 Royalties

. .

(a) $1,500 x 12 months plus $1,500 for last month.

Personal Use Days

365

QJV

7 Self-Rental 8 Other (describe)

Properties: Income: A B 3 Rents received . . . . . . . . . . . . . . . 3 19,500 (a) 4 Royalties received . . . . . . . . . . . . . . 4 Expenses: 5 5 Advertising . . . . . . . . . . . . . . . . 6 Auto and travel (see instructions) . . . . . . . . 6 7 Cleaning and maintenance . . . . . . . . . . . 7 3,000 8 Commissions . . . . . . . . . . . . . . . 8 9 Insurance . . . . . . . . . . . . . . . . . 9 3,000 10 Legal and other professional fees . . . . . . . . 10 11 Management fees . . . . . . . . . . . . . . 11 12 Mortgage interest paid to banks, etc. (see instructions) 12 16,000 13 Other interest . . . . . . . . . . . . . . . 13 14 Repairs . . . . . . . . . . . . . . . . . . 14 1,000 15 Supplies . . . . . . . . . . . . . . . . . 15 16 Taxes . . . . . . . . . . . . . . . . . . 16 10,000 17 Utilities . . . . . . . . . . . . . . . . . . 17 18 Depreciation expense or depletion . . . . . . . . 18 19 19 Other (list) 20 Total expenses. Add lines 5 through 19 . . . . . . 20 33,000 21 Subtract line 20 from line 3 (rents) and/or 4 (royalties). If result is a (loss), see instructions to find out if you must file Form 6198 . . . . . . . . . . . . . . . 21 (13,500) 22 Deductible rental real estate loss after limitation, if any, on Form 8582 (see instructions) . . . . . . . . . 22 ( 12,781 ) ( )( 23a Total of all amounts reported on line 3 for all rental properties . . . . . 23a 19,500 b Total of all amounts reported on line 4 for all royalty properties . . . . . 23b c Total of all amounts reported on line 12 for all properties . . . . . . . 23c 16,000 d Total of all amounts reported on line 18 for all properties . . . . . . . 23d 33,000 e Total of all amounts reported on line 20 for all properties . . . . . . . 23e 24 Income. Add positive amounts shown on line 21. Do not include any losses . . . . . . . 24 25 Losses. Add royalty losses from line 21 and rental real estate losses from line 22. Enter total losses here 25 ( 26 Total rental real estate and royalty income or (loss). Combine lines 24 and 25. Enter the result here. If Parts II, III, IV, and line 40 on page 2 do not apply to you, also enter this amount on Schedule 1 (Form 1040), line 5. Otherwise, include this amount in the total on line 41 on page 2 . 26 For Paperwork Reduction Act Notice, see the separate instructions.

x No

Yes Yes

Cat. No. 11344L

)

12,781

)

(12,781)

Schedule E (Form 1040) 2022

4-19

4-20

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 1, cont. Form

8582

Passive Activity Loss Limitations

OMB No. 1545-1008

2022

See separate instructions. Attach to Form 1040, 1040-SR, or 1041. Go to www.irs.gov/Form8582 for instructions and the latest information.

Department of the Treasury Internal Revenue Service

Attachment Sequence No. 858

Name(s) shown on return

Identifying number

Theodore E. Lariat Part I

775-89-9532

2022 Passive Activity Loss Caution: Complete Parts IV and V before completing Part I.

DRAFT AS OF October 11, 2022 DO NOT FILE

Rental Real Estate Activities With Active Participation (For the definition of active participation, see Special Allowance for Rental Real Estate Activities in the instructions.) 1a b c d

. . . .

1a 1b ( 1c ( . . . .

. . . .

2a 2b ( 2c ( . . . .

13,500 )

)

( 13,500 )

All Other Passive Activities 2a b c d

If line 3 is a loss and:

. . . .

) )

( 13,500 )

• Line 1d is a loss, go to Part II. • Line 2d is a loss (and line 1d is zero or more), skip Part II and go to line 10.

Caution: If your filing status is married filing separately and you lived with your spouse at any time during the year, do not complete Part II. Instead, go to line 10.

Part II 4 5 6

7 8 9

Note: Enter all numbers in Part II as positive amounts. See instructions for an example. Enter the smaller of the loss on line 1d or the loss on line 3 . . . . . . . . . . . . . . Enter $150,000. If married filing separately, see instructions . . . . . . 5 150,000 Enter modified adjusted gross income, but not less than zero. See instructions 6 124,438 Note: If line 6 is greater than or equal to line 5, skip lines 7 and 8 and enter -0on line 9. Otherwise, go to line 7. Subtract line 6 from line 5 . . . . . . . . . . . . . . . . . 7 25,562 Multiply line 7 by 50% (0.50). Do not enter more than $25,000. If married filing separately, see instructions Enter the smaller of line 4 or line 8 . . . . . . . . . . . . . . . . . . . . . .

Part III 10 11

Special Allowance for Rental Real Estate Activities With Active Participation 4

(b)

8 9

12,781 12,781

Total Losses Allowed

Part IV

13,500

10 11

12,781

Complete This Part Before Part I, Lines 1a, 1b, and 1c. See instructions. Prior years

Current year Name of activity

(a) Net income (line 1a)

(b) Net loss (line 1b)

Rental home

13,500

Total. Enter on Part I, lines 1a, 1b, and 1c

13,500

For Paperwork Reduction Act Notice, see instructions.

Overall gain or loss (d) Gain

(e) Loss

13,500

Cat. No. 63704F

(b) $124,800 wages + $138 interest income – $500 LT cap loss (Line 21, Schedule D).

Form 8582 (2022)

Solutions for Questions and Problems – Chapter 4

Form

Comprehensive Problem 2A

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

Single

x Married filing jointly

OMB No. 1545-0074

Married filing separately (MFS)

IRS Use Only—Do not write or staple in this space.

Head of household (HOH)

Your first name and middle initial

Last name

Walter

Black

If joint return, spouse’s first name and middle initial

Last name

Skylar

Black

Your social security number

700 01 0002

DRAFT AS OF September 1, 2022 DO NOT FILE

Spouse’s social security number

222 43 7690

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

883 Scrub Brush Street

52B

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Las Vegas

Foreign country name

89125

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four Rebecca dependents, see instructions Alton and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

Backin Black

Was born before January 2, 1958

411 66 2121 343 22 8899

Child tax credit

Credit for other dependents

x x

Mother Father

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

. . 2a 3a 4a 5a 6a

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

(a) $144,100 = $62,100 + $82,000. (b) $86,100 = $62,100 + $16,400 + $7,600.

. . .

. .

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

x No

Yes

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Spouse

. . .

Cat. No. 11320B

55,000

(1,000) 9,000 63,000 423 62,577 25,900 1,111 27,011 35,566 Form 1040 (2022)

4-21

4-22

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2A, cont. Walter and Skylar Black

Form 1040 (2022)

Tax and Credits

700-01-0002 2

Page 2

3,858

. . . .

18 19 20

3,858 1,000

. . .

21 22 23

1,000 2,858 845 3,703

25d

3,800

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

16 17

. . .

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

. . .

29 30 31

Phone no.

. Savings

35a

Yes. Complete below.

3,800 97 97

Personal identification number (PIN)

Date

If the IRS sent you an Identity Protection PIN, enter it here (see inst.)

Your occupation

Teacher Spouse’s signature. If a joint return, both must sign.

Date

Spouse’s occupation

Car Wash Owner Phone no.

Paid Preparer Use Only

. . .

. . 27 28

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

3,800

Preparer’s name

If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

Email address Preparer’s signature

Date

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2A, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

Walter and Skylar Black Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

700-01-0002

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j 700 Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

5,980 2,320

700 9,000

Schedule 1 (Form 1040) 2022

4-23

4-24

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2A, cont. Walter and Skylar Black Part II Adjustments to Income

Schedule 1 (Form 1040) 2022

11 12 13 14 15 16 17 18 19a b c 20 21 22 23 24 a b c d e f g h i

j k z 25 26

700-01-0002

Page 2

Educator expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 . . . . . . . . . . . . . . . . . . . . . . . . 12 Health savings account deduction. Attach Form 8889 . . . . . . . . . . . . . . 13 Moving expenses for members of the Armed Forces. Attach Form 3903 . . . . . . . 14 Deductible part of self-employment tax. Attach Schedule SE . . . . . . . . . . . 15 Self-employed SEP, SIMPLE, and qualified plans . . . . . . . . . . . . . . . . 16 Self-employed health insurance deduction . . . . . . . . . . . . . . . . . . 17 Penalty on early withdrawal of savings . . . . . . . . . . . . . . . . . . . . 18 Alimony paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19a Recipient’s SSN . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): IRA deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Student loan interest deduction . . . . . . . . . . . . . . . . . . . . . . 21 22 Reserved for future use . . . . . . . . . . . . . . . . . . . . . . . . . Archer MSA deduction . . . . . . . . . . . . . . . . . . . . . . . . . 23 Other adjustments: Jury duty pay (see instructions) . . . . . . . . . . . . . . 24a Deductible expenses related to income reported on line 8l from the rental of personal property engaged in for profit . . . . . . . . 24b Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 8m . . . . . . . . . . 24c Reforestation amortization and expenses . . . . . . . . . . . 24d Repayment of supplemental unemployment benefits under the Trade Act of 1974 . . . . . . . . . . . . . . . . . . . . . . 24e Contributions to section 501(c)(18)(D) pension plans . . . . . . . 24f Contributions by certain chaplains to section 403(b) plans . . . . 24g Attorney fees and court costs for actions involving certain unlawful discrimination claims (see instructions) . . . . . . . . . . . . 24h Attorney fees and court costs you paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations . . . . . . . . . . . . . . . . . . . 24i Housing deduction from Form 2555 . . . . . . . . . . . . . 24j Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041) . . . . . . . . . . . . . . . . . . . . . . . . 24k Other adjustments. List type and amount: 24z Total other adjustments. Add lines 24a through 24z . . . . . . . . . . . . . . . 25 Add lines 11 through 23 and 25. These are your adjustments to income. Enter here and on Form 1040 or 1040-SR, line 10, or Form 1040-NR, line 10a . . . . . . . . . . . . 26

DRAFT AS OF July 27, 2022 DO NOT FILE

423

Schedule 1 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2A, cont. SCHEDULE 2

OMB No. 1545-0074

Additional Taxes

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 02

Your social security number

Walter and Skylar Black Part I Tax

700-01-0002

DRAFT AS OF July 27, 2022 DO NOT FILE

Alternative minimum tax. Attach Form 6251 . . . . . . . . . . . . . . . .

Excess advance premium tax credit repayment. Attach Form 8962 . . . . . . .

Add lines 1 and 2. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 17 . .

Part II Other Taxes 4

Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . . .

Social security and Medicare tax on unreported tip income. Attach Form 4137 . . . . . . . . . . . . . . . . . .

Uncollected social security and Medicare tax on wages. Attach Form 8919 . . . . . . . . . . . . . . . . . . . . .

Total additional social security and Medicare tax. Add lines 5 and 6

Additional tax on IRAs or other tax-favored accounts. Attach Form 5329 if required.

. . . . . .

If not required, check here . . . . . . . . . . . . . . . . . . . . .

7 8

Household employment taxes. Attach Schedule H

. . . . . . . . . . . . .

Repayment of first-time homebuyer credit. Attach Form 5405 if required . . . . .

Additional Medicare Tax. Attach Form 8959 . . . . . . . . . . . . . . . .

Net investment income tax. Attach Form 8960 . . . . . . . . . . . . . . .

Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance from Form W-2, box 12 . . . . . . . . . . . . . . . . . . . .

Interest on tax due on installment income from the sale of certain residential lots and timeshares . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest on the deferred tax on gain from certain installment sales with a sales price over $150,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recapture of low-income housing credit. Attach Form 8611 . . . . . . . . . .

845

(continued on page 2) For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71478U

Schedule 2 (Form 1040) 2022

4-25

4-26

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2A, cont. Walter and Skylar Black Part II Other Taxes (continued)

Schedule 2 (Form 1040) 2022

700-01-0002

Page 2

Other additional taxes: a Recapture of other credits. List type, form number, and amount: 17a

DRAFT AS OF July 27, 2022 DO NOT FILE

b Recapture of federal mortgage subsidy, if you sold your home see instructions . . . . . . . . . . . . . . . . . . . 17b c Additional tax on HSA distributions. Attach Form 8889 . . . .

17c

d Additional tax on an HSA because you didn’t remain an eligible individual. Attach Form 8889 . . . . . . . . . . . . . . 17d e Additional tax on Archer MSA distributions. Attach Form 8853 .

17e

f Additional tax on Medicare Advantage MSA distributions. Attach 17f Form 8853 . . . . . . . . . . . . . . . . . . . . .

g Recapture of a charitable contribution deduction related to a fractional interest in tangible personal property . . . . . . . 17g h Income you received from a nonqualified deferred compensation plan that fails to meet the requirements of section 409A . . . 17h i Compensation you received from a nonqualified deferred compensation plan described in section 457A . . . . . . . 17i j

Section 72(m)(5) excess benefits tax . . . . . . . . . . .

k Golden parachute payments l

17j

. . . . . . . . . . . . . .

17k

Tax on accumulation distribution of trusts . . . . . . . . .

17l

m Excise tax on insider stock compensation from an expatriated corporation . . . . . . . . . . . . . . . . . . . . . 17m n Look-back interest under section 167(g) or 460(b) from Form 8697 or 8866 . . . . . . . . . . . . . . . . . . . . 17n o Tax on non-effectively connected income for any part of the year you were a nonresident alien from Form 1040-NR . . . . 17o p Any interest from Form 8621, line 16f, relating to distributions from, and dispositions of, stock of a section 1291 fund . . . . 17p q Any interest from Form 8621, line 24 . . . . . . . . . . .

17q

z Any other taxes. List type and amount: 17z 18

Total additional taxes. Add lines 17a through 17z . . . . . . . . . . . . . .

Reserved for future use

20 21

Section 965 net tax liability installment from Form 965-A . . . 20 Add lines 4, 7 through 16, and 18. These are your total other taxes. Enter here and on Form 1040 or 1040-SR, line 23, or Form 1040-NR, line 23b . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . .

845

Schedule 2 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2A, cont. SCHEDULE C (Form 1040)

Profit or Loss From Business

Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

2022

(Sole Proprietorship) Go to www.irs.gov/ScheduleC for instructions and the latest information.

Name of proprietor

Social security number (SSN)

Skylar Black A

222-43-7690

Principal business or profession, including product or service (see instructions)

Car Wash C

Attachment Sequence No. 09

Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.

B Enter code from instructions

8 1 1 1 9 2

DRAFT AS OF July 15, 2022 DO NOT FILE

Business name. If no separate business name, leave blank.

D Employer ID number (EIN) (see instr.)

1 9 3 4 5 1 2 3 4

A1A Car Wash

4900 Cutler Ave NE Las Vegas, NV 89146

Business address (including suite or room no.)

F G

City, town or post office, state, and ZIP code Cash (2) Accrual (3) Other (specify) Accounting method: (1) Did you “materially participate” in the operation of this business during 2022? If “No,” see instructions for limit on losses

x Yes

H I J

. . .

x Yes x Yes

No No

Part I 1

. . .

2 3 4

1 2 3 4

5 6 7

. . .

5 6 7

18 19

Office expense (see instructions) . Pension and profit-sharing plans .

18 19

9 10 11

20 a b

Rent or lease (see instructions): Vehicles, machinery, and equipment Other business property . . .

20a 20b

21 22 23

Repairs and maintenance . . . Supplies (not included in Part III) . Taxes and licenses . . . . .

21 22 23

24 a

Travel and meals: Travel . . . .

24a

14 15

Deductible meals (see instructions) . . . . . . . Utilities . . . . . . . . Wages (less employment credits)

24b 25 26

Advertising .

Car and truck expenses (see instructions) . . . Commissions and fees . Contract labor (see instructions)

12 13

Depletion . . . . . Depreciation and section 179 expense deduction (not included in Part III) (see instructions) . . . .

Employee benefit programs (other than on line 19) . Insurance (other than health) Interest (see instructions): Mortgage (paid to banks, etc.)

15 16 a b

. . .

32,000 32,000 32,000 3,000 35,000

Expenses. Enter expenses for business use of your home only on line 30.

10 11

. . .

Income

Part II

. . .

500

900

25 26

16a

600 1,300

2,000 22,000

17 28

. . .

27a 27b 28

Tentative profit or (loss). Subtract line 28 from line 7 .

27,300 7,700

1,720

5,980

and (b) the part of your home used for business: Method Worksheet in the instructions to figure the amount to enter on line 30

. Use the Simplified . . . . . . .

Net profit or (loss). Subtract line 30 from line 29.

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

}

32a 32b

All investment is at risk. Some investment is not at risk. Schedule C (Form 1040) 2022

4-27

4-28

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2A, cont. Walter and Skylar Black

Schedule C (Form 1040) 2022

Part III

700-01-0002

Page 2

Cost of Goods Sold (see instructions)

Method(s) used to value closing inventory:

Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . .

Cost

Lower of cost or market

Other (attach explanation) Yes

DRAFT AS OF July 15, 2022 DO NOT FILE

Inventory at beginning of year. If different from last year’s closing inventory, attach explanation .

Purchases less cost of items withdrawn for personal use

Cost of labor. Do not include any amounts paid to yourself .

Materials and supplies

Other costs .

Add lines 35 through 39 .

Inventory at end of year .

Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 .

Part IV

When did you place your vehicle in service for business purposes? (month/day/year)

Of the total number of miles you drove your vehicle during 2022, enter the number of miles you used your vehicle for: a

Business

b Commuting (see instructions)

c Other

Was your vehicle available for personal use during off-duty hours?

Yes

Do you (or your spouse) have another vehicle available for personal use?.

Yes

47a

Do you have evidence to support your deduction?

Yes

If “Yes,” is the evidence written?

Yes

Part V

Other Expenses. List below business expenses not included on lines 8–26 or line 30.

Total other expenses. Enter here and on line 27a

48 Schedule C (Form 1040) 2022

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2A, cont. SCHEDULE D

OMB No. 1545-0074

Capital Gains and Losses

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/ScheduleD for instructions and the latest information. Use Form 8949 to list your transactions for lines 1b, 2, 3, 8b, 9, and 10.

Name(s) shown on return

Attachment Sequence No. 12 Your social security number

Walter and Skylar Black

Part I

700-01-0002

DRAFT AS OF July 15, 2022 DO NOT FILE

Short-Term Capital Gains and Losses—Generally Assets Held One Year or Less (see instructions)

See instructions for how to figure the amounts to enter on the lines below. This form may be easier to complete if you round off cents to whole dollars.

(d) Proceeds (sales price)

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part I, line 2, column (g)

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

1a Totals for all short-term transactions reported on Form 1099-B for which basis was reported to the IRS and for which you have no adjustments (see instructions). However, if you choose to report all these transactions on Form 8949, leave this line blank and go to line 1b .

1b Totals for all transactions reported on Form(s) 8949 with Box A checked . . . . . . . . . . . . . 2 Totals for all transactions reported on Form(s) 8949 with Box B checked . . . . . . . . . . . . . 3 Totals for all transactions reported on Form(s) 8949 with Box C checked . . . . . . . . . . . . . 0 5,000 4 Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824 . . 5 Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from Schedule(s) K-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss Carryover Worksheet in the instructions . . . . . . . . . . . . . . . . . . . . . . . . 7 Net short-term capital gain or (loss). Combine lines 1a through 6 in column (h). If you have any longterm capital gains or losses, go to Part II below. Otherwise, go to Part III on the back . . . . . .

Part II

(5,000) 4 5 6

(

)

(5,000)

Long-Term Capital Gains and Losses—Generally Assets Held More Than One Year (see instructions)

See instructions for how to figure the amounts to enter on the lines below. This form may be easier to complete if you round off cents to whole dollars.

(d) Proceeds (sales price)

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part II, line 2, column (g)

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

598,000

94,000

(500,000)

Cat. No. 11338H

4,000

11 12 13 14 ( 15

)

4,000

Schedule D (Form 1040) 2022

4-29

4-30

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2A, cont. Schedule D (Form 1040) 2022

Part III 16

Walter and Skylar Black

700-01-0002

Page 2

Summary

Combine lines 7 and 15 and enter the result

(1,000)

DRAFT AS OF July 15, 2022 DO NOT FILE

Are lines 15 and 16 both gains? Yes. Go to line 18. No. Skip lines 18 through 21, and go to line 22.

If you are required to complete the 28% Rate Gain Worksheet (see instructions), enter the amount, if any, from line 7 of that worksheet . . . . . . . . . . . . . . . . . .

If you are required to complete the Unrecaptured Section 1250 Gain Worksheet (see instructions), enter the amount, if any, from line 18 of that worksheet . . . . . . . . . .

If line 16 is a loss, enter here and on Form 1040, 1040-SR, or 1040-NR, line 7, the smaller of: • The loss on line 16; or • ($3,000), or if married filing separately, ($1,500)

}

21 (

1,000

)

Note: When figuring which amount is smaller, treat both amounts as positive numbers. 22

Do you have qualified dividends on Form 1040, 1040-SR, or 1040-NR, line 3a? Yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 16.

x No. Complete the rest of Form 1040, 1040-SR, or 1040-NR. Schedule D (Form 1040) 2022

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2A, cont.

8949

Sales and Other Dispositions of Capital Assets

Department of the Treasury Internal Revenue Service

File with your Schedule D to list your transactions for lines 1b, 2, 3, 8b, 9, and 10 of Schedule D.

Form

Go to www.irs.gov/Form8949 for instructions and the latest information.

Name(s) shown on return

OMB No. 1545-0074

2022

Attachment Sequence No. 12A

Social security number or taxpayer identification number

Walter and Skylar Black

700-01-0002

Part I

DRAFT AS OF August 17, 2022 DO NOT FILE

You must check Box A, B, or C below. Check only one box. If more than one box applies for your short-term transactions, complete a separate Form 8949, page 1, for each applicable box. If you have more short-term transactions than will fit on this page for one or more of the boxes, complete as many forms with the same box checked as you need. (A) Short-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS (see Note above) (B) Short-term transactions reported on Form(s) 1099-B showing basis wasn’t reported to the IRS x (C) Short-term transactions not reported to you on Form 1099-B 1

(a) Description of property (Example: 100 sh. XYZ Co.)

(b) Date acquired (Mo., day, yr.)

(d) Proceeds (sales price) (see instructions)

Bad Debt Hank Shorter

5,000

(5,000)

5,000

(5,000)

Cat. No. 37768Z

Form 8949 (2022)

4-31

4-32

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2A, cont. Attachment Sequence No. 12A

Form 8949 (2022) Name(s) shown on return. Name and SSN or taxpayer identification no. not required if shown on other side

Page 2

Social security number or taxpayer identification number

Walter and Skylar Black

700-01-0002

Part II

DRAFT AS OF August 17, 2022 DO NOT FILE

(a) Description of property (Example: 100 sh. XYZ Co.)

Primary residence

(b) Date acquired (Mo., day, yr.)

(d) Proceeds (sales price) (see instructions)

07/03/96

01/04/22

598,000

94,000

598,000

94,000

(500,000)

4,000

(500,000)

4,000

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2A, cont. SCHEDULE E

Supplemental Income and Loss

(Form 1040)

OMB No. 1545-0074

Attach to Form 1040, 1040-SR, 1040-NR, or 1041. Go to www.irs.gov/ScheduleE for instructions and the latest information.

Department of the Treasury Internal Revenue Service Name(s) shown on return

Attachment Sequence No. 13 Your social security number

Walter and Skylar Black

Part I

2022

(From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.)

700-01-0002

A B

DRAFT AS OF July 22, 2022 DO NOT FILE

Did you make any payments in 2022 that would require you to file Form(s) 1099? See instructions . If “Yes,” did you or will you file required Form(s) 1099? . . . . . . . . . . . . . .

Physical address of each property (street, city, state, ZIP code)

A B C 1b

123 Buncombe Lane, Brian Head, UT 84719 Type of Property (from list below)

A 3 B C Type of Property: 1 Single Family Residence 2 Multi-Family Residence

3 Vacation/Short-Term Rental 4 Commercial

Fair Rental Days

A B C

5 Land 6 Royalties

. .

Personal Use Days

189

X No No

QJV

7 Self-Rental 8 Other (describe)

Properties: Income: A B 3 Rents received . . . . . . . . . . . . . . . 3 25,000 4 Royalties received . . . . . . . . . . . . . . 4 Expenses: 5 5 Advertising . . . . . . . . . . . . . . . . 6 Auto and travel (see instructions) . . . . . . . . 6 7 Cleaning and maintenance . . . . . . . . . . . 7 4,140 8 Commissions . . . . . . . . . . . . . . . 8 9 Insurance . . . . . . . . . . . . . . . . . 9 10 Legal and other professional fees . . . . . . . . 10 11 Management fees . . . . . . . . . . . . . . 11 12 Mortgage interest paid to banks, etc. (see instructions) 12 10,800 13 Other interest . . . . . . . . . . . . . . . 13 14 Repairs . . . . . . . . . . . . . . . . . . 14 15 Supplies . . . . . . . . . . . . . . . . . 15 16 Taxes . . . . . . . . . . . . . . . . . . 16 17 Utilities . . . . . . . . . . . . . . . . . . 17 3,960 18 Depreciation expense or depletion . . . . . . . . 18 19 19 Other (list) Homeowners Dues 3,780 20 Total expenses. Add lines 5 through 19 . . . . . . 20 22,680 21 Subtract line 20 from line 3 (rents) and/or 4 (royalties). If result is a (loss), see instructions to find out if you must file Form 6198 . . . . . . . . . . . . . . . 21 2,320 22 Deductible rental real estate loss after limitation, if any, on Form 8582 (see instructions) . . . . . . . . . 22 ( )( )( 23a Total of all amounts reported on line 3 for all rental properties . . . . . 23a 25,000 b Total of all amounts reported on line 4 for all royalty properties . . . . . 23b c Total of all amounts reported on line 12 for all properties . . . . . . . 23c 10,800 d Total of all amounts reported on line 18 for all properties . . . . . . . 23d e Total of all amounts reported on line 20 for all properties . . . . . . . 23e 22,680 24 Income. Add positive amounts shown on line 21. Do not include any losses . . . . . . . 24 25 Losses. Add royalty losses from line 21 and rental real estate losses from line 22. Enter total losses here 25 ( 26 Total rental real estate and royalty income or (loss). Combine lines 24 and 25. Enter the result here. If Parts II, III, IV, and line 40 on page 2 do not apply to you, also enter this amount on Schedule 1 (Form 1040), line 5. Otherwise, include this amount in the total on line 41 on page 2 . 26 For Paperwork Reduction Act Notice, see the separate instructions.

Yes Yes

Cat. No. 11344L

)

2,320 )

2,320

Schedule E (Form 1040) 2022

4-33

4-34

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2A, cont. SCHEDULE SE Department of the Treasury Internal Revenue Service

2022

Go to www.irs.gov/ScheduleSE for instructions and the latest information. Attach to Form 1040, 1040-SR, or 1040-NR.

Name of person with self-employment income (as shown on Form 1040, 1040-SR, or 1040-NR)

Attachment Sequence No. 17

Social security number of person with self-employment income

Skylar Black Part I

OMB No. 1545-0074

Self-Employment Tax

(Form 1040)

222-43-7690

Self-Employment Tax

DRAFT AS OF July 28, 2022 DO NOT FILE

Note: If your only income subject to self-employment tax is church employee income, see instructions for how to report your income and the definition of church employee income. A If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you had $400 or more of other net earnings from self-employment, check here and continue with Part I . . . . . . . . . Skip lines 1a and 1b if you use the farm optional method in Part II. See instructions. 1a Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), 1a box 14, code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b If you received social security retirement or disability benefits, enter the amount of Conservation Reserve Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code AH 1b ( ) Skip line 2 if you use the nonfarm optional method in Part II. See instructions. 2 Net profit or (loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than 2 farming). See instructions for other income to report or if you are a minister or member of a religious order 5,980 3 Combine lines 1a, 1b, and 2 . . . . . . . . . . . . . . . . . . . . . . . . . 3 5,980 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3 . 4a 5,523 Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions. b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here . . . . . 4b c Combine lines 4a and 4b. If less than $400, stop; you don’t owe self-employment tax. Exception: If less than $400 and you had church employee income, enter -0- and continue . . . . . . . . 4c 5,523 5a Enter your church employee income from Form W-2. See instructions for definition of church employee income . . . . . . . . . . . . . 5a b Multiply line 5a by 92.35% (0.9235). If less than $100, enter -0- . . . . . . . . . . . . . 5b 6 Add lines 4c and 5b . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5,523 7 Maximum amount of combined wages and self-employment earnings subject to social security tax or 147,000 the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2022 . . . . . . . . . . . 7 8a Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2) and railroad retirement (tier 1) compensation. If $147,000 or more, skip lines 8b through 10, and go to line 11 . . . . . . . . . . . . . . . 8a b Unreported tips subject to social security tax from Form 4137, line 10 . . . 8b c Wages subject to social security tax from Form 8919, line 10 . . . . . . 8c d Add lines 8a, 8b, and 8c . . . . . . . . . . . . . . . . . . . . . . . . . . 8d 9 Subtract line 8d from line 7. If zero or less, enter -0- here and on line 10 and go to line 11 . . . . 9 147,000 10 Multiply the smaller of line 6 or line 9 by 12.4% (0.124) . . . . . . . . . . . . . . . . 10 685 11 Multiply line 6 by 2.9% (0.029) . . . . . . . . . . . . . . . . . . . . . . . . 11 160 12 Self-employment tax. Add lines 10 and 11. Enter here and on Schedule 2 (Form 1040), line 4 . . 12 845 13 Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50). Enter here and on Schedule 1 (Form 1040), line 15 . . . . . . . . . . . . . . . . . . . . . . . . 13 423

Part II

Optional Methods To Figure Net Earnings (see instructions)

For Paperwork Reduction Act Notice, see your tax return instructions.

6,040

16 17

From Sch. C, line 31; and Sch. K-1 (Form 1065), box 14, code A. 4 From Sch. C, line 7; and Sch. K-1 (Form 1065), box 14, code C. Cat. No. 11358Z

Schedule SE (Form 1040) 2022

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2A, cont. Form

8995

Department of the Treasury Internal Revenue Service

Qualified Business Income Deduction Simplified Computation

OMB No. 1545-2294

2021

a Attach to your tax return.

Attachment Sequence No. 55

a Go to www.irs.gov/Form8995 for instructions and the latest information.

Your taxpayer identification number

Name(s) shown on return

Walter and Skylar Black

700-01-0002

Note. You can claim the qualified business income deduction only if you have qualified business income from a qualified trade or business, real estate investment trust dividends, publicly traded partnership income, or a domestic production activities deduction passed through from an agricultural or horticultural cooperative. See instructions. Use this form if your taxable income, before your qualified business income deduction, is at or below $164,900 ($164,925 if married filing separately; $329,800 if married filing jointly), and you aren’t a patron of an agricultural or horticultural cooperative. 1

(a) Trade, business, or aggregation name

A1A Car Wash

(b) Taxpayer identification number

19-3451234

5,557 (a)

ii iii iv v 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Total qualified business income or (loss). Combine lines 1i through 1v, 2 column (c) . . . . . . . . . . . . . . . . . . . . . . 5,557 Qualified business net (loss) carryforward from the prior year . . . . . . . 3 ( ) Total qualified business income. Combine lines 2 and 3. If zero or less, enter -04 5,557 Qualified business income component. Multiply line 4 by 20% (0.20) . . . . . . . . . . . Qualified REIT dividends and publicly traded partnership (PTP) income or (loss) 6 (see instructions) . . . . . . . . . . . . . . . . . . . . Qualified REIT dividends and qualified PTP (loss) carryforward from the prior year . . . . . . . . . . . . . . . . . . . . . . . . . ) 7 ( Total qualified REIT dividends and PTP income. Combine lines 6 and 7. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . 8 REIT and PTP component. Multiply line 8 by 20% (0.20) . . . . . . . . . . . . . . . Qualified business income deduction before the income limitation. Add lines 5 and 9 . . . . . . Taxable income before qualified business income deduction (see instructions) 11 36,677 Net capital gain (see instructions) . . . . . . . . . . . . . . . 12 0 Subtract line 12 from line 11. If zero or less, enter -0- . . . . . . . . 13 36,677 Income limitation. Multiply line 13 by 20% (0.20) . . . . . . . . . . . . . . . . . . Qualified business income deduction. Enter the smaller of line 10 or line 14. Also enter this amount on the applicable line of your return (see instructions) . . . . . . . . . . . . . . . . a Total qualified business (loss) carryforward. Combine lines 2 and 3. If greater than zero, enter -0- . . Total qualified REIT dividends and PTP (loss) carryforward. Combine lines 6 and 7. If greater than zero, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For Privacy Act and Paperwork Reduction Act Notice, see instructions.

Cat. No. 37806C

1,111

9 10

1,111

7,335

15 16 (

1,111 )

17 (

) Form 8995 (2021)

(a) $5,980 from Schedule C less $423 from Schedule SE

Please go to www.irs.gov to download the latest Form 8995. The 2022 version of Form 8995 was not available as we went to print.

4-35

4-36

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2A, cont. Form

8829

Department of the Treasury Internal Revenue Service

Expenses for Business Use of Your Home

OMB No. 1545-0074

2022

File only with Schedule C (Form 1040). Use a separate Form 8829 for each home you used for business during the year. Go to www.irs.gov/Form8829 for instructions and the latest information.

Attachment Sequence No. 176

Name(s) of proprietor(s)

Your social security number

Skylar Black

222-43-7690

Part I 1 2 3 4 5 6 7

Part of Your Home Used for Business

DRAFT AS OF July 21, 2022 DO NOT FILE

1 2 3

200 2,000 10 %

10 %

Part II Figure Your Allowable Deduction 8

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

(a) Direct expenses

7,700

14 15

7,700

26 27 28

1,720 1,720 5,980

32 33 34 35

0 1,720

1,720

(b) Indirect expenses

Casualty losses (see instructions) . . . . . . 9 Deductible mortgage interest (see instructions) . 10 Real estate taxes (see instructions) . . . . . 11 Add lines 9, 10, and 11 . . . . . . . . . 12 Multiply line 12, column (b), by line 7 . . . . . . . . . . . . 13 Add line 12, column (a), and line 13 . . . . . . . . . . . . . . . . . . . . . Subtract line 14 from line 8. If zero or less, enter -0- . . . . . . . . . . . . . . . . Excess mortgage interest (see instructions) . . 16 Excess real estate taxes (see instructions) . . . 17 Insurance . . . . . . . . . . . . . . 18 Rent . . . . . . . . . . . . . . . 19 16,000 Repairs and maintenance . . . . . . . . 20 Utilities . . . . . . . . . . . . . . 21 1,200 Other expenses (see instructions) . . . . . . 22 Add lines 16 through 22 . . . . . . . . . 23 17,200 Multiply line 23, column (b), by line 7 . . . . . . . . . . . . 24 1,720 Carryover of prior year operating expenses (see instructions) . . . . 25 Add line 23, column (a), line 24, and line 25 . . . . . . . . . . . . . . . . . . . Allowable operating expenses. Enter the smaller of line 15 or line 26 . . . . . . . . . . Limit on excess casualty losses and depreciation. Subtract line 27 from line 15 . . . . . . . Excess casualty losses (see instructions) . . . . . . . . . . 29 Depreciation of your home from line 42 below . . . . . . . . . 30 Carryover of prior year excess casualty losses and depreciation (see instructions) 31 Add lines 29 through 31 . . . . . . . . . . . . . . . . . . . . . . . . . Allowable excess casualty losses and depreciation. Enter the smaller of line 28 or line 32 . . . Add lines 14, 27, and 33 . . . . . . . . . . . . . . . . . . . . . . . . . Casualty loss portion, if any, from lines 14 and 33. Carry amount to Form 4684. See instructions . Allowable expenses for business use of your home. Subtract line 35 from line 34. Enter here and on Schedule C, line 30. If your home was used for more than one business, see instructions .

Part III Depreciation of Your Home 37 38 39 40 41 42

37 38 39 40 41 42

Part IV Carryover of Unallowed Expenses to 2023 43 44

Operating expenses. Subtract line 27 from line 26. If less than zero, enter -0- . . . . . . . Excess casualty losses and depreciation. Subtract line 33 from line 32. If less than zero, enter -0- .

43 44

Solutions for Questions and Problems – Chapter 4

Form

Comprehensive Problem 2B

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

OMB No. 1545-0074

IRS Use Only—Do not write or staple in this space.

Your first name and middle initial

Last name

Ryan

Lively

If joint return, spouse’s first name and middle initial

Last name

Blake

Lively

Your social security number

434 14 4448

DRAFT AS OF September 1, 2022 DO NOT FILE

Spouse’s social security number

763 16 1562

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

22 Thornton Road

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Nashua

Foreign country name

03063

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

. . .

Credit for other dependents

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

2,500

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Child tax credit

. . .

. . 2a 3a

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Was born before January 2, 1958

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

x Yes

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Spouse

. . .

. .

. . .

Cat. No. 11320B

703 2,500

32,500 (12,860) 22,843 163 22,680 25,900 25,900 0 Form 1040 (2022)

4-37

4-38

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2B, cont. Ryan and Blake Lively

Form 1040 (2022)

Tax and Credits

434-14-4448 2

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

Page 2

16 17

. . .

18 19 20

. . .

21 22 23

25d

. .

32 33 34

0 0

0 325 325

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

. . .

400

29 30 31

Phone no.

. Savings

35a

Yes. Complete below.

400 75 75

Personal identification number (PIN)

Date

Your occupation

Spouse’s signature. If a joint return, both must sign.

Date

Spouse’s occupation

Fitness Instructor Life Coach Phone no.

Paid Preparer Use Only

. . .

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

. . 27 28

Preparer’s name

If the IRS sent you an Identity Protection PIN, enter it here (see inst.) If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

Email address Preparer’s signature

Date

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2B, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

Ryan and Blake Lively Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

434-14-4448

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

(a) Sum of the two Schedule C’s business income ($2,300 income – loss of $8,660)

(6,360) (a) (6,500)

(12,860)

Schedule 1 (Form 1040) 2022

4-39

4-40

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2B, cont. Ryan and Blake Lively Part II Adjustments to Income

Schedule 1 (Form 1040) 2022

11 12 13 14 15 16 17 18 19a b c 20 21 22 23 24 a b c d e f g h i

j k z 25 26

434-14-4448

Page 2

Educator expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 . . . . . . . . . . . . . . . . . . . . . . . . 12 Health savings account deduction. Attach Form 8889 . . . . . . . . . . . . . . 13 Moving expenses for members of the Armed Forces. Attach Form 3903 . . . . . . . 14 Deductible part of self-employment tax. Attach Schedule SE . . . . . . . . . . . 15 Self-employed SEP, SIMPLE, and qualified plans . . . . . . . . . . . . . . . . 16 Self-employed health insurance deduction . . . . . . . . . . . . . . . . . . 17 Penalty on early withdrawal of savings . . . . . . . . . . . . . . . . . . . . 18 Alimony paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19a Recipient’s SSN . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): IRA deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Student loan interest deduction . . . . . . . . . . . . . . . . . . . . . . 21 22 Reserved for future use . . . . . . . . . . . . . . . . . . . . . . . . . Archer MSA deduction . . . . . . . . . . . . . . . . . . . . . . . . . 23 Other adjustments: Jury duty pay (see instructions) . . . . . . . . . . . . . . 24a Deductible expenses related to income reported on line 8l from the rental of personal property engaged in for profit . . . . . . . . 24b Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 8m . . . . . . . . . . 24c Reforestation amortization and expenses . . . . . . . . . . . 24d Repayment of supplemental unemployment benefits under the Trade Act of 1974 . . . . . . . . . . . . . . . . . . . . . . 24e Contributions to section 501(c)(18)(D) pension plans . . . . . . . 24f Contributions by certain chaplains to section 403(b) plans . . . . 24g Attorney fees and court costs for actions involving certain unlawful discrimination claims (see instructions) . . . . . . . . . . . . 24h Attorney fees and court costs you paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations . . . . . . . . . . . . . . . . . . . 24i Housing deduction from Form 2555 . . . . . . . . . . . . . 24j Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041) . . . . . . . . . . . . . . . . . . . . . . . . 24k Other adjustments. List type and amount: 24z Total other adjustments. Add lines 24a through 24z . . . . . . . . . . . . . . . 25 Add lines 11 through 23 and 25. These are your adjustments to income. Enter here and on Form 1040 or 1040-SR, line 10, or Form 1040-NR, line 10a . . . . . . . . . . . . 26

DRAFT AS OF July 27, 2022 DO NOT FILE

163

Schedule 1 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2B, cont. SCHEDULE 2

OMB No. 1545-0074

Additional Taxes

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 02

Your social security number

Ryan and Blake Lively Part I Tax

434-14-4448

DRAFT AS OF July 27, 2022 DO NOT FILE

Alternative minimum tax. Attach Form 6251 . . . . . . . . . . . . . . . .

Excess advance premium tax credit repayment. Attach Form 8962 . . . . . . .

Add lines 1 and 2. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 17 . .

Part II Other Taxes 4

Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . . .

Social security and Medicare tax on unreported tip income. Attach Form 4137 . . . . . . . . . . . . . . . . . .

Uncollected social security and Medicare tax on wages. Attach Form 8919 . . . . . . . . . . . . . . . . . . . . .

Total additional social security and Medicare tax. Add lines 5 and 6

. . . . . .

Additional tax on IRAs or other tax-favored accounts. Attach Form 5329 if required.

If not required, check here . . . . . . . . . . . . . . . . . . . . .

Household employment taxes. Attach Schedule H

. . . . . . . . . . . . .

Repayment of first-time homebuyer credit. Attach Form 5405 if required . . . . .

Additional Medicare Tax. Attach Form 8959 . . . . . . . . . . . . . . . .

Net investment income tax. Attach Form 8960 . . . . . . . . . . . . . . .

Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance from Form W-2, box 12 . . . . . . . . . . . . . . . . . . . .

Interest on tax due on installment income from the sale of certain residential lots and timeshares . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest on the deferred tax on gain from certain installment sales with a sales price over $150,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recapture of low-income housing credit. Attach Form 8611 . . . . . . . . . .

325

(continued on page 2) For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71478U

Schedule 2 (Form 1040) 2022

4-41

4-42

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2B, cont. Ryan and Blake Lively Part II Other Taxes (continued)

Schedule 2 (Form 1040) 2022

434-14-4448

Page 2

Other additional taxes: a Recapture of other credits. List type, form number, and amount: 17a

DRAFT AS OF July 27, 2022 DO NOT FILE

b Recapture of federal mortgage subsidy, if you sold your home see instructions . . . . . . . . . . . . . . . . . . . 17b c Additional tax on HSA distributions. Attach Form 8889 . . . .

17c

d Additional tax on an HSA because you didn’t remain an eligible individual. Attach Form 8889 . . . . . . . . . . . . . . 17d e Additional tax on Archer MSA distributions. Attach Form 8853 .

17e

f Additional tax on Medicare Advantage MSA distributions. Attach Form 8853 . . . . . . . . . . . . . . . . . . . . . 17f

Section 72(m)(5) excess benefits tax . . . . . . . . . . .

k Golden parachute payments l

17j

. . . . . . . . . . . . . .

17k

Tax on accumulation distribution of trusts . . . . . . . . .

17l

17q

z Any other taxes. List type and amount: 17z 18

Total additional taxes. Add lines 17a through 17z . . . . . . . . . . . . . .

Reserved for future use

20 21

. . . . . . . . . . . . . . . . . . . . . . . .

325

Schedule 2 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2B, cont. SCHEDULE B Department of the Treasury Internal Revenue Service

434-14-4448 Amount

DRAFT AS OF July 7, 2022 DO NOT FILE

58 600 45

2 3

Part II Ordinary Dividends

Attachment Sequence No. 08 Your social security number

Ryan and Blake Lively 1 List name of payer. If any interest is from a seller-financed mortgage and the Part I buyer used the property as a personal residence, see the instructions and list this Interest interest first. Also, show that buyer’s social security number and address: (See instructions Pooled Investments and the Pooled Investments - US Treasury Instructions for Form 1040, Pooled Investment - Market Discount Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm’s name as the payer and enter the total interest shown on that form.

2022

Go to www.irs.gov/ScheduleB for instructions and the latest information. Attach to Form 1040 or 1040-SR.

Name(s) shown on return

line 2b.)

OMB No. 1545-0074

Interest and Ordinary Dividends

(Form 1040)

703

2 3 4

703 Amount

Pooled Investments

2,500

(See instructions and the Instructions for Form 1040, line 3b.)

2,500

b If you are required to file FinCEN Form 114, list the name(s) of the foreign country(-ies) where the financial account(s) are located: 8

During 2022, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If “Yes,” you may have to file Form 3520. See instructions . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 17146N

Schedule B (Form 1040) 2022

4-43

4-44

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2B, cont. SCHEDULE C (Form 1040)

Profit or Loss From Business

Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

2022

(Sole Proprietorship) Go to www.irs.gov/ScheduleC for instructions and the latest information.

Name of proprietor

Social security number (SSN)

Ryan Lively A

Attachment Sequence No. 09

Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.

434-14-4448

Principal business or profession, including product or service (see instructions)

B Enter code from instructions

8 1 2 1 9 0

Fitness Coach

DRAFT AS OF July 15, 2022 DO NOT FILE

Business name. If no separate business name, leave blank.

Business address (including suite or room no.)

F G

x Yes

H I J

. . .

Yes Yes

Part I 1

D Employer ID number (EIN) (see instr.)

. . .

2 3 4

1 2 3 4

5 6 7

. . .

5 6 7

Office expense (see instructions) . Pension and profit-sharing plans .

18 19

Rent or lease (see instructions): Vehicles, machinery, and equipment Other business property . . .

20a 20b

Repairs and maintenance . . . Supplies (not included in Part III) . Taxes and licenses . . . . .

21 22 23

Travel and meals: Travel . . . .

24a

Deductible meals (see instructions) . . . . . . . Utilities . . . . . . . . Wages (less employment credits)

24b 25 26

Advertising .

Car and truck expenses (see instructions) . . . Commissions and fees . Contract labor (see instructions)

12 13

Depletion . . . . . Depreciation and section 179 expense deduction (not included in Part III) (see instructions) . . . .

Employee benefit programs (other than on line 19) . Insurance (other than health) Interest (see instructions): Mortgage (paid to banks, etc.)

15 16 a b

x No No

. . .

4,000 4,000 4,000 4,000

Expenses. Enter expenses for business use of your home only on line 30.

10 11

. . .

Income

Part II

. . .

18 19

9 10 11

21 22 23

a b

24 a

14 15

b 25 26

16a

17 28

. . .

27a 27b 28

Tentative profit or (loss). Subtract line 28 from line 7 .

and (b) the part of your home used for business: Method Worksheet in the instructions to figure the amount to enter on line 30

. Use the Simplified . . . . . . .

Net profit or (loss). Subtract line 30 from line 29.

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

}

1,700

1,700 2,300

32a 32b

2,300

All investment is at risk. Some investment is not at risk. Schedule C (Form 1040) 2022

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2B, cont. Ryan and Blake Lively

Schedule C (Form 1040) 2022

Part III

434-14-4448

Page 2

Cost of Goods Sold (see instructions)

Method(s) used to value closing inventory:

Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . .

Cost

Lower of cost or market

Other (attach explanation) Yes

DRAFT AS OF July 15, 2022 DO NOT FILE

Inventory at beginning of year. If different from last year’s closing inventory, attach explanation .

Purchases less cost of items withdrawn for personal use

Cost of labor. Do not include any amounts paid to yourself .

Materials and supplies

Other costs .

Add lines 35 through 39 .

Inventory at end of year .

Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 .

Part IV

When did you place your vehicle in service for business purposes? (month/day/year)

Of the total number of miles you drove your vehicle during 2022, enter the number of miles you used your vehicle for: a

Business

b Commuting (see instructions)

c Other

Was your vehicle available for personal use during off-duty hours?

Yes

Do you (or your spouse) have another vehicle available for personal use?.

Yes

47a

Do you have evidence to support your deduction?

Yes

If “Yes,” is the evidence written?

Yes

Part V

Other Expenses. List below business expenses not included on lines 8–26 or line 30.

Total other expenses. Enter here and on line 27a

48 Schedule C (Form 1040) 2022

4-45

4-46

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2B, cont. SCHEDULE C (Form 1040)

Profit or Loss From Business

Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

2022

(Sole Proprietorship) Go to www.irs.gov/ScheduleC for instructions and the latest information.

Name of proprietor

Social security number (SSN)

Blake Lively A

763-16-1562

Principal business or profession, including product or service (see instructions)

Life Coach

Attachment Sequence No. 09

Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.

B Enter code from instructions

8 1 2 9 9 0

DRAFT AS OF July 15, 2022 DO NOT FILE

Business name. If no separate business name, leave blank.

Business address (including suite or room no.)

F G

City, town or post office, state, and ZIP code Nashua, NH 03063 (2) Accrual (3) Other (specify) Accounting method: (1) x Cash Did you “materially participate” in the operation of this business during 2022? If “No,” see instructions for limit on losses

H I J

. . .

Part I 1

D Employer ID number (EIN) (see instr.)

4 Townsend W, Suite 8

. . .

2 3 4

1 2 3 4

5 6 7

. . .

5 6 7

Office expense (see instructions) . Pension and profit-sharing plans .

18 19

Rent or lease (see instructions): Vehicles, machinery, and equipment Other business property . . .

20a 20b

Repairs and maintenance . . . Supplies (not included in Part III) . Taxes and licenses . . . . .

21 22 23

Travel and meals: Travel . . . .

24a

Deductible meals (see instructions) . . . . . . . Utilities . . . . . . . . Wages (less employment credits)

24b 25 26

Advertising .

Car and truck expenses (see instructions) . . . Commissions and fees . Contract labor (see instructions)

12 13

Depletion . . . . . Depreciation and section 179 expense deduction (not included in Part III) (see instructions) . . . .

Employee benefit programs (other than on line 19) . Insurance (other than health) Interest (see instructions): Mortgage (paid to banks, etc.)

15 16 a b

x Yes x Yes Yes

x No No

. . .

5,000 5,000 5,000 5,000

Expenses. Enter expenses for business use of your home only on line 30.

10 11

. . .

Income

Part II

. . .

18 19

9 10 11

21 22 23

a b

24 a

14 15

b 25 26

16a

17 28

. . .

27a 27b 28

Tentative profit or (loss). Subtract line 28 from line 7 .

and (b) the part of your home used for business: Method Worksheet in the instructions to figure the amount to enter on line 30

. Use the Simplified . . . . . . .

Net profit or (loss). Subtract line 30 from line 29.

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

}

12,000 1,000

300 360 13,660 (8,660)

32a 32b

(8,660)

x All investment is at risk. Some investment is not at risk. Schedule C (Form 1040) 2022

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2B, cont. Ryan and Blake Lively

Schedule C (Form 1040) 2022

Part III

434-14-4448

Page 2

Cost of Goods Sold (see instructions)

Method(s) used to value closing inventory:

Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . .

Cost

Lower of cost or market

Other (attach explanation) Yes

DRAFT AS OF July 15, 2022 DO NOT FILE

Inventory at beginning of year. If different from last year’s closing inventory, attach explanation .

Purchases less cost of items withdrawn for personal use

Cost of labor. Do not include any amounts paid to yourself .

Materials and supplies

Other costs .

Add lines 35 through 39 .

Inventory at end of year .

Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 .

Part IV

When did you place your vehicle in service for business purposes? (month/day/year)

Of the total number of miles you drove your vehicle during 2022, enter the number of miles you used your vehicle for: a

Business

b Commuting (see instructions)

c Other

Was your vehicle available for personal use during off-duty hours?

Yes

Do you (or your spouse) have another vehicle available for personal use?.

Yes

47a

Do you have evidence to support your deduction?

Yes

If “Yes,” is the evidence written?

Yes

Part V

Other Expenses. List below business expenses not included on lines 8–26 or line 30.

Telephone

Total other expenses. Enter here and on line 27a

360

360 Schedule C (Form 1040) 2022

4-47

4-48

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2B, cont. SCHEDULE D

OMB No. 1545-0074

Capital Gains and Losses

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/ScheduleD for instructions and the latest information. Use Form 8949 to list your transactions for lines 1b, 2, 3, 8b, 9, and 10.

Name(s) shown on return

Attachment Sequence No. 12 Your social security number

Ryan and Blake Lively

434-14-4448

DRAFT AS OF July 15, 2022 DO NOT FILE

Short-Term Capital Gains and Losses—Generally Assets Held One Year or Less (see instructions)

See instructions for how to figure the amounts to enter on the lines below. This form may be easier to complete if you round off cents to whole dollars.

(d) Proceeds (sales price)

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part I, line 2, column (g)

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

1b Totals for all transactions reported on Form(s) 8949 with Box A checked . . . . . . . . . . . . . 2 Totals for all transactions reported on Form(s) 8949 with Box B checked . . . . . . . . . . . . . 3 Totals for all transactions reported on Form(s) 8949 with 3,500 3,000 Box C checked . . . . . . . . . . . . . 4 Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684, 6781, and 8824 . . 5 Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts from Schedule(s) K-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss Carryover Worksheet in the instructions . . . . . . . . . . . . . . . . . . . . . . . . 7 Net short-term capital gain or (loss). Combine lines 1a through 6 in column (h). If you have any longterm capital gains or losses, go to Part II below. Otherwise, go to Part III on the back . . . . . .

Part II

500 4 5 6

(

)

500

Long-Term Capital Gains and Losses—Generally Assets Held More Than One Year (see instructions)

(d) Proceeds (sales price)

35,000

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part II, line 2, column (g)

3,000

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

32,000

Cat. No. 11338H

11 12 13 14 ( 15

)

32,000

Schedule D (Form 1040) 2022

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2B, cont. Schedule D (Form 1040) 2022

Part III 16

Ryan and Blake Lively

434-14-4448

Page 2

Summary

Combine lines 7 and 15 and enter the result

32,500

DRAFT AS OF July 15, 2022 DO NOT FILE

Are lines 15 and 16 both gains? x Yes. Go to line 18. No. Skip lines 18 through 21, and go to line 22.

If you are required to complete the 28% Rate Gain Worksheet (see instructions), enter the amount, if any, from line 7 of that worksheet . . . . . . . . . . . . . . . . . .

If you are required to complete the Unrecaptured Section 1250 Gain Worksheet (see instructions), enter the amount, if any, from line 18 of that worksheet . . . . . . . . . .

Are lines 18 and 19 both zero or blank and you are not filing Form 4952? x Yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 16. Don’t complete lines 21 and 22 below. No. Complete the Schedule D Tax Worksheet in the instructions. Don’t complete lines 21 and 22 below.

If line 16 is a loss, enter here and on Form 1040, 1040-SR, or 1040-NR, line 7, the smaller of: • The loss on line 16; or • ($3,000), or if married filing separately, ($1,500)

}

21 (

)

Note: When figuring which amount is smaller, treat both amounts as positive numbers. 22

Do you have qualified dividends on Form 1040, 1040-SR, or 1040-NR, line 3a? Yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 16. No. Complete the rest of Form 1040, 1040-SR, or 1040-NR. Schedule D (Form 1040) 2022

4-49

4-50

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2B, cont. Form

8949

Department of the Treasury Internal Revenue Service

Sales and Other Dispositions of Capital Assets Go to www.irs.gov/Form8949 for instructions and the latest information. File with your Schedule D to list your transactions for lines 1b, 2, 3, 8b, 9, and 10 of Schedule D.

Name(s) shown on return

OMB No. 1545-0074

2022

Attachment Sequence No. 12A

Social security number or taxpayer identification number

Ryan and Blake Lively

434-14-4448

Part I

DRAFT AS OF August 17, 2022 DO NOT FILE

You must check Box A, B, or C below. Check only one box. If more than one box applies for your short-term transactions, complete a separate Form 8949, page 1, for each applicable box. If you have more short-term transactions than will fit on this page for one or more of the boxes, complete as many forms with the same box checked as you need. (A) Short-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS (see Note above) (B) Short-term transactions reported on Form(s) 1099-B showing basis wasn’t reported to the IRS x (C) Short-term transactions not reported to you on Form 1099-B 1

(a) Description of property (Example: 100 sh. XYZ Co.)

40 units Vaporcoin

(b) Date acquired (Mo., day, yr.)

02/02/22

05/15/22

(d) Proceeds (sales price) (see instructions)

3,500

3,000

500

3,500

3,000

500

Cat. No. 37768Z

Form 8949 (2022)

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2B, cont. Attachment Sequence No. 12A

Form 8949 (2022) Name(s) shown on return. Name and SSN or taxpayer identification no. not required if shown on other side

Ryan and Blake Lively

Page 2

Social security number or taxpayer identification number

434-14-4448

Part II

DRAFT AS OF August 17, 2022 DO NOT FILE

You must check Box D, E, or F below. Check only one box. If more than one box applies for your long-term transactions, complete a separate Form 8949, page 2, for each applicable box. If you have more long-term transactions than will fit on this page for one or more of the boxes, complete as many forms with the same box checked as you need. (D) Long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS (see Note above) (E) Long-term transactions reported on Form(s) 1099-B showing basis wasn’t reported to the IRS (F) Long-term transactions not reported to you on Form 1099-B 1

(a) Description of property (Example: 100 sh. XYZ Co.)

(b) Date acquired (Mo., day, yr.)

(d) Proceeds (sales price) (see instructions)

4-51

4-52

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2B, cont. SCHEDULE E

Supplemental Income and Loss

(Form 1040)

OMB No. 1545-0074

Attach to Form 1040, 1040-SR, 1040-NR, or 1041. Go to www.irs.gov/ScheduleE for instructions and the latest information.

Department of the Treasury Internal Revenue Service Name(s) shown on return

Attachment Sequence No. 13 Your social security number

434-14-4448

Ryan and Blake Lively Part I

2022

(From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.)

A B

DRAFT AS OF July 22, 2022 DO NOT FILE

Did you make any payments in 2022 that would require you to file Form(s) 1099? See instructions . If “Yes,” did you or will you file required Form(s) 1099? . . . . . . . . . . . . . .

Physical address of each property (street, city, state, ZIP code)

A B C 1b

52 Charlotte Avenue, Nashua, NH 03064 Type of Property (from list below)

A 1 B C Type of Property: 1 Single Family Residence 2 Multi-Family Residence

3 Vacation/Short-Term Rental 4 Commercial

Fair Rental Days

A B C

5 Land 6 Royalties

. .

Personal Use Days

QJV

365

7 Self-Rental 8 Other (describe)

Properties: Income: A B 3 Rents received . . . . . . . . . . . . . . . 3 8,000 4 Royalties received . . . . . . . . . . . . . . 4 Expenses: 5 5 Advertising . . . . . . . . . . . . . . . . 6 Auto and travel (see instructions) . . . . . . . . 6 7 Cleaning and maintenance . . . . . . . . . . . 7 100 8 Commissions . . . . . . . . . . . . . . . 8 9 Insurance . . . . . . . . . . . . . . . . . 9 10 Legal and other professional fees . . . . . . . . 10 11 Management fees . . . . . . . . . . . . . . 11 12 Mortgage interest paid to banks, etc. (see instructions) 12 10,000 13 Other interest . . . . . . . . . . . . . . . 13 14 Repairs . . . . . . . . . . . . . . . . . . 14 15 Supplies . . . . . . . . . . . . . . . . . 15 16 Taxes . . . . . . . . . . . . . . . . . . 16 3,000 17 Utilities . . . . . . . . . . . . . . . . . . 17 1,400 18 Depreciation expense or depletion . . . . . . . . 18 19 19 Other (list) 20 Total expenses. Add lines 5 through 19 . . . . . . 20 14,500 21 Subtract line 20 from line 3 (rents) and/or 4 (royalties). If result is a (loss), see instructions to find out if you must file Form 6198 . . . . . . . . . . . . . . . 21 (6,500) 22 Deductible rental real estate loss after limitation, if any, on Form 8582 (see instructions) . . . . . . . . . 22 ( )( 6,500 ) ( 23a Total of all amounts reported on line 3 for all rental properties . . . . . 23a 8,000 b Total of all amounts reported on line 4 for all royalty properties . . . . . 23b c Total of all amounts reported on line 12 for all properties . . . . . . . 23c 10,000 d Total of all amounts reported on line 18 for all properties . . . . . . . 23d e Total of all amounts reported on line 20 for all properties . . . . . . . 23e 14,500 24 Income. Add positive amounts shown on line 21. Do not include any losses . . . . . . . 24 25 Losses. Add royalty losses from line 21 and rental real estate losses from line 22. Enter total losses here 25 ( 26 Total rental real estate and royalty income or (loss). Combine lines 24 and 25. Enter the result here. If Parts II, III, IV, and line 40 on page 2 do not apply to you, also enter this amount on Schedule 1 (Form 1040), line 5. Otherwise, include this amount in the total on line 41 on page 2 . 26 For Paperwork Reduction Act Notice, see the separate instructions.

X No

Yes Yes

Cat. No. 11344L

)

6,500

)

(6,500)

Schedule E (Form 1040) 2022

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2B, cont. SCHEDULE SE Department of the Treasury Internal Revenue Service

2022

Go to www.irs.gov/ScheduleSE for instructions and the latest information. Attach to Form 1040, 1040-SR, or 1040-NR.

Name of person with self-employment income (as shown on Form 1040, 1040-SR, or 1040-NR)

Attachment Sequence No. 17

Social security number of person with self-employment income

Ryan and Blake Lively Part I

OMB No. 1545-0074

Self-Employment Tax

(Form 1040)

434-14-4448

Self-Employment Tax

DRAFT AS OF July 28, 2022 DO NOT FILE

Note: If your only income subject to self-employment tax is church employee income, see instructions for how to report your income and the definition of church employee income. A If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you had $400 or more of other net earnings from self-employment, check here and continue with Part I . . . . . . . . . Skip lines 1a and 1b if you use the farm optional method in Part II. See instructions. 1a Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), 1a box 14, code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b If you received social security retirement or disability benefits, enter the amount of Conservation Reserve Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code AH 1b ( ) Skip line 2 if you use the nonfarm optional method in Part II. See instructions. 2 Net profit or (loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than 2 farming). See instructions for other income to report or if you are a minister or member of a religious order 2,300 (a) 3 Combine lines 1a, 1b, and 2 . . . . . . . . . . . . . . . . . . . . . . . . . 3 2,300 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3 . 4a 2,124 Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions. b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here . . . . . 4b c Combine lines 4a and 4b. If less than $400, stop; you don’t owe self-employment tax. Exception: If less than $400 and you had church employee income, enter -0- and continue . . . . . . . . 4c 2,124 5a Enter your church employee income from Form W-2. See instructions for definition of church employee income . . . . . . . . . . . . . 5a b Multiply line 5a by 92.35% (0.9235). If less than $100, enter -0- . . . . . . . . . . . . . 5b 6 Add lines 4c and 5b . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2,124 7 Maximum amount of combined wages and self-employment earnings subject to social security tax or 147,000 the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2022 . . . . . . . . . . . 7 8a Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2) and railroad retirement (tier 1) compensation. If $147,000 or more, skip lines 8b through 10, and go to line 11 . . . . . . . . . . . . . . . 8a b Unreported tips subject to social security tax from Form 4137, line 10 . . . 8b c Wages subject to social security tax from Form 8919, line 10 . . . . . . 8c d Add lines 8a, 8b, and 8c . . . . . . . . . . . . . . . . . . . . . . . . . . 8d 9 Subtract line 8d from line 7. If zero or less, enter -0- here and on line 10 and go to line 11 . . . . 9 147,000 10 Multiply the smaller of line 6 or line 9 by 12.4% (0.124) . . . . . . . . . . . . . . . . 10 263 11 Multiply line 6 by 2.9% (0.029) . . . . . . . . . . . . . . . . . . . . . . . . 11 62 12 Self-employment tax. Add lines 10 and 11. Enter here and on Schedule 2 (Form 1040), line 4 . . 12 325 13 Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50). Enter here and on Schedule 1 (Form 1040), line 15 . . . . . . . . . . . . . . . . . . . . . . . . 13 163

Part II

Optional Methods To Figure Net Earnings (see instructions)

From Sch. F, line 9; and Sch. K-1 (Form 1065), box 14, code B. From Sch. F, line 34; and Sch. K-1 (Form 1065), box 14, code A—minus the amount you would have entered on line 1b had you not used the optional method.

For Paperwork Reduction Act Notice, see your tax return instructions.

3 4

6,040

16 17

From Sch. C, line 31; and Sch. K-1 (Form 1065), box 14, code A. From Sch. C, line 7; and Sch. K-1 (Form 1065), box 14, code C. Cat. No. 11358Z

Schedule SE (Form 1040) 2022

(a) Since Blake’s business resulted in a loss, there is no SE computed and only Ryan’s Schedule C net profit is shown.

4-53

4-54

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Comprehensive Problem 2B, cont. Form

8995

Department of the Treasury Internal Revenue Service

Qualified Business Income Deduction Simplified Computation

OMB No. 1545-2294

2021

a Attach to your tax return.

Attachment Sequence No. 55

a Go to www.irs.gov/Form8995 for instructions and the latest information.

Your taxpayer identification number

Name(s) shown on return

Ryan and Blake Lively

434-14-4448

(a) Trade, business, or aggregation name

(b) Taxpayer identification number

Life Coach

763-16-1562

(8,660)

Fitness Instructor

434-14-4448

2,137 (a)

iii iv v 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Total qualified business income or (loss). Combine lines 1i through 1v, 2 column (c) . . . . . . . . . . . . . . . . . . . . . . (6,523) Qualified business net (loss) carryforward from the prior year . . . . . . . 3 ( ) Total qualified business income. Combine lines 2 and 3. If zero or less, enter -04 0 Qualified business income component. Multiply line 4 by 20% (0.20) . . . . . . . . . . . Qualified REIT dividends and publicly traded partnership (PTP) income or (loss) 6 (see instructions) . . . . . . . . . . . . . . . . . . . . Qualified REIT dividends and qualified PTP (loss) carryforward from the prior year . . . . . . . . . . . . . . . . . . . . . . . . . ) 7 ( Total qualified REIT dividends and PTP income. Combine lines 6 and 7. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . 8 REIT and PTP component. Multiply line 8 by 20% (0.20) . . . . . . . . . . . . . . . Qualified business income deduction before the income limitation. Add lines 5 and 9 . . . . . . Taxable income before qualified business income deduction (see instructions) 11 0 Net capital gain (see instructions) . . . . . . . . . . . . . . . 12 32,000 Subtract line 12 from line 11. If zero or less, enter -0- . . . . . . . . 13 0 Income limitation. Multiply line 13 by 20% (0.20) . . . . . . . . . . . . . . . . . . Qualified business income deduction. Enter the smaller of line 10 or line 14. Also enter this amount on the applicable line of your return (see instructions) . . . . . . . . . . . . . . . . a Total qualified business (loss) carryforward. Combine lines 2 and 3. If greater than zero, enter -0- . . Total qualified REIT dividends and PTP (loss) carryforward. Combine lines 6 and 7. If greater than zero, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For Privacy Act and Paperwork Reduction Act Notice, see instructions.

Cat. No. 37806C

9 10

15 16 (

0 6,523 )

17 (

) Form 8995 (2021)

(a) $2,300 from Schedule C – $163 from Schedule SE Please go to www.irs.gov to download the latest Form 8995. The 2022 version of Form 8995 was not available as we went to print.

Solutions for Questions and Problems – Chapter 4

Comprehensive Problem 2B, cont. Form

8582

Passive Activity Loss Limitations

OMB No. 1545-1008

2022

See separate instructions. Attach to Form 1040, 1040-SR, or 1041. Go to www.irs.gov/Form8582 for instructions and the latest information.

Department of the Treasury Internal Revenue Service

Attachment Sequence No. 858

Name(s) shown on return

Identifying number

Ryan and Blake Lively Part I

434-14-4448

2022 Passive Activity Loss Caution: Complete Parts IV and V before completing Part I.

DRAFT AS OF October 11, 2022 DO NOT FILE

Rental Real Estate Activities With Active Participation (For the definition of active participation, see Special Allowance for Rental Real Estate Activities in the instructions.) 1a b c d

. . . .

1a 1b ( 1c ( . . . .

. . . .

2a 2b ( 2c ( . . . .

6,500 )

)

( 6,500 )

All Other Passive Activities 2a b c d

If line 3 is a loss and:

. . . .

) )

( 6,500 )

• Line 1d is a loss, go to Part II. • Line 2d is a loss (and line 1d is zero or more), skip Part II and go to line 10.

Caution: If your filing status is married filing separately and you lived with your spouse at any time during the year, do not complete Part II. Instead, go to line 10.

Part II 4 5 6

7 8 9

Note: Enter all numbers in Part II as positive amounts. See instructions for an example. Enter the smaller of the loss on line 1d or the loss on line 3 . . . . . . . . . . . . . . Enter $150,000. If married filing separately, see instructions . . . . . . 5 150,000 Enter modified adjusted gross income, but not less than zero. See instructions 6 29,180 Note: If line 6 is greater than or equal to line 5, skip lines 7 and 8 and enter -0on line 9. Otherwise, go to line 7. Subtract line 6 from line 5 . . . . . . . . . . . . . . . . . 7 120,820 Multiply line 7 by 50% (0.50). Do not enter more than $25,000. If married filing separately, see instructions Enter the smaller of line 4 or line 8 . . . . . . . . . . . . . . . . . . . . . .

Part III 10 11

Special Allowance for Rental Real Estate Activities With Active Participation

6,500

(a)

8 9

25,000 ( 6,500 )

Total Losses Allowed

Part IV

10 11

( 6,500 )

Complete This Part Before Part I, Lines 1a, 1b, and 1c. See instructions. Prior years

Current year Name of activity

(a) Net income (line 1a)

(b) Net loss (line 1b)

Rental home

( 6,500 )

Total. Enter on Part I, lines 1a, 1b, and 1c

( 6,500 )

For Paperwork Reduction Act Notice, see instructions.

(a) AGI of $22,680 + rental loss $6,500

Cat. No. 63704F

Overall gain or loss (d) Gain

(e) Loss

( 6,500 )

Form 8582 (2022)

4-55

4-56

Chapter 4 – Additional Income and the Qualified Business Income Deduction

Schedule A of Form 1045 will not be produced by the tax preparation software. ProConnect Tax will create a supporting schedule that computes the NOL carryforward. This schedule is for manual preparation only.

Comprehensive Problem 2B, cont. Form 1045 (2022)

Ryan and Blake Lively

434-14-4448

Page 3

Schedule A—NOL (see instructions) 1

For individuals, subtract your standard deduction or itemized deductions from your adjusted gross income and enter it here. For estates and trusts, enter taxable income increased by the total of the charitable deduction, income distribution deduction, and exemption amount (see instructions) . .

DRAFT AS OF August 9, 2022 DO NOT FILE

Nonbusiness capital losses before limitation. Enter as a positive number (see instructions) . . . . . . . . . . . . . . . . . . .

Nonbusiness capital gains (without regard to any section 1202 exclusion) .

32,500

If line 2 is more than line 3, enter the difference. Otherwise, enter -0-

If line 3 is more than line 2, enter the difference. Otherwise, enter -0- . . . . . . . . .

25,900

Nonbusiness deductions (see instructions) .

Nonbusiness income other than capital gains (see instructions) . . . . . . . . . . . . .

3,203 (b)

32,500

Add lines 5 and 7

If line 6 is more than line 8, enter the difference. Otherwise, enter -0-

If line 8 is more than line 6, enter the difference. Otherwise, enter -0-. But don’t enter more than line 5 . . . . . . . . . . . . . .

Business capital losses before limitation. Enter as a positive number

Business capital gains (without regard to any section 1202 exclusion) . . . . . . . . .

Enter the loss, if any, from line 16 of your 2022 Schedule D (Form 1040). (For estates and trusts, enter the loss, if any, from line 19, column (3), of Schedule D (Form 1041).) Enter as a positive number. If you don’t have a loss on that line (and don’t have a section 1202 exclusion), skip lines 16 through 21 and enter on line 22 the amount from line 15 . . . . . .

Add lines 4 and 14 .

Subtract line 13 from line 11. If zero or less, enter -0.

Add lines 10 and 12

35,703

9,803

(3,220) (a)

Section 1202 exclusion. Enter as a positive number (see instructions) . .

Enter the loss, if any, from line 21 of your 2022 Schedule D (Form 1040). (For estates and trusts, enter the loss, if any, from line 20 of Schedule D (Form 1041).) Enter as a positive number . . . . . . . . . . .

If line 18 is more than line 19, enter the difference. Otherwise, enter -0-

If line 19 is more than line 18, enter the difference. Otherwise, enter -0-

Subtract line 20 from line 15. If zero or less, enter -0-

NOL deduction for losses from other years. Enter as a positive number

NOL. Combine lines 1, 9, 17, and 21 through 23. If the result is less than zero, enter it here and on page 1, line 1a. If the result is zero or more, you don’t have an NOL . . . . . . . . . .

Subtract line 17 from line 16. If zero or less, enter -0-

9,803 0 0

0 0

(3,220) Form 1045 (2022)

(a) Form 1040, line 11 AGI $22,680 – standard deduction of $25,900 (b) Interest income of $703 + dividend income of $2,500

Solutions for Questions and Problems – Chapter 4

4-57

Key Number Tax Return Summary Chapter 4 Comprehensive Problem 1 Rental Real Estate (Schedule 1, Line 5)

(12,781)

Adjusted Gross Income (Line 11)

111,657

Total Tax (Line 24)

17,530

Amount Overpaid (Line 34)

2,470

Comprehensive Problem 2A Capital Gain or (Loss) (Line 7)

(1,000)

Rental Real Estate (Schedule 1, Line 5)

2,320

Adjusted Gross Income (Line 11)

62,577

Total Tax (Line 24)

3,703

Amount Overpaid (Line 34)

Comprehensive Problem 2B Capital Gain or (Loss) (Line 7)

32,500

Rental Real Estate (Schedule 1, Line 5)

(6,500)

Adjusted Gross Income (Line 11)

22,680

Total Tax (Line 24)

Net Operating Loss (Form 1045, Schedule A, Line 24)

(3,220)

4-58

Chapter 4 – Additional Income and the Qualified Business Income Deduction

CHAPTER 5 DEDUCTIONS FOR AND FROM AGI Group 1 – Multiple Choice Questions 1. B HSAs are limited to taxpayers with high deductible health plans (LO 5.1) 2. D The limit for a single plan in 2022 is $3,650 (LO 5.1) 3. C Self-employed healthcare is a for AGI deduction (LO 5.2) 4. B Disability insurance is not considered selfemployed health insurance (LO 5.2) 5. A No self-employed health care deduction is permitted when the taxpayer could have subsidized healthcare through an employer (LO 5.2) 6. D $6,000 each for the taxpayer and the spouse. (LO 5.3) 7. E Earned income serves as a requirement for deductible IRA contributions (LO 5.3) 8. A ($144,000 – $132,000) /$15,000 x $6,000 (LO 5.3) 9. C Distribution is income in excess of basis since she has not reached 59 1/2 years of age (LO 5.3) 10. A Because she is over age 59 1/2, the distributions are not taxable. (LO 5.3) 11. A Because she is disabled the distributions are not taxable (LO 5.3) 12. A Contributions for 2022 are due by April 18, 2023 (LO 5.3) 13. C Foreign investments are permitted while the other transactions are not (LO 5.3) 14. C Employer match is deferred until distribution (LO 5.4) 15. D The 2022 limit is $20,500 (LO 5.4) 16. D $125,000 x 15% which is less than the 2022 limit of $20,500 (LO 5.4) 17. D $300 for the educator expense. Unreimbursed employee expenses are not deductible (LO 5.5, 5.10) 18. E (130 x 4 x $0.585) + (130 x 4 x $0.625) + ($1.75 x 8) (LO 5.5)

19. B Cosmetics costs are not generally deductible medical expenses (LO 5.6) 20. B Birth control pills are generally considered a medical expense (LO 5.6) 21. A Vitamins and supplements are not generally medical expenses (LO 5.6) 22. B Property taxes are a deductible tax (LO 5.7) 23. B $1,200 + $40. The refund would be treated as 2023 income on Line 1 of Schedule 1 (LO 5.7) 24. C $4,000 + $5,600 + $4,500 subject to a maximum of $10,000 (LO 5.7) 25. B The deduction for state and local taxes is limited to $10,000 (LO 5.7) 26. E None of these are deductible in 2022 (LO 5.8) 27. B Limited to $2,500 (LO 5.8) 28. C Investment interest expense is limited to net investment income (LO 5.8) 29. D Contributions of time or services are not deductible (LO 5.9) 30. B Contributions of property to a public charity are valued at market value without an election to treat otherwise (LO 5.9) 31. D He is taking the standard deduction (LO 5.9) 32. D Contributions to state and local agencies are generally treated as a deductible charitable contribution (LO 5.9) 33. E None of these events are sudden or unexpected and none are associated with a federal disaster (LO 5.10) 34. E Each of these serves as a limitation on the deduction for a casualty and theft loss (LO 5.10) 35. C Losses from Ponzi schemes are deductible as a miscellaneous expense (LO 5.10) 36. B Gambling losses are the only deductible miscellaneous expense listed and this deduction is limited to gambling winnings (LO 5.10)

Group 2 – Problems 1. $4,400 reduction of AGI. Evan’s total contributions $4,400 ($200 x 12 plus $2,000) do not exceed the 2022 contribution limit of $7,300 for family coverage. Evan may deduct $4,400 as a for AGI deduction. Since Evan used the distributions from the HSA for medical expenses, the $3,200 is excluded from gross income. (LO 5.1) 2. $8,650. $7,800 of health insurance is deductible; however, long-term care deduction is limited to $850 in 2022 for a taxpayer more than 40 but less than 50 years of age. (LO 5.2) 3. a. b.

$78,000 – $71,000 $4,200 contribution = $6,000 x –––––––––—––––––––– $10,000 April 18, 2023 (the deadline for filing is extended due to weekend and holidays) (LO 5.3) 5-1

5-2

Chapter 5 – Deductions For and From AGI

4. a. b.

Phil Linda Phil Linda

$6,000 $6,000 $6,000; no limit since AGI is less than $204,000. $0; The combined AGI of $131,000 exceeds the upper limit of $129,000 for married couples. (LO 5.3)

5. $6,000 plus $6,000, or $12,000 total. (LO 5.3) 6. $7,000 plus $7,000, or $14,000 total. (LO 5.3) 7. $1,600. $6,000 x [($144,000 – $140,000)/$15,000]. (LO 5.3) 8. $6,000. He is not covered by a plan, so is not subject to any limitations on his ability to contribute to a Traditional IRA. (LO 5.3) 9. $0. She must have earned income to contribute to an IRA. (LO 5.3) 10. $32,000. The lesser of 20% (because self-employed) of $160,000, $32,000, or maximum limitation of $61,000. (LO 5.4) 11. $61,000 (20% of $320,000, limited to $61,000). (LO 5.4) 12. $12,500 (25% x $50,000). (LO 5.4) 13. $9,600. The lesser of the annual dollar limitation of $20,500, or $9,600 = 12% x $80,000. (LO 5.4) 14. a. b.

As a qualified plan, the contribution is excluded from Margo’s income in the current year. The contribution plus earnings will be taxable to Margo when distributed. Wumbo receives a current year deduction. Patrick’s contribution and the match are both excluded from his 2022 income. Both will be taxable to Patrick at distribution. The limits on a SIMPLE IRA are higher than those for a traditional and Roth IRA (generally $6,000 plus a $1,000 catch up if 50 or over). The 2022 limit for a SIMPLE IRA is $14,000 ($17,000 is age 50 or older). A Roth 401(k) permits both larger contributions (up to the 2022 401(k) limit of $20,500) and also does not apply the same income limitations for contributions as a typically individually owned Roth IRA. (LO 5.4)

15. $8,000 = $20,000 – $5,000 – $7,000. Since the pool was prescribed, it qualifies as a medical expense. The increase in value of $7,000 on the house and the reimbursement of $5,000 from the insurance company must be deducted from total expenditures. Although the expenditure is for a capital asset, it can be deducted in full in the year paid, to the extent the total medical expenses exceed 7.5 percent of adjusted gross income. (LO 5.6) 16.

Medical and Dental Expenses

(LO 5.6)

Caution: Do not include expenses reimbursed or paid by others. Medical and dental expenses (see instructions) . . . . . . . Enter amount from Form 1040 or 1040-SR, line 11 2 27,507 Multiply line 2 by 7.5% (0.075) . . . . . . . . . . . . . Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- . . .

3,932 (a)

DRAFT AS OF 1 2 3 4

3 . .

2,063

1,869

(a) $1,200 + $100 + $2,500 + $250 + $360 + (122 x $0.18) – $500 (note that the lodging is limited to $50 per person and the supplements and cosmetic surgery are not qualifying medical expenses)

17. $10,000. The medical deduction for the elevator is the amount by which the $10,000 expenditure exceeds the increase in value of the property. Therefore, $10,000 is deductible in the current year as an expense before the 7.5 percent AGI limitation. Because the improvement is for medical purposes, such capital expenses are not required to be depreciated. (LO 5.6) 18. $8,700. The $1,700 refund is reported as part of gross income on Line 1 of Schedule 1 to the Form 1040. (LO 5.7) Regular years Leap years (2016, 2020, etc.) 19. Mike: $623 = $2,500 x 91/365 $628 = $2,500 x 92/366 Jane: $1,877 = $2,500 x 274/365 $1,872 = $2,500 x 274/366 (LO 5.7)

Solutions for Questions and Problems – Chapter 5

20.

Taxes You Paid

5-3

DRAFT AS OF July 21, 2022 DO NOT FILE 5 State and local taxes. 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. If you elect to include general sales taxes instead of income taxes, check this box . . . . . . . . . . . . . . . . . b State and local real estate taxes (see instructions) . . . . . . . c State and local personal property taxes . . . . . . . . . . d Add lines 5a 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: 7 Add lines 5e and 6 .

5a 5b 5c 5d

8,400 2,100 130 10,630

10,000

6 . .

10,000 (LO 5.7)

21. Mary can deduct the greater of the $4,500 of regular sales taxes paid or the $2,000 of state income taxes paid, assuming she itemizes deductions. In this case, since her sales taxes are higher than her state income taxes, she should deduct $4,500 in sales tax on her 2022 Schedule A. (LO 5.7) 22. a. b.

$0 Mary is not entitled to deduct the interest since she is not legally liable for the obligation. (LO 5.8)

23. a. b.

$10,000, limited to Matthew’s net investment income. Yes. The unused deduction of $20,000 ($30,000 – $10,000) may be carried forward as an investment interest deduction in future years, subject to the investment interest expense limitation. (LO 5.8)

24.

Interest You Paid Caution: Your mortgage interest deduction may be limited. See instructions.

8 Home mortgage interest and points. If you didn’t use all of your home mortgage loan(s) 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 . . . . . . . . . . . . . . . . . . .

c Points not reported to you on Form 1098. See instructions for special 8c rules . . . . . . . . . . . . . . . . . . . . . d Reserved for future use . . . . . . . . . . . . . . . 8d 8e e Add lines 8a through 8c . . . . . . . . . . . . . . . 9 Investment interest. Attach Form 4952 if required. See instructions . 9 10 Add lines 8e and 9 . . . . . . . . . . . . . . . . . . . .

(LO 5.8) 25. a. b.

9,700 (a)

9,700 .

9,700

(a) $7,300 + $1,100 + $1,300. Other interest is nondeductible personal interest.

Qualified residence acquisition debt interest Qualified home equity debt interest

$6,000 $0 (LO 5.8)

26. $4,700, only the mortgage interest on a primary or second residence is deductible as an itemized deduction. The student loan interest might be deductible as a for AGI deduction. (LO 5.8) 27. The acquisition debt interest is fully deductible since it is related to debt used to purchase the residence that is less than $1 million in total. The home equity interest is not deductible. Therefore, Mark can deduct $15,000 on his Schedule A for mortgage interest expense. (LO 5.8) 28. a. b.

$8,000 = $14,000 – $6,000. The $6,000 is the amount of the long-term capital gain that would have resulted from sale of the property. Since the painting was not put to a use directly related to the organization’s primary purpose, the deduction is reduced by the amount of the potential long-term capital gain. (LO 5.9)

5-4

29.

Chapter 5 – Deductions For and From AGI

Gifts to Charity Caution: If you made a gift and got a benefit for it, see instructions.

11 Gifts by cash or check. If you made any gift of $250 or more, see 11 instructions . . . . . . . . . . . . . . . . . . . 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 . . . . 12 13 Carryover from prior year . . . . . . . . . . . . . . 13 14 Add lines 11 through 13 . . . . . . . . . . . . . . . . . .

5,500 7,000 .

12,500

See Page 5-6 for worksheet. (LO 5.9) 30. Richard is allowed to deduct $15,000 on his Schedule A, even though his purchase price for the stock was only $1,000. His adjusted gross income must be at least $50,000 in order to deduct the full $15,000 in the current year since the contribution deduction for long-term capital gain property is limited to 30 percent of adjusted gross income. Richard would have the option to elect to deduct only the basis of the stock, or $1,000, and then use the 50-percent AGI limitation, but would lose $14,000 of his potential charitable contribution deduction. This option is less advantageous for tax treatment. If his AGI was less than $50,000, any amount which is not allowed due to the adjusted gross income limitation is carried forward for as long as 5 years until there is sufficient income to take the deduction. (LO 5.9) 31. Since Kathy does not itemize, she is entitled to no deduction for contributions in 2022. (LO 5.9) 32. $0. Only personal casualty and theft losses associated with federally declared disasters are deductible. (LO 5.10) 33. Kerry’s pre-insurance loss is the lesser of her basis in the auto ($18,000) or the decrease in FMV ($7,500). Since insurance paid $5,000, her loss is $2,500. Her deduction is her loss less $100 and less the 10% of AGI floor of $3,000 resulting in no casualty deduction. (LO 5.10) 34.

$0. None of these expenses are deductible in 2022. (LO 5.10)

Group 3 – Writing Assignments 1. Ethics Solution: Massie can take a charitable contribution deduction for $800, the cash contribution donated to the United Methodist Church. Cash contributions to individuals and time spent volunteering are not deductible as charitable contributions. Although the cash contribution to the Salvation Army is an approved deduction, Massie cannot substantiate the amount. Unless Massie can provide written acknowledgement from the Salvation Army, she should not take the deduction. If Massie takes the standard deduction, she cannot take a deduction for charitable contributions. 2. Research Solution: Whittenburg and Gill, CPAs San Diego, CA May 25, 20xx Mr. and Mrs. Alexander 233 Rosa Drive San Diego, CA Dear Mr. and Mrs. Alexander, Thank you for requesting my advice concerning the deductibility of the expenses paid for Axel. I have researched your question and am happy to say that a portion of the amount paid for the well-being of Axel is deductible as a charitable contribution, if you itemize your deductions. If you take the standard deduction, there is no deduction for charitable contributions. The IRS allows a deduction of qualifying expenses limited to $50 a month for each full month that Axel lived with you. For any month that he lived with you for 15 or more days, that month counts as a full month. Qualifying expenses include food and clothing, medical care, and entertainment. The fair

Solutions for Questions and Problems – Chapter 5

5-5

market value of lodging is not deductible. Given that Axel lived with you for 9 months, you are entitled to a charitable deduction of $450 ($50 x 9 months). In order to claim the charitable contribution, you must submit with your return the following items: a copy of the agreement with the sponsoring organization, a summary of the various items you paid, a statement that provides the date Axel became a member of your household, the dates of his full-time attendance at school, and the name and location of the school. My conclusion is based upon the facts that you have provided me. If you have any questions or would like further explanation, please don’t hesitate to call. Sincerely, Trevor Malcolm for Whittenburg and Gill, CPAs Group 4 – Comprehensive Problems 1. See Forms on Pages 5-7 through 5-12. 2A. See Forms on Pages 5-13 through 5-25. 2B. See Forms on Pages 5-26 through 5-38. Group 5 – Cumulative Software Problem The solution to the Cumulative Software Problem is posted on the website for the textbook at www.cengage.com/login.

5-6

Chapter 5 – Deductions For and From AGI

Group 2: Problem 29 Step 1. Enter charitable contribu ons made during the year. 1 Enter contribu ons of capital gain property to non-50 percent qualiﬁed organiza ons 2 Enter other contribu ons to qualiﬁed organiza ons that are non-50 percent organiza ons. Do not include any contribu ons entered on the previous line 3 Enter contribu ons of capital gain property to 50% limit organiza ons deducted at fair market value. Do not include any contribu ons entered on a previous line 4 Enter noncash contribu ons to 50% limit organiza ons other than capital gain property deducted at fair market value. Be sure to include contribu ons of capital gain property to 50% limit organiza ons if elec ng to deduct at basis. Do not include any contribu ons entered on a previous line 5 Enter cash contribu ons to 50% limit organiza ons. Do not include any contribu ons entered on a previous line Step 2. Figure the deduc on for the year (if any result is zero or less, enter -0-) 6 Enter adjusted gross income (AGI) Cash contribu ons subject to the limit based on 60% of AGI (If line 5 is zero, enter -0- on lines 7 through 9) 7 Mul ply line 6 by 0.6 8 Deduc ble amount. Enter the smaller of line 5 or line 7 9 Carryover. Subtract line 8 from line 5 Noncash contribu ons subject to the limit based on 50% of AGI (If line 4 is zero, enter -0- on lines 10 through 13) 10 Mul ply line 6 by 0.5 11 Subtract line 8 from line 10 12 Deduc ble amount. Enter the smaller of line 4 or line 11 13 Carryover. Subtract line 12 from line 4 Contribu ons (other than capital gain property) subject to limit based on 30% of AGI (If line 2 is zero, enter -0- on lines 14 14 Mul ply line 6 by 0.5 15 Add lines 3, 4, and 5 16 Subtract line 15 from line 14 17 Mul ply line 6 by 0.3 18 Enter line 2 19 Deduc ble amount. Enter the smallest of line 16, 17, or 18 20 Carryover. Subtract line 19 from line 18 Contribu ons of capital gain property subject to limit based on 30% of AGI (If line 3 is zero, enter -0- on lines 21 through 26.) 21 Mul ply line 6 by 0.5 22 Add lines 4 and 5 23 Subtract line 22 from line 21 24 Mul ply line 6 by 0.3 25 Deduc ble amount. Enter the smallest of line 3, 23, or 24 26 Carryover. Subtract line 25 from line 3 Contribu ons subject to the limit based on 20% of AGI (If line 1 is zero, enter -0- on lines 27 through 36) 27 Mul ply line 6 by 0.5 28 Add lines 8, 12, 19, and 25 29 Subtract line 28 from line 27 30 Mul ply line 6 by 0.3 31 Subtract line 19 from line 30 32 Subtract line 25 from line 30 33 Mul ply line 6 by 0.2 34 Enter line 1 35 Deduc ble amount. Enter the smallest of line 29, 31, 32, 33, or 34 36 Carryover. Subtract line 35 from line 34 37 Deduc on for the year. Add lines 8, 12, 19, 25, and 35

6,000

2,000 5,500 25,000 15,000 5,500 12,500 7,000 2,000 12,500 7,500 5,000 7,500 5,000 1,000 12,500

Solutions for Questions and Problems – Chapter 5

Form

Comprehensive Problem 1

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status X Single Check only one box.

Married filing jointly

OMB No. 1545-0074

Married filing separately (MFS)

IRS Use Only—Do not write or staple in this space.

Head of household (HOH)

Your first name and middle initial

Last name

Anthony

Your social security number

Stork

555

94 6767

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Spouse’s social security number

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

800 N. Sierra Street

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Reno

Foreign country name

89503

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

. . .

Credit for other dependents

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Child tax credit

. . .

. . 2a 3a

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Was born before January 2, 1958

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

X No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

. . .

. .

. . .

Cat. No. 11320B

77,000

77,000 2,650 74,350 62,256 62,256 12,094 Form 1040 (2022)

5-7

5-8

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 1, cont. Form 1040 (2022)

Tax and Credits

Anthony Stork

555-94-6767

16 17

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

Page 2

1,244

16 17

. . .

18 19 20

. . .

21 22 23

1,244

25d

3,400

. .

32 33 34

1,244

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

. . .

. . 27 28 29 30 31

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

3,400

Phone no.

. Savings

35a

Yes. Complete below.

3,400 2,156 2,156

Personal identification number (PIN)

Date

Your occupation

Casino Manager Spouse’s signature. If a joint return, both must sign.

Date

Phone no.

Email address

Preparer’s name

Preparer’s signature

Spouse’s occupation

Date

If the IRS sent you an Identity Protection PIN, enter it here (see inst.) If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 5

Comprehensive Problem 1, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

Anthony Stork Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

555-94-6767

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

Schedule 1 (Form 1040) 2022

5-9

5-10

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 1, cont. Page 2

Schedule 1 (Form 1040) 2022

Part II Adjustments to Income 11 12 13 14 15 16 17 18 19a b c 20 21 22 23 24 a b c d e f g h i

j k z 25 26

Educator expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Certain business expenses of reservists, performing artists, and fee-basis government 12 officials. Attach Form 2106 . . . . . . . . . . . . . . . . . . . . . . . . Health savings account deduction. Attach Form 8889 . . . . . . . . . . . . . . 13 Moving expenses for members of the Armed Forces. Attach Form 3903 . . . . . . . 14 Deductible part of self-employment tax. Attach Schedule SE . . . . . . . . . . . 15 Self-employed SEP, SIMPLE, and qualified plans . . . . . . . . . . . . . . . . 16 Self-employed health insurance deduction . . . . . . . . . . . . . . . . . . 17 Penalty on early withdrawal of savings . . . . . . . . . . . . . . . . . . . . 18 Alimony paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19a Recipient’s SSN . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): IRA deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Student loan interest deduction . . . . . . . . . . . . . . . . . . . . . . 21 22 Reserved for future use . . . . . . . . . . . . . . . . . . . . . . . . . Archer MSA deduction . . . . . . . . . . . . . . . . . . . . . . . . . 23 Other adjustments: Jury duty pay (see instructions) . . . . . . . . . . . . . . 24a Deductible expenses related to income reported on line 8l from the rental of personal property engaged in for profit . . . . . . . . 24b Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 8m . . . . . . . . . . 24c Reforestation amortization and expenses . . . . . . . . . . . 24d Repayment of supplemental unemployment benefits under the Trade Act of 1974 . . . . . . . . . . . . . . . . . . . . . . 24e Contributions to section 501(c)(18)(D) pension plans . . . . . . . 24f Contributions by certain chaplains to section 403(b) plans . . . . 24g Attorney fees and court costs for actions involving certain unlawful discrimination claims (see instructions) . . . . . . . . . . . . 24h Attorney fees and court costs you paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations . . . . . . . . . . . . . . . . . . . 24i Housing deduction from Form 2555 . . . . . . . . . . . . . 24j Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041) . . . . . . . . . . . . . . . . . . . . . . . . 24k Other adjustments. List type and amount: 24z Total other adjustments. Add lines 24a through 24z . . . . . . . . . . . . . . . 25 Add lines 11 through 23 and 25. These are your adjustments to income. Enter here and on Form 1040 or 1040-SR, line 10, or Form 1040-NR, line 10a . . . . . . . . . . . . 26

2,650

DRAFT AS OF July 27, 2022 DO NOT FILE

2,650

Schedule 1 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 5

Comprehensive Problem 1, cont.

Itemized Deductions

SCHEDULE A (Form 1040)

OMB No. 1545-0074

2022

Go to www.irs.gov/ScheduleA for instructions and the latest information. Attach to Form 1040 or 1040-SR. Department of the Treasury Caution: If you are claiming a net qualified disaster loss on Form 4684, see the instructions for line 16. Internal Revenue Service Name(s) shown on Form 1040 or 1040-SR

Your social security number

Anthony Stork Medical and Dental Expenses Taxes You Paid

555-94-6767

Caution: Do not include expenses reimbursed or paid by others. Medical and dental expenses (see instructions) . . . . . . Enter amount from Form 1040 or 1040-SR, line 11 2 Multiply line 2 by 7.5% (0.075) . . . . . . . . . . . . Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- .

DRAFT AS OF July 21, 2022 DO NOT FILE 1 2 3 4

Caution: Your mortgage interest deduction may be limited. See instructions.

. .

5 State and local taxes. 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. If you elect to include general sales taxes instead of income taxes, check this box . . . . . . . . . . . . . . . . . x b State and local real estate taxes (see instructions) . . . . . . . c State and local personal property taxes . . . . . . . . . . d Add lines 5a 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: 7 Add lines 5e and 6 .

Interest You Paid

3 . .

Caution: If you made a gift and got a benefit for it, see instructions.

5a 5b 5c 5d

4,375 3,400

7,775

6 . .

7,775

9,871

7,775

9,871

Gifts to Charity

Attachment Sequence No. 07

9,871 .

44,610 (a)

44,610

Casualty and 15 Casualty and theft loss(es) from a federally declared disaster (other than net qualified disaster losses). Attach Form 4684 and enter the amount from line 18 of that form. See Theft Losses instructions .

16 Other—from list in instructions. List type and amount: Other Itemized Deductions 16 17 Add the amounts in the far right column for lines 4 through 16. Also, enter this amount on Total 17 Form 1040 or 1040-SR, line 12 . . . . . . . . . . . . . . . . . . . . Itemized Deductions 18 If you elect to itemize deductions even though they are less than your standard deduction, check this box .

For Paperwork Reduction Act Notice, see the Instructions for Form 1040.

Cat. No. 17145C

62,256

. Schedule A (Form 1040) 2022

(a) $1,200 + $3,100 + ($100 – $45) + $50,000 = $54,355 which is limited to 60% of AGI or $44,610 ($74,350 x 60%).

5-11

5-12

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 1, cont. Form

8889

Department of the Treasury Internal Revenue Service

Health Savings Accounts (HSAs)

OMB No. 1545-0074

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form8889 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 52

Social security number of HSA beneficiary. If both spouses have HSAs, see instructions.

Anthony Stork

555-94-6767

Before you begin: Complete Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, if required. Part I HSA Contributions and Deduction. See the instructions before completing this part. If you are filing jointly and both you and your spouse each have separate HSAs, complete a separate Part I for each spouse. 1 2

DRAFT AS OF July 11, 2022 DO NOT FILE

Check the box to indicate your coverage under a high-deductible health plan (HDHP) during 2022. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HSA contributions you made for 2022 (or those made on your behalf), including those made in 2023 by the unextended due date of your tax return that were for 2022. Do not include employer contributions, contributions through a cafeteria plan, or rollovers. See instructions . . . . . . .

If you were under age 55 at the end of 2022 and, on the first day of every month during 2022, you were, or were considered, an eligible individual with the same coverage, enter $3,650 ($7,300 for family coverage). All others, see the instructions for the amount to enter . . . . . . . . . .

Enter the amount you and your employer contributed to your Archer MSAs for 2022 from Form 8853, lines 1 and 2. If you or your spouse had family coverage under an HDHP at any time during 2022, also include any amount contributed to your spouse’s Archer MSAs . . . . . . . . . . . . . Subtract line 4 from line 3. If zero or less, enter -0- . . . . . . . . . . . . . . . . . Enter the amount from line 5. But if you and your spouse each have separate HSAs and had family coverage under an HDHP at any time during 2022, see the instructions for the amount to enter . . If you were age 55 or older at the end of 2022, married, and you or your spouse had family coverage under an HDHP at any time during 2022, enter your additional contribution amount. See instructions . Add lines 6 and 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employer contributions made to your HSAs for 2022 . . . . . . . . 9 1,000 Qualified HSA funding distributions . . . . . . . . . . . . . . 10 0 Add lines 9 and 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subtract line 11 from line 8. If zero or less, enter -0- . . . . . . . . . . . . . . . . . HSA deduction. Enter the smaller of line 2 or line 12 here and on Schedule 1 (Form 1040), Part II, line 13 Caution: If line 2 is more than line 13, you may have to pay an additional tax. See instructions.

5 6 7 8 9 10 11 12 13

Part II

b Additional 20% tax (see instructions). Enter 20% (0.20) of the distributions included on line 16 that are subject to the additional 20% tax. Also, include this amount in the total on Schedule 2 (Form 1040), Part II, line 17c . . . . . . . . . . . . . . . . . . . . . . . . . .

18 19 20 21

Family

2,650

3,650

4 5

0 3,650

3,650

7 8

3,650

11 12 13

1,000 2,650 2,650

HSA Distributions. If you are filing jointly and both you and your spouse each have separate HSAs, complete a separate Part II for each spouse.

14a Total distributions you received in 2022 from all HSAs (see instructions) . . . . . . . . . . b Distributions included on line 14a that you rolled over to another HSA. Also include any excess contributions (and the earnings on those excess contributions) included on line 14a that were withdrawn by the due date of your return. See instructions . . . . . . . . . . . . . . c Subtract line 14b from line 14a . . . . . . . . . . . . . . . . . . . . . . . . 15 Qualified medical expenses paid using HSA distributions (see instructions) . . . . . . . . . 16 Taxable HSA distributions. Subtract line 15 from line 14c. If zero or less, enter -0-. Also, include this amount in the total on Schedule 1 (Form 1040), Part I, line 8f . . . . . . . . . . . . . . 17a If any of the distributions included on line 16 meet any of the Exceptions to the Additional 20% Tax (see instructions), check here . . . . . . . . . . . . . . . . . . . . . .

Part III

x Self-only

14a

14b 14c 15 16

17b

Income and Additional Tax for Failure To Maintain HDHP Coverage. See the instructions before completing this part. If you are filing jointly and both you and your spouse each have separate HSAs, complete a separate Part III for each spouse.

Last-month rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Qualified HSA funding distribution . . . . . . . . . . . . . . . . . . . . . . . Total income. Add lines 18 and 19. Include this amount on Schedule 1 (Form 1040), Part I, line 8f . Additional tax. Multiply line 20 by 10% (0.10). Include this amount in the total on Schedule 2 (Form 1040), Part II, line 17d . . . . . . . . . . . . . . . . . . . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 37621P

18 19 20 21 Form 8889 (2022)

Solutions for Questions and Problems – Chapter 5

Form

Comprehensive Problem 2A

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

Single

Married filing jointly

OMB No. 1545-0074

IRS Use Only—Do not write or staple in this space.

X Head of household (HOH)

Married filing separately (MFS)

Your first name and middle initial

Last name

Bea

Your social security number

Krump

466 78 6700

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Spouse’s social security number

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

654 Ocean Way

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Gulfport

Foreign country name

33707

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four Dee dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

Krump

Was born before January 2, 1958

121 44 6666

Child tax credit

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

. . 2a 3a 4a 5a 6a

340

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Credit for other dependents

Daughter

. . .

. .

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

X No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

Cat. No. 11320B

39,133

39,133 89

11,115 50,337 7,786 42,551 20,632 1,326 21,958 20,593 Form 1040 (2022)

5-13

5-14

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 2A, cont. Bea Krump

Form 1040 (2022)

Tax and Credits

466-78-6700

16 17

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

Page 2

2,176 2,176 2,000

16 17

. . .

18 19 20

. . .

21 22 23

2,000 176 1,571 1,747

25d

2,400

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

. . .

. . 27 28 29 30 31

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

2,400

Phone no.

. Savings

35a

Yes. Complete below.

2,400 653 653

Personal identification number (PIN)

Your signature

Date

Your occupation

Spouse’s signature. If a joint return, both must sign.

Date

Spouse’s occupation

Phone no.

Email address

Shrimper

Preparer’s name

Preparer’s signature

Date

If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 5

Comprehensive Problem 2A, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

Bea Krump Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

466-78-6700

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

11,115

Schedule 1 (Form 1040) 2022

5-15

5-16

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 2A, cont. Bea Krump Part II Adjustments to Income

Schedule 1 (Form 1040) 2022

11 12 13 14 15 16 17 18 19a b c 20 21 22 23 24 a b c d e f g h i

j k z 25 26

466-78-6700

Page 2

Educator expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 . . . . . . . . . . . . . . . . . . . . . . . . 12 Health savings account deduction. Attach Form 8889 . . . . . . . . . . . . . . 13 Moving expenses for members of the Armed Forces. Attach Form 3903 . . . . . . . 14 Deductible part of self-employment tax. Attach Schedule SE . . . . . . . . . . . 15 Self-employed SEP, SIMPLE, and qualified plans . . . . . . . . . . . . . . . . 16 Self-employed health insurance deduction . . . . . . . . . . . . . . . . . . 17 Penalty on early withdrawal of savings . . . . . . . . . . . . . . . . . . . . 18 Alimony paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19a Recipient’s SSN . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): IRA deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Student loan interest deduction . . . . . . . . . . . . . . . . . . . . . . 21 22 Reserved for future use . . . . . . . . . . . . . . . . . . . . . . . . . Archer MSA deduction . . . . . . . . . . . . . . . . . . . . . . . . . 23 Other adjustments: Jury duty pay (see instructions) . . . . . . . . . . . . . . 24a Deductible expenses related to income reported on line 8l from the rental of personal property engaged in for profit . . . . . . . . 24b Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 8m . . . . . . . . . . 24c Reforestation amortization and expenses . . . . . . . . . . . 24d Repayment of supplemental unemployment benefits under the Trade Act of 1974 . . . . . . . . . . . . . . . . . . . . . . 24e Contributions to section 501(c)(18)(D) pension plans . . . . . . . 24f Contributions by certain chaplains to section 403(b) plans . . . . 24g Attorney fees and court costs for actions involving certain unlawful discrimination claims (see instructions) . . . . . . . . . . . . 24h Attorney fees and court costs you paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations . . . . . . . . . . . . . . . . . . . 24i Housing deduction from Form 2555 . . . . . . . . . . . . . 24j Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041) . . . . . . . . . . . . . . . . . . . . . . . . 24k Other adjustments. List type and amount: 24z Total other adjustments. Add lines 24a through 24z . . . . . . . . . . . . . . . 25 Add lines 11 through 23 and 25. These are your adjustments to income. Enter here and on Form 1040 or 1040-SR, line 10, or Form 1040-NR, line 10a . . . . . . . . . . . . 26

DRAFT AS OF July 27, 2022 DO NOT FILE

3,300 786 3,700

7,786

Schedule 1 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 5

Comprehensive Problem 2A, cont. SCHEDULE 2

OMB No. 1545-0074

Additional Taxes

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 02

Your social security number

Bea Krump Part I Tax

466-78-6700

DRAFT AS OF July 27, 2022 DO NOT FILE

Alternative minimum tax. Attach Form 6251 . . . . . . . . . . . . . . . .

Excess advance premium tax credit repayment. Attach Form 8962 . . . . . . .

Add lines 1 and 2. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 17 . .

Part II Other Taxes 4

Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . . .

Social security and Medicare tax on unreported tip income. Attach Form 4137 . . . . . . . . . . . . . . . . . .

Uncollected social security and Medicare tax on wages. Attach Form 8919 . . . . . . . . . . . . . . . . . . . . .

Total additional social security and Medicare tax. Add lines 5 and 6

Additional tax on IRAs or other tax-favored accounts. Attach Form 5329 if required.

. . . . . .

If not required, check here . . . . . . . . . . . . . . . . . . . . .

Household employment taxes. Attach Schedule H

. . . . . . . . . . . . .

Repayment of first-time homebuyer credit. Attach Form 5405 if required . . . . .

Additional Medicare Tax. Attach Form 8959 . . . . . . . . . . . . . . . .

Net investment income tax. Attach Form 8960 . . . . . . . . . . . . . . .

Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance from Form W-2, box 12 . . . . . . . . . . . . . . . . . . . .

Interest on tax due on installment income from the sale of certain residential lots and timeshares . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest on the deferred tax on gain from certain installment sales with a sales price over $150,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recapture of low-income housing credit. Attach Form 8611 . . . . . . . . . .

1,571

(continued on page 2) For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71478U

Schedule 2 (Form 1040) 2022

5-17

5-18

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 2A, cont. Bea Krump Part II Other Taxes (continued)

Schedule 2 (Form 1040) 2022

466-78-6700

Page 2

Other additional taxes: a Recapture of other credits. List type, form number, and amount: 17a

DRAFT AS OF July 27, 2022 DO NOT FILE

b Recapture of federal mortgage subsidy, if you sold your home see instructions . . . . . . . . . . . . . . . . . . . 17b c Additional tax on HSA distributions. Attach Form 8889 . . . .

17c

d Additional tax on an HSA because you didn’t remain an eligible individual. Attach Form 8889 . . . . . . . . . . . . . . 17d e Additional tax on Archer MSA distributions. Attach Form 8853 .

17e

f Additional tax on Medicare Advantage MSA distributions. Attach Form 8853 . . . . . . . . . . . . . . . . . . . . . 17f

Section 72(m)(5) excess benefits tax . . . . . . . . . . .

k Golden parachute payments l

17j

. . . . . . . . . . . . . .

17k

Tax on accumulation distribution of trusts . . . . . . . . .

17l

17q

z Any other taxes. List type and amount: 17z 18

Total additional taxes. Add lines 17a through 17z . . . . . . . . . . . . . .

Reserved for future use

20 21

. . . . . . . . . . . . . . . . . . . . . . . .

1,571

Schedule 2 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 5

Comprehensive Problem 2A, cont.

Itemized Deductions

SCHEDULE A (Form 1040)

OMB No. 1545-0074

2022

Your social security number

Bea Krump Medical and Dental Expenses Taxes You Paid

466-78-6700

DRAFT AS OF July 21, 2022 DO NOT FILE 1 2 3 4

Caution: Your mortgage interest deduction may be limited. See instructions.

. .

5 State and local taxes. 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. If you elect to include general sales taxes instead of income taxes, x check this box . . . . . . . . . . . . . . . . . b State and local real estate taxes (see instructions) . . . . . . . c State and local personal property taxes . . . . . . . . . . d Add lines 5a 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: 7 Add lines 5e and 6 .

Interest You Paid

3 . .

Caution: If you made a gift and got a benefit for it, see instructions.

5a 5b 5c 5d

3,881 4,637 (a)

8,518

6 . .

8,518

8,114 (b)

Gifts to Charity

Attachment Sequence No. 07

8,114 .

8,114

4,000

For Paperwork Reduction Act Notice, see the Instructions for Form 1040.

Cat. No. 17145C

(a) Property taxes of $5,040 less amount allocated to home office (8% = $403). (b) Interest of $8,820 less amount allocated to home office (8% = $706).

20,632

. Schedule A (Form 1040) 2022

5-19

5-20

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 2A, cont. SCHEDULE C (Form 1040)

Profit or Loss From Business

Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

2022

(Sole Proprietorship) Go to www.irs.gov/ScheduleC for instructions and the latest information.

Name of proprietor

Social security number (SSN)

Bea Krump A

466-78-6700

Principal business or profession, including product or service (see instructions)

Shrimping C

Attachment Sequence No. 09

Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.

B Enter code from instructions

1 1 4 1 1 0

DRAFT AS OF July 15, 2022 DO NOT FILE

Business name. If no separate business name, leave blank.

Bea Krump’s Shrimp

D Employer ID number (EIN) (see instr.)

654 Ocean Way

Business address (including suite or room no.)

F G

City, town or post office, state, and ZIP code Gulfport, FL 33707 (2) Accrual (3) Other (specify) Accounting method: (1) x Cash Did you “materially participate” in the operation of this business during 2022? If “No,” see instructions for limit on losses

x Yes

H I J

. . .

Yes Yes

Part I 1

. . .

2 3 4

1 2 3 4

5 6 7

. . .

5 6 7

Office expense (see instructions) . Pension and profit-sharing plans .

18 19

Rent or lease (see instructions): Vehicles, machinery, and equipment Other business property . . .

20a 20b

Repairs and maintenance . . . Supplies (not included in Part III) . Taxes and licenses . . . . .

21 22 23

Travel and meals: Travel . . . .

24a

Deductible meals (see instructions) . . . . . . . Utilities . . . . . . . . Wages (less employment credits)

24b 25 26

Advertising .

Car and truck expenses (see instructions) . . . Commissions and fees . Contract labor (see instructions)

12 13

Depletion . . . . . Depreciation and section 179 expense deduction (not included in Part III) (see instructions) . . . .

Employee benefit programs (other than on line 19) . Insurance (other than health) Interest (see instructions): Mortgage (paid to banks, etc.)

15 16 a b

x No No

. . .

43,000 43,000 43,000 43,000

Expenses. Enter expenses for business use of your home only on line 30.

10 11

. . .

Income

Part II

. . .

18 19

9 10 11

21 22 23

a b

24 a

14 15

800 25 26

16a

16,000 900 1,280 (a)

6,000 5,700

17 28

. . .

27a 27b 28

Tentative profit or (loss). Subtract line 28 from line 7 .

30,680 12,320

1,205

11,115

and (b) the part of your home used for business: Method Worksheet in the instructions to figure the amount to enter on line 30

Net profit or (loss). Subtract line 30 from line 29.

(a) Shrimping permit ($800) + payroll taxes ($480).

. Use the Simplified . . . . . . .

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

}

32a 32b

All investment is at risk. Some investment is not at risk. Schedule C (Form 1040) 2022

Solutions for Questions and Problems – Chapter 5

Comprehensive Problem 2A, cont. Page 2

Schedule C (Form 1040) 2022

Part III

Cost of Goods Sold (see instructions)

Method(s) used to value closing inventory:

Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . .

Cost

Lower of cost or market

Other (attach explanation) Yes

DRAFT AS OF July 15, 2022 DO NOT FILE

Inventory at beginning of year. If different from last year’s closing inventory, attach explanation .

Purchases less cost of items withdrawn for personal use

Cost of labor. Do not include any amounts paid to yourself .

Materials and supplies

Other costs .

Add lines 35 through 39 .

Inventory at end of year .

Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 .

Part IV

When did you place your vehicle in service for business purposes? (month/day/year)

Of the total number of miles you drove your vehicle during 2022, enter the number of miles you used your vehicle for: a

Business

b Commuting (see instructions)

c Other

Was your vehicle available for personal use during off-duty hours?

Yes

Do you (or your spouse) have another vehicle available for personal use?.

Yes

47a

Do you have evidence to support your deduction?

Yes

If “Yes,” is the evidence written?

Yes

Part V

Other Expenses. List below business expenses not included on lines 8–26 or line 30.

Bait and tackle

3,300

Boat fuel

2,400

(non-deductible fines and penalties)

Total other expenses. Enter here and on line 27a

5,700 Schedule C (Form 1040) 2022

5-21

5-22

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 2A, cont. SCHEDULE SE Department of the Treasury Internal Revenue Service

2022

Go to www.irs.gov/ScheduleSE for instructions and the latest information. Attach to Form 1040, 1040-SR, or 1040-NR.

Name of person with self-employment income (as shown on Form 1040, 1040-SR, or 1040-NR)

Attachment Sequence No. 17

Social security number of person with self-employment income

Bea Krump Part I

OMB No. 1545-0074

Self-Employment Tax

(Form 1040)

466-78-6700

Self-Employment Tax

DRAFT AS OF July 28, 2022 DO NOT FILE

Note: If your only income subject to self-employment tax is church employee income, see instructions for how to report your income and the definition of church employee income. A If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you had $400 or more of other net earnings from self-employment, check here and continue with Part I . . . . . . . . . Skip lines 1a and 1b if you use the farm optional method in Part II. See instructions. 1a Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), 1a box 14, code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b If you received social security retirement or disability benefits, enter the amount of Conservation Reserve Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code AH 1b ( ) Skip line 2 if you use the nonfarm optional method in Part II. See instructions. 2 Net profit or (loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than 2 farming). See instructions for other income to report or if you are a minister or member of a religious order 11,115 3 Combine lines 1a, 1b, and 2 . . . . . . . . . . . . . . . . . . . . . . . . . 3 11,115 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3 . 4a 10,265 Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions. b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here . . . . . 4b c Combine lines 4a and 4b. If less than $400, stop; you don’t owe self-employment tax. Exception: If less than $400 and you had church employee income, enter -0- and continue . . . . . . . . 4c 10,265 5a Enter your church employee income from Form W-2. See instructions for definition of church employee income . . . . . . . . . . . . . 5a b Multiply line 5a by 92.35% (0.9235). If less than $100, enter -0- . . . . . . . . . . . . . 5b 6 Add lines 4c and 5b . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 10,265 7 Maximum amount of combined wages and self-employment earnings subject to social security tax or 147,000 the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2022 . . . . . . . . . . . 7 8a Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2) and railroad retirement (tier 1) compensation. If $147,000 or more, skip lines 8b through 10, and go to line 11 . . . . . . . . . . . . . . . 8a 39,133 b Unreported tips subject to social security tax from Form 4137, line 10 . . . 8b c Wages subject to social security tax from Form 8919, line 10 . . . . . . 8c d Add lines 8a, 8b, and 8c . . . . . . . . . . . . . . . . . . . . . . . . . . 8d 39,133 9 Subtract line 8d from line 7. If zero or less, enter -0- here and on line 10 and go to line 11 . . . . 9 107,867 10 Multiply the smaller of line 6 or line 9 by 12.4% (0.124) . . . . . . . . . . . . . . . . 10 1,273 11 Multiply line 6 by 2.9% (0.029) . . . . . . . . . . . . . . . . . . . . . . . . 11 298 12 Self-employment tax. Add lines 10 and 11. Enter here and on Schedule 2 (Form 1040), line 4 . . 12 1,571 13 Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50). Enter here and on Schedule 1 (Form 1040), line 15 . . . . . . . . . . . . . . . . . . . . . . . . 13 786

Part II

Optional Methods To Figure Net Earnings (see instructions)

For Paperwork Reduction Act Notice, see your tax return instructions.

6,040

16 17

From Sch. C, line 31; and Sch. K-1 (Form 1065), box 14, code A. 4 From Sch. C, line 7; and Sch. K-1 (Form 1065), box 14, code C. Cat. No. 11358Z

Schedule SE (Form 1040) 2022

Solutions for Questions and Problems – Chapter 5

Comprehensive Problem 2A, cont. Form

8889

Department of the Treasury Internal Revenue Service

Health Savings Accounts (HSAs)

OMB No. 1545-0074

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form8889 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Bea Krump

Attachment Sequence No. 52

Social security number of HSA beneficiary. If both spouses have HSAs, see instructions.

466-78-6700

DRAFT AS OF July 11, 2022 DO NOT FILE

Self-only

X Family

3,300

7,300

Enter the amount you and your employer contributed to your Archer MSAs for 2022 from Form 8853, lines 1 and 2. If you or your spouse had family coverage under an HDHP at any time during 2022, also include any amount contributed to your spouse’s Archer MSAs . . . . . . . . . . . . . Subtract line 4 from line 3. If zero or less, enter -0- . . . . . . . . . . . . . . . . . Enter the amount from line 5. But if you and your spouse each have separate HSAs and had family coverage under an HDHP at any time during 2022, see the instructions for the amount to enter . . If you were age 55 or older at the end of 2022, married, and you or your spouse had family coverage under an HDHP at any time during 2022, enter your additional contribution amount. See instructions . Add lines 6 and 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employer contributions made to your HSAs for 2022 . . . . . . . . 9 Qualified HSA funding distributions . . . . . . . . . . . . . . 10 Add lines 9 and 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subtract line 11 from line 8. If zero or less, enter -0- . . . . . . . . . . . . . . . . . HSA deduction. Enter the smaller of line 2 or line 12 here and on Schedule 1 (Form 1040), Part II, line 13 Caution: If line 2 is more than line 13, you may have to pay an additional tax. See instructions.

4 5

7,300

7 8

7,300

11 12 13

7,300 3,300

5 6 7 8 9 10 11 12 13

Part II

HSA Distributions. If you are filing jointly and both you and your spouse each have separate HSAs, complete a separate Part II for each spouse.

Part III

18 19 20 21

14a

2,788

14b 14c 15

2,788 2,788

17b

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 37621P

18 19 20 21 Form 8889 (2022)

5-23

5-24

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 2A, cont. Form

8995

Department of the Treasury Internal Revenue Service

Qualified Business Income Deduction Simplified Computation

OMB No. 1545-2294

2021

a Attach to your tax return. a Go to www.irs.gov/Form8995 for instructions and the latest information.

Attachment Sequence No. 55

Your taxpayer identification number

Name(s) shown on return

Bea Krump

466-78-6700

(a) Trade, business, or aggregation name

Bea Krump’s Shrimp

(b) Taxpayer identification number

466-78-6700

6,629 (a)

ii iii iv v 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Total qualified business income or (loss). Combine lines 1i through 1v, 2 column (c) . . . . . . . . . . . . . . . . . . . . . . 6,629 Qualified business net (loss) carryforward from the prior year . . . . . . . 3 ( ) Total qualified business income. Combine lines 2 and 3. If zero or less, enter -04 6,629 Qualified business income component. Multiply line 4 by 20% (0.20) . . . . . . . . . . . 5 Qualified REIT dividends and publicly traded partnership (PTP) income or (loss) 6 (see instructions) . . . . . . . . . . . . . . . . . . . . Qualified REIT dividends and qualified PTP (loss) carryforward from the prior year . . . . . . . . . . . . . . . . . . . . . . . . . ) 7 ( Total qualified REIT dividends and PTP income. Combine lines 6 and 7. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . 8 REIT and PTP component. Multiply line 8 by 20% (0.20) . . . . . . . . . . . . . . . 9 Qualified business income deduction before the income limitation. Add lines 5 and 9 . . . . . . 10 Taxable income before qualified business income deduction (see instructions) 11 21,919 (b) Net capital gain (see instructions) . . . . . . . . . . . . . . . 12 Subtract line 12 from line 11. If zero or less, enter -0- . . . . . . . . 13 21,919 Income limitation. Multiply line 13 by 20% (0.20) . . . . . . . . . . . . . . . . . . 14 Qualified business income deduction. Enter the smaller of line 10 or line 14. Also enter this amount on the applicable line of your return (see instructions) . . . . . . . . . . . . . . . . a 15 Total qualified business (loss) carryforward. Combine lines 2 and 3. If greater than zero, enter -0- . . 16 ( Total qualified REIT dividends and PTP (loss) carryforward. Combine lines 6 and 7. If greater than zero, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (

For Privacy Act and Paperwork Reduction Act Notice, see instructions.

Cat. No. 37806C

1,326

4,384 1,326 ) ) Form 8995 (2021)

(a) $11,115 less $3,700 in self-employed health care premiums and $786 in one-half of self-employment tax. (b) $42,551 (AGI) less $20,632 (itemized deductions). Please go to www.irs.gov to download the latest Form 8995. The 2022 version of Form 8995 was not available as we went to print.

Solutions for Questions and Problems – Chapter 5

Comprehensive Problem 2A, cont. Form

8829

Department of the Treasury Internal Revenue Service

Expenses for Business Use of Your Home

OMB No. 1545-0074

Name(s) of proprietor(s)

1 2 3 4 5 6 7

Attachment Sequence No. 176

Your social security number

Bea Krump Part I

2022

File only with Schedule C (Form 1040). Use a separate Form 8829 for each home you used for business during the year. Go to www.irs.gov/Form8829 for instructions and the latest information.

466-78-6700

Part of Your Home Used for Business

DRAFT AS OF July 21, 2022 DO NOT FILE

1 2 3

160 2,000 8%

Part II Figure Your Allowable Deduction 8

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

(a) Direct expenses

12,320

14 15

1,109 11,211

26 27 28

96 96 11,115

(b) Indirect expenses

Casualty losses (see instructions) . . . . . . 9 Deductible mortgage interest (see instructions) . 10 8,820 Real estate taxes (see instructions) . . . . . 11 5,040 Add lines 9, 10, and 11 . . . . . . . . . 12 13,860 Multiply line 12, column (b), by line 7 . . . . . . . . . . . . 13 1,109 Add line 12, column (a), and line 13 . . . . . . . . . . . . . . . . . . . . . Subtract line 14 from line 8. If zero or less, enter -0- . . . . . . . . . . . . . . . . Excess mortgage interest (see instructions) . . 16 Excess real estate taxes (see instructions) . . . 17 Insurance . . . . . . . . . . . . . . 18 Rent . . . . . . . . . . . . . . . 19 Repairs and maintenance . . . . . . . . 20 Utilities . . . . . . . . . . . . . . 21 1,200 Other expenses (see instructions) . . . . . . 22 Add lines 16 through 22 . . . . . . . . . 23 1,200 Multiply line 23, column (b), by line 7 . . . . . . . . . . . . 24 96 Carryover of prior year operating expenses (see instructions) . . . . 25 Add line 23, column (a), line 24, and line 25 . . . . . . . . . . . . . . . . . . . Allowable operating expenses. Enter the smaller of line 15 or line 26 . . . . . . . . . . Limit on excess casualty losses and depreciation. Subtract line 27 from line 15 . . . . . . . Excess casualty losses (see instructions) . . . . . . . . . . 29 Depreciation of your home from line 42 below . . . . . . . . . 30 Carryover of prior year excess casualty losses and depreciation (see instructions) 31 Add lines 29 through 31 . . . . . . . . . . . . . . . . . . . . . . . . . Allowable excess casualty losses and depreciation. Enter the smaller of line 28 or line 32 . . . Add lines 14, 27, and 33 . . . . . . . . . . . . . . . . . . . . . . . . . Casualty loss portion, if any, from lines 14 and 33. Carry amount to Form 4684. See instructions . Allowable expenses for business use of your home. Subtract line 35 from line 34. Enter here and on Schedule C, line 30. If your home was used for more than one business, see instructions .

32 33 34 35 36

1,205 1,205

Part III Depreciation of Your Home 37 38 39 40 41 42

37 38 39 40 41 42

Part IV Carryover of Unallowed Expenses to 2023 43 44

Operating expenses. Subtract line 27 from line 26. If less than zero, enter -0- . . . . . . . Excess casualty losses and depreciation. Subtract line 33 from line 32. If less than zero, enter -0- .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 13232M

43 44 Form 8829 (2022)

5-25

5-26

Chapter 5 – Deductions For and From AGI

Form

Comprehensive Problem 2B

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status x Single Check only one box.

Married filing jointly

OMB No. 1545-0074

Married filing separately (MFS)

IRS Use Only—Do not write or staple in this space.

Head of household (HOH)

Your first name and middle initial

Last name

John

Your social security number

Fuji

571 78

5974

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Spouse’s social security number

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

468 Bonnie Doon Avenue

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Yakima

Foreign country name

98902

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

. . .

Credit for other dependents

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

4,000

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Child tax credit

. . .

. . 2a 3a

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Was born before January 2, 1958

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

x No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

. . .

. .

. . .

Cat. No. 11320B

80,125

80,125 4,000

23,271 5,100 112,496 112,496 18,160 18,160 94,336 Form 1040 (2022)

Solutions for Questions and Problems – Chapter 5

Comprehensive Problem 2B, cont. John Fuji

Form 1040 (2022)

Tax and Credits

571-78-5974

16 17

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

25d

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

16 17

. . .

18 19 20

. . .

21 22 23

Page 2

14,675 14,675

14,675

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

. . .

10,100

. . 27 28

10,100 5,000

29 30 31

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

14,675

Phone no.

. Savings

35a

Yes. Complete below.

15,100 425 425

Personal identification number (PIN)

Your signature

Date

Your occupation

Spouse’s signature. If a joint return, both must sign.

Date

Spouse’s occupation

Phone no.

Email address

Manager

Preparer’s name

Preparer’s signature

Date

If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

5-27

5-28

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 2B, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

John Fuji Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

571-78-5974

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . 01/20/2016 Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

6,000

(900)

5,100

Schedule 1 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 5

Comprehensive Problem 2B, cont. Page 2

Schedule 1 (Form 1040) 2022

Part II Adjustments to Income 11 12 13 14 15 16 17 18 19a b c 20 21 22 23 24 a b c d e f g h i

j k z 25 26

DRAFT AS OF July 27, 2022 DO NOT FILE

Schedule 1 (Form 1040) 2022

Note: Roth IRA contributions are after-tax contributions; thus, no effect on the tax return.

5-29

5-30

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 2B, cont.

Itemized Deductions

SCHEDULE A (Form 1040) Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

Name(s) shown on Form 1040 or 1040-SR

Taxes You Paid

571-78-5974 Caution: Do not include expenses reimbursed or paid by others. Medical and dental expenses (see instructions) . . . . . . . Enter amount from Form 1040 or 1040-SR, line 11 2 112,496 Multiply line 2 by 7.5% (0.075) . . . . . . . . . . . . . Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- . . .

Caution: Your mortgage interest deduction may be limited. See instructions.

5,800

DRAFT AS OF July 21, 2022 DO NOT FILE 1 2 3 4

Interest You Paid

3 . .

Caution: If you made a gift and got a benefit for it, see instructions.

8,437

5a 5b 5c 5d

2,022 3,803 (a)

5,825

6 . .

5,825

9,835

2,500

9,835

Gifts to Charity

Attachment Sequence No. 07

Your social security number

John Fuji Medical and Dental Expenses

2022

Go to www.irs.gov/ScheduleA for instructions and the latest information. Attach to Form 1040 or 1040-SR. Caution: If you are claiming a net qualified disaster loss on Form 4684, see the instructions for line 16.

9,835 .

2,500

16 Other—from list in instructions. List type and amount: Other Itemized Deductions

17 Add the amounts in the far right column for lines 4 through 16. Also, enter this amount on Total 17 Form 1040 or 1040-SR, line 12 . . . . . . . . . . . . . . . . . . . . Itemized Deductions 18 If you elect to itemize deductions even though they are less than your standard deduction, check this box .

For Paperwork Reduction Act Notice, see the Instructions for Form 1040.

Cat. No. 17145C

18,160

. Schedule A (Form 1040) 2022

(a) $3,480 from Form 1098 + $323 paid as part of closing as a reduction of the taxpayer’s proceeds on the sale.

Solutions for Questions and Problems – Chapter 5

Comprehensive Problem 2B, cont. SCHEDULE B

OMB No. 1545-0074

Interest and Ordinary Dividends

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Go to www.irs.gov/ScheduleB for instructions and the latest information. Attach to Form 1040 or 1040-SR.

Name(s) shown on return

Attachment Sequence No. 08 Your social security number

John Fuji Part I Interest (See instructions and the Instructions for Form 1040, line 2b.) Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm’s name as the payer and enter the total interest shown on that form.

571-78-5974 1

DRAFT AS OF July 7, 2022 DO NOT FILE 1

2 3

Part II Ordinary Dividends

Amount

2 3 4 Amount

Honeycrisp Equity Fund

4,000

(See instructions and the Instructions for Form 1040, line 3b.)

4,000

b If you are required to file FinCEN Form 114, list the name(s) of the foreign country(-ies) where the financial account(s) are located: 8

During 2022, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If “Yes,” you may have to file Form 3520. See instructions . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 17146N

Schedule B (Form 1040) 2022

5-31

5-32

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 2B, cont. SCHEDULE D

OMB No. 1545-0074

Capital Gains and Losses

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/ScheduleD for instructions and the latest information. Use Form 8949 to list your transactions for lines 1b, 2, 3, 8b, 9, and 10.

Name(s) shown on return

Attachment Sequence No. 12 Your social security number

John Fuji

Did you dispose of any investment(s) in a qualified opportunity fund during the tax year? Yes X No If “Yes,” attach Form 8949 and see its instructions for additional requirements for reporting your gain or loss.

Part I

DRAFT AS OF July 15, 2022 DO NOT FILE

Short-Term Capital Gains and Losses—Generally Assets Held One Year or Less (see instructions)

(d) Proceeds (sales price)

12,798

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part I, line 2, column (g)

9,727

Part II

571-78-5974

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

3,071

4 5 6

(

)

3,071

Long-Term Capital Gains and Losses—Generally Assets Held More Than One Year (see instructions)

See instructions for how to figure the amounts to enter on the lines below. This form may be easier to complete if you round off cents to whole dollars.

(d) Proceeds (sales price)

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part II, line 2, column (g)

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

561,000

292,000

(250,000)

Cat. No. 11338H

11 12 13

19,000

1,200

14 ( 15

)

20,200

Schedule D (Form 1040) 2022

Solutions for Questions and Problems – Chapter 5

Comprehensive Problem 2B, cont. Schedule D (Form 1040) 2022

Part III 16

John Fuji

571-78-5974

Page 2

Summary

Combine lines 7 and 15 and enter the result

23,271

DRAFT AS OF July 15, 2022 DO NOT FILE

Are lines 15 and 16 both gains? X Yes. Go to line 18. No. Skip lines 18 through 21, and go to line 22.

If you are required to complete the 28% Rate Gain Worksheet (see instructions), enter the amount, if any, from line 7 of that worksheet . . . . . . . . . . . . . . . . . .

If you are required to complete the Unrecaptured Section 1250 Gain Worksheet (see instructions), enter the amount, if any, from line 18 of that worksheet . . . . . . . . . .

Are lines 18 and 19 both zero or blank and you are not filing Form 4952? X Yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 16. Don’t complete lines 21 and 22 below. No. Complete the Schedule D Tax Worksheet in the instructions. Don’t complete lines 21 and 22 below.

If line 16 is a loss, enter here and on Form 1040, 1040-SR, or 1040-NR, line 7, the smaller of: • The loss on line 16; or • ($3,000), or if married filing separately, ($1,500)

}

21 (

)

Note: When figuring which amount is smaller, treat both amounts as positive numbers. 22

5-33

5-34

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 2B, cont. Form

8949

Department of the Treasury Internal Revenue Service

Name(s) shown on return

OMB No. 1545-0074

2022

Attachment Sequence No. 12A

Social security number or taxpayer identification number

John Fuji

571-78-5974

Part I

DRAFT AS OF August 17, 2022 DO NOT FILE

(a) Description of property (Example: 100 sh. XYZ Co.)

(b) Date acquired (Mo., day, yr.)

(d) Proceeds (sales price) (see instructions)

Cat. No. 37768Z

Form 8949 (2022)

Solutions for Questions and Problems – Chapter 5

Comprehensive Problem 2B, cont. Attachment Sequence No. 12A

Form 8949 (2022) Name(s) shown on return. Name and SSN or taxpayer identification no. not required if shown on other side

Page 2

Social security number or taxpayer identification number

John Fuji

571-78-5974

Part II

DRAFT AS OF August 17, 2022 DO NOT FILE

You must check Box D, E, or F below. Check only one box. If more than one box applies for your long-term transactions, complete a separate Form 8949, page 2, for each applicable box. If you have more long-term transactions than will fit on this page for one or more of the boxes, complete as many forms with the same box checked as you need. (D) Long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS (see Note above) (E) Long-term transactions reported on Form(s) 1099-B showing basis wasn’t reported to the IRS X (F) Long-term transactions not reported to you on Form 1099-B 1

(a) Description of property (Example: 100 sh. XYZ Co.)

Sale of primary residence

(b) Date acquired (Mo., day, yr.)

10/01/12

12/30/22

(d) Proceeds (sales price) (see instructions)

561,000 (a)

292,000

561,000

292,000

(250,000)

19,000

(250,000)

19,000

(a) Net proceeds of $560,677 plus $323 in property taxes retained by buyer.

5-35

5-36

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 2B, cont. SCHEDULE E

Supplemental Income and Loss

(Form 1040)

OMB No. 1545-0074

Attach to Form 1040, 1040-SR, 1040-NR, or 1041. Go to www.irs.gov/ScheduleE for instructions and the latest information.

Department of the Treasury Internal Revenue Service Name(s) shown on return

Attachment Sequence No. 13 Your social security number

John Fuji Part I

2022

(From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.)

571-78-5974

A B

DRAFT AS OF July 22, 2022 DO NOT FILE

Did you make any payments in 2022 that would require you to file Form(s) 1099? See instructions . If “Yes,” did you or will you file required Form(s) 1099? . . . . . . . . . . . . . .

Physical address of each property (street, city, state, ZIP code)

A B C 1b

1012 E. Terrace Street, Unit 1204, Seattle, WA 98122 Type of Property (from list below)

A 1 B C Type of Property: 1 Single Family Residence 2 Multi-Family Residence

3 Vacation/Short-Term Rental 4 Commercial

Fair Rental Days

A B C

5 Land 6 Royalties

. .

Personal Use Days

(a) $2,000 per month x 12 + $200 deposit retained.

X No No

QJV

365

7 Self-Rental 8 Other (describe)

Properties: Income: A B 3 Rents received . . . . . . . . . . . . . . . 3 24,200 (a) 4 Royalties received . . . . . . . . . . . . . . 4 Expenses: 5 5 Advertising . . . . . . . . . . . . . . . . 6 Auto and travel (see instructions) . . . . . . . . 6 7 Cleaning and maintenance . . . . . . . . . . . 7 8 Commissions . . . . . . . . . . . . . . . 8 9 Insurance . . . . . . . . . . . . . . . . . 9 2,000 10 Legal and other professional fees . . . . . . . . 10 11 Management fees . . . . . . . . . . . . . . 11 12 Mortgage interest paid to banks, etc. (see instructions) 12 9,500 13 Other interest . . . . . . . . . . . . . . . 13 14 Repairs . . . . . . . . . . . . . . . . . . 14 1,000 15 Supplies . . . . . . . . . . . . . . . . . 15 16 Taxes . . . . . . . . . . . . . . . . . . 16 7,000 17 Utilities . . . . . . . . . . . . . . . . . . 17 18 Depreciation expense or depletion . . . . . . . . 18 19 19 Other (list) HOA Fees 5,600 20 Total expenses. Add lines 5 through 19 . . . . . . 20 25,100 21 Subtract line 20 from line 3 (rents) and/or 4 (royalties). If result is a (loss), see instructions to find out if you must file Form 6198 . . . . . . . . . . . . . . . 21 (900) 22 Deductible rental real estate loss after limitation, if any, on Form 8582 (see instructions) . . . . . . . . . 22 ( )( 900 ) ( 23a Total of all amounts reported on line 3 for all rental properties . . . . . 23a 24,200 b Total of all amounts reported on line 4 for all royalty properties . . . . . 23b c Total of all amounts reported on line 12 for all properties . . . . . . . 23c 9,500 d Total of all amounts reported on line 18 for all properties . . . . . . . 23d e Total of all amounts reported on line 20 for all properties . . . . . . . 23e 25,100 24 Income. Add positive amounts shown on line 21. Do not include any losses . . . . . . . 24 25 Losses. Add royalty losses from line 21 and rental real estate losses from line 22. Enter total losses here 25 ( 26 Total rental real estate and royalty income or (loss). Combine lines 24 and 25. Enter the result here. If Parts II, III, IV, and line 40 on page 2 do not apply to you, also enter this amount on Schedule 1 (Form 1040), line 5. Otherwise, include this amount in the total on line 41 on page 2 . 26 For Paperwork Reduction Act Notice, see the separate instructions.

Yes Yes

Cat. No. 11344L

)

900

)

(900)

Schedule E (Form 1040) 2022

Solutions for Questions and Problems – Chapter 5

Comprehensive Problem 2B, cont. Form

8582

Department of the Treasury Internal Revenue Service

Passive Activity Loss Limitations

OMB No. 1545-1008

See separate instructions. Attach to Form 1040, 1040-SR, or 1041. Go to www.irs.gov/Form8582 for instructions and the latest information.

Attachment Sequence No. 858

2022

Name(s) shown on return

Identifying number

John Fuji Part I

571-78-5974 2022 Passive Activity Loss Caution: Complete Parts IV and V before completing Part I.

DRAFT AS OF October 11, 2022 DO NOT FILE

Rental Real Estate Activities With Active Participation (For the definition of active participation, see Special Allowance for Rental Real Estate Activities in the instructions.) 1a b c d

. . . .

1a 1b ( 1c ( . . . .

. . . .

2a 2b ( 2c ( . . . .

900 )

)

(

900 )

(

900 )

All Other Passive Activities 2a b c d

If line 3 is a loss and:

. . . .

) )

• Line 1d is a loss, go to Part II. • Line 2d is a loss (and line 1d is zero or more), skip Part II and go to line 10.

Caution: If your filing status is married filing separately and you lived with your spouse at any time during the year, do not complete Part II. Instead, go to line 10.

Part II 4 5 6

7 8 9

Note: Enter all numbers in Part II as positive amounts. See instructions for an example. Enter the smaller of the loss on line 1d or the loss on line 3 . . . . . . . . . . . . . . Enter $150,000. If married filing separately, see instructions . . . . . . 5 150,000 Enter modified adjusted gross income, but not less than zero. See instructions 6 113,396 Note: If line 6 is greater than or equal to line 5, skip lines 7 and 8 and enter -0on line 9. Otherwise, go to line 7. Subtract line 6 from line 5 . . . . . . . . . . . . . . . . . 7 36,604 Multiply line 7 by 50% (0.50). Do not enter more than $25,000. If married filing separately, see instructions Enter the smaller of line 4 or line 8 . . . . . . . . . . . . . . . . . . . . . .

Part III 10 11

Special Allowance for Rental Real Estate Activities With Active Participation

(a)

8 9

Total Losses Allowed

Part IV

900

18,302 900

900

Complete This Part Before Part I, Lines 1a, 1b, and 1c. See instructions. Prior years

Current year Name of activity

(a) Net income (line 1a)

(b) Net loss (line 1b)

Rental Seattle Condo

900

Total. Enter on Part I, lines 1a, 1b, and 1c

900

For Paperwork Reduction Act Notice, see instructions.

(a) Total of all items in AGI without loss from Schedule E.

Overall gain or loss (d) Gain

(e) Loss

900

Cat. No. 63704F

Form 8582 (2022)

5-37

5-38

Chapter 5 – Deductions For and From AGI

Comprehensive Problem 2B, cont.

94,336 4,000

X 20,200 24,200 70,136 $41,675 $83,350 $55,800

$459,750 $258,600 $517,200 $488,500

41,675 41,675 41,675 0 24,200 0 24,200 459,750 94,336 70,136 24,200 24,200 3,630 24,200 0 0 11,045 14,675 16,474 14,675

This worksheet adapted from the 2021 worksheet.

Solutions for Questions and Problems – Chapter 5

5-39

Key Number Tax Return Summary Chapter 5 Comprehensive Problem 1 Adjusted Gross Income (Line 11)

74,350

Standard Deduction or Itemized Deductions (Line 12)

62,256

Taxable Income (Line 15)

12,094

Total Tax (Line 24)

1,244

Amount Overpaid (Line 34)

2,156

Comprehensive Problem 2A Adjusted Gross Income (Line 11)

42,551

Standard Deduction or Itemized Deductions (Line 12)

20,632

Qualified Business Income Deduction (Line 13)

1,326

Total Tax (Line 24)

1,747

Amount Overpaid (Line 34)

653

Comprehensive Problem 2B Adjusted Gross Income (Line 11)

112,496

Standard Deduction or Itemized Deductions (Line 12)

18,160

Total Tax (Line 24)

14,675

Amount Overpaid (Line 34)

425

CHAPTER 6 ACCOUNTING PERIODS AND OTHER TAXES

Group 1 – Multiple Choice Questions 1. D S corporations may choose a non-calendar year-end but will be required to make certain payments (LO 6.1) 2. D All of these business forms are generally treated as a pass-through (LO 6.1) 3. C Corporations have the greatest flexibility in choosing year-ends (LO 6.1) 4. D All of these are acceptable methods (LO 6.2) 5. B Corporations with gross receipts in excess of $27 million (in 2022) must use the accrual method (LO 6.2) 6. B Actual or constructive receipt is required (LO 6.2) 7. C Economic performance is required for deduction (LO 6.2) 8. D $6,500 – $8,500. The related party sale loss is disallowed (LO 6.3) 9. A Because Bonnie is a cash-basis related party, these items may not be deducted until included in income (LO 6.3) 10. C The bonus will be included in Bonnie’s income in 2023 and thus will be deductible by the corporation (LO 6.3) 11. D 40% + 30% + (10% x 30%) (LO 6.3) 12. D The net unearned income must exceed $2,300 (LO 6.4) 13. B The income can be taxed at the parents’ rate or can be included on the parents’ tax return (LO 6.4) 14. B AMT is the tentative minimum tax less regular tax liability (LO 6.5) 15. C State income tax refunds are an adjustment for AMT (LO 6.5) 16. B The AMT exemption serves to reduce AMTI (LO 6.5)

17. C Rates are 26% and 28% (LO 6.5) 18. A Below the $2,400 threshold (LO 6.6) 19. C Taxpayer’s spouse, father, mother or child under 21 and anyone under 18 that is not a regular provider are exempt (LO 6.6) 20. C An attorney is not a household employee (LO 6.6) 21. B Interest and dividends are forms of investment income (LO 6.7) 22. A ($410,000 – $200,000) x 0.9% (LO 6.7) 23. D Christine’s employer will withhold on $50,000 salary (excess over $200,000) which is the amount subject to the additional tax. (LO 6.7) 24. C Form 4852 is used to report a missing Form W-2 and should be included in the tax return (LO 6.8) 25. A The IRS recommends that a taxpayer wait for them to discover the error and notify the taxpayer (LO 6.8) 26. C If a QDRO is issued, the retirement plan assets can be distributed to a former spouse without tax consequences. (LO 6.8) 27. A Innocent spouse, separation of liability, and equitable are forms of tax relief (LO 6.8) 28. D A final tax return is often required for a decedent (LO 6.8) 29. B An NOL from a final estate income tax return can be allocated to the beneficiaries (LO 6.8) 30. A Above the FBAR but below the Form 8938 threshold (LO 6.8)

Group 2 – Problems 1. If a flowthrough entity is permitted to use a year-end that differs from its owners, the opportunity to defer income arises. For example, a January 31 year-end would permit a one-time deferral of 11 months of income. (LO 6.1)

6-1

6-2

Chapter 6 – Accounting Periods and Other Taxes

2. Sales income Expenses: Other than rent and interest Rent ($45,000 x 1/18) Interest Net income (LO 6.2) 3. Income: Other than rental Rental Expenses: Other than rental Rental ($9,000 / 6) Net income (LO 6.2)

$70,000 ( 40,000) ( 2,500) ( 0) $27,500

$220,000 21,000 (170,000) ( 1,500) $ 69,500

4. a. Even though the contribution is paid in cash in 2023, it is deductible in 2022 if it is designated as a contribution for 2022 and paid by April 15, 2023. b. If an election has been made, the increase in value of savings bonds is included in income each year even though no cash is received. c. The half-year prepayment of interest for 2023 is not allowed as a deduction on her 2022 tax return. d. All of the standard business expenses which have already been invoiced and are paid at year-end are deductible in 2022. e. Even though the work was performed in 2022, the income is not recognized until it is received in cash in 2023. (LO 6.2) 5. a. b. c. d.

36% = 20% + (80% x 20%) 60% = 30% + 30% 60% = 30% + 30% $0 Brian owns more than 50% of JBC Corporation, directly or indirectly and is considered a related party. Thus, the related party loss is disallowed. (LO 6.3)

6. Section 267(a) is not reproduced here. (LO 6.3) 7. The provision is designed to prevent taxpayers from transferring income-earning assets to a minor child in order to take advantage of the child’s lower tax rate. Assuming the child has a relatively small amount of taxable income, the child’s tax rate will be lower than his or her parents’ due to the progressive tax rate structure. (LO 6.4) 8. a. b. c. d.

$3,350 = $4,500 – $1,150. $2,200 = $4,500 – $2,300. $379 = ($2,200 x 12%) + ($1,150 x 10%) $335. 3,350 x 10%. (LO 6.4)

9. The “kiddie tax” may be computed on Form 8615, which generally calculates the child’s tax on unearned income at the parent’s rate. This form is attached to the child’s separate tax return. Alternatively, parents may elect to include the child’s income with their own return. To make this election, the child’s unearned income must be more than $1,150 and less than $11,500 and consist only of interest and dividends. In this case, the parents must attach Form 8814 to their tax return showing the child’s income that is taxed on their tax return. (The basic answer is that either the child or the parent may report the unearned income and pay the tax.) (LO 6.4)

Solutions for Questions and Problems – Chapter 6

6-3

10. No, the “kiddie tax” does not apply to wages earned by minors. The purpose of the tax is only to prevent investment income shifting from the generally higher tax rates of parents to the lower tax rates of the child. Wages earned by minors are generally taxed at the child’s separate low income tax rates. (LO 6.4) 11. Exemption is $63,050 and AMTI is $1,236,950. Tentative AMTI $1,300,000 less $1,079,800 Phase-out percentage 25% Phase-out Exemption before phase-out Exemption after phase-out AMTI after exemption

$ 220,200 25% 55,050 118,100 63,050 $1,236,950 (LO 6.5)

12. AMTI = $115,300. ($80,300 – $25,000 – $7,500 + $67,500) (LO 6.5) 13. Some of the most common deductions allowed for regular tax and not for AMT are: • The standard deduction • State income taxes, property taxes, and all other taxes deducted on Schedule A • The regular net operating loss (only the AMT NOL is permitted) • The difference between regular depreciation and AMT depreciation (LO 6.5) 14. 26% and 28% (LO 6.5) 15.

Regular taxable income (before exemptions [suspended in 2018] and standard deductions) + – Plus or minus AMT tax preferences and adjustments = Equals alternative minimum taxable income (AMTI) – Less AMT exemption (phased out to zero as AMTI increases) = Equals amount subject to AMT x Multiplied by the AMT tax rate(s) = Equals tentative minimum tax – Less regular tax = Equals amount of AMT due with tax return, if it is a positive amount (LO 6.5)

16. $400 x 10 = $4,000 a. $4,000 x 6.2% = $248.00 b. $4,000 x 1.45% = $58.00 c. ($4,000 x 6.2%) + ($4,000 x 1.45%) = $306.00 (LO 6.6) 17. a. $180 x 42 = $7,560 $7,560 x 6.2% = $468.72 $7,560 x 1.45% = 109.62 $578.34 b. $578.34 [($7,560 x 6.2%) + ($7,560 x 1.45%)], must be withheld from the nanny’s wages. (LO 6.6) 18. $1,520. Threshhold Investment income Lesser of above amount

AGI = $240,000 200,000 40,000 90,000 $40,000 x 3.8% (LO 6.7)

19. $796.50 = ([$352,000 – $13,500 – $250,000] x 0.9%) (LO 6.7)

6-4

Chapter 6 – Accounting Periods and Other Taxes

20. Step 1: Contact the employer and ask for a W-2 Step 2: Contact IRS and provide information Step 3: Complete Form 4852 and file tax return Step 4: If actual W-2 is received and different, file amended tax return (LO 6.8) 21. Income in respect of a decedent is income that the decedent would have included, if not for death. An example is if a taxpayer receives interest on a savings account during the tax year but subsequent to their death that is IRD. (LO 6.8)

Group 3 – Writing Assignment Ethics Solution: Unless otherwise restricted by law, taxpayers can elect to use either the cash or accrual method. As long as cash receipts are recorded as income when constructively received and cash payments are deducted as expenses when paid, Charlie is obeying the tax law. The ability to postpone income and accelerate expenses is good tax planning. It is not unethical or illegal.

Group 4 – Comprehensive Problems 1A. See Pages 6-5 to 6-20. 1B. See Pages 6-21 to 6-24. 2A. See Pages 6-25 to 6-33. 2B. See Pages 6-34 to 6-42.

Group 5 – Cumulative Software Problem The solution to the Cumulative Software Problem is posted on the website for the textbook at www.cengage.com/login.

Solutions for Questions and Problems – Chapter 6

Form

Comprehensive Problem 1A

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

OMB No. 1545-0074

IRS Use Only—Do not write or staple in this space.

Single x Married filing jointly Married filing separately (MFS) Head of household (HOH) Qualifying surviving spouse (QSS) If you checked the MFS box, enter the name of your spouse. If you checked the HOH or QSS 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

Richard

Your social security number

McCarthy

100 10 9090

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Christine

Spouse’s social security number

McCarthy

101 21 3434

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

32 Sleepy Hollow Road

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Clarks Summit

Foreign country name

18411

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four Jack dependents, Justine see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Was born before January 2, 1958

(3) Relationship to you

555 55 1212 444 23 1212

Son Daughter

Last name

McCarthy McCarthy

Spouse:

(2) Social security number

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Credit for other dependents

. . .

. . 2a 3a

. . .

Child tax credit

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

. .

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

x No

Yes

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Spouse

Cat. No. 11320B

231,500

231,500 23,500

59,200 314,200 4,182 310,018 33,200 11,004 44,204 265,814 Form 1040 (2022)

6-5

6-6

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 1A, cont. Richard McCarthy

Form 1040 (2022)

Tax and Credits

100-10-9090 2

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

25d

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

Page 2

16 17

. . .

18 19 20

. . .

21 22 23

51,466 (a) 51,466 2,500 2,500 48,966 11,639 60,605

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

. . .

. . 27 28

337

56,157 4,700

29 30 31

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

55,820

Phone no.

. Savings

35a

Yes. Complete below.

60,857 252 252

Personal identification number (PIN)

Date

If the IRS sent you an Identity Protection PIN, enter it here (see inst.)

Your occupation

CEO Spouse’s signature. If a joint return, both must sign.

Date

Phone no.

Email address

Spouse’s occupation

Optometrist Preparer’s name

Preparer’s signature

Date

If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

(a) $30,427 + [($265,814 – $178,150) x 24%]

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 1A, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

Richard and Christine McCarthy Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

100-10-9090

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

0 (a) 59,200

59,200

Schedule 1 (Form 1040) 2022

(a) The state tax refund is not income because the McCarthys did not benefit from a full state tax deduction in the prior year due to the $10,000 cap on the deduction.

6-7

6-8

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 1A, cont. Page 2

Schedule 1 (Form 1040) 2022

Part II Adjustments to Income 11 12 13 14 15 16 17 18 19a b c 20 21 22 23 24 a b c d e f g h i

j k z 25 26

Educator expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 . . . . . . . . . . . . . . . . . . . . . . . . 12 Health savings account deduction. Attach Form 8889 . . . . . . . . . . . . . . 13 Moving expenses for members of the Armed Forces. Attach Form 3903 . . . . . . . 14 Deductible part of self-employment tax. Attach Schedule SE . . . . . . . . . . . 15 Self-employed SEP, SIMPLE, and qualified plans . . . . . . . . . . . . . . . . 16 Self-employed health insurance deduction . . . . . . . . . . . . . . . . . . 17 Penalty on early withdrawal of savings . . . . . . . . . . . . . . . . . . . . 18 Alimony paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19a Recipient’s SSN . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): IRA deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Student loan interest deduction . . . . . . . . . . . . . . . . . . . . . . 21 22 Reserved for future use . . . . . . . . . . . . . . . . . . . . . . . . . Archer MSA deduction . . . . . . . . . . . . . . . . . . . . . . . . . 23 Other adjustments: Jury duty pay (see instructions) . . . . . . . . . . . . . . 24a Deductible expenses related to income reported on line 8l from the rental of personal property engaged in for profit . . . . . . . . 24b Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 8m . . . . . . . . . . 24c Reforestation amortization and expenses . . . . . . . . . . . 24d Repayment of supplemental unemployment benefits under the Trade Act of 1974 . . . . . . . . . . . . . . . . . . . . . . 24e Contributions to section 501(c)(18)(D) pension plans . . . . . . . 24f Contributions by certain chaplains to section 403(b) plans . . . . 24g Attorney fees and court costs for actions involving certain unlawful discrimination claims (see instructions) . . . . . . . . . . . . 24h Attorney fees and court costs you paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations . . . . . . . . . . . . . . . . . . . 24i Housing deduction from Form 2555 . . . . . . . . . . . . . 24j Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041) . . . . . . . . . . . . . . . . . . . . . . . . 24k Other adjustments. List type and amount: 24z Total other adjustments. Add lines 24a through 24z . . . . . . . . . . . . . . . 25 Add lines 11 through 23 and 25. These are your adjustments to income. Enter here and on Form 1040 or 1040-SR, line 10, or Form 1040-NR, line 10a . . . . . . . . . . . . 26

DRAFT AS OF July 27, 2022 DO NOT FILE

4,182

0 (a)

4,182

Schedule 1 (Form 1040) 2022

(a) Not eligible for student loan interest deduction due to phase-out (begins at $145,000 and phased out by $175,000).

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 1A, cont. SCHEDULE 2

OMB No. 1545-0074

Additional Taxes

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 02

Your social security number

Richard and Christine McCarthy Part I Tax

100-10-9090

DRAFT AS OF July 27, 2022 DO NOT FILE

Alternative minimum tax. Attach Form 6251 . . . . . . . . . . . . . . . .

Excess advance premium tax credit repayment. Attach Form 8962 . . . . . . .

Add lines 1 and 2. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 17 . .

Part II Other Taxes 4

Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . . .

Social security and Medicare tax on unreported tip income. Attach Form 4137 . . . . . . . . . . . . . . . . . .

Uncollected social security and Medicare tax on wages. Attach Form 8919 . . . . . . . . . . . . . . . . . . . . .

Total additional social security and Medicare tax. Add lines 5 and 6

Additional tax on IRAs or other tax-favored accounts. Attach Form 5329 if required.

. . . . . .

If not required, check here . . . . . . . . . . . . . . . . . . . . .

7 8

Household employment taxes. Attach Schedule H

. . . . . . . . . . . . .

Repayment of first-time homebuyer credit. Attach Form 5405 if required . . . . .

Additional Medicare Tax. Attach Form 8959 . . . . . . . . . . . . . . . .

Net investment income tax. Attach Form 8960 . . . . . . . . . . . . . . .

Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance from Form W-2, box 12 . . . . . . . . . . . . . . . . . . . .

Interest on tax due on installment income from the sale of certain residential lots and timeshares . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest on the deferred tax on gain from certain installment sales with a sales price over $150,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recapture of low-income housing credit. Attach Form 8611 . . . . . . . . . .

8,364

2,031 380 864

(continued on page 2) For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71478U

Schedule 2 (Form 1040) 2022

6-9

6-10

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 1A, cont. Richard and Christine McCarthy Part II Other Taxes (continued)

Schedule 2 (Form 1040) 2022

100-10-9090

Page 2

Other additional taxes: a Recapture of other credits. List type, form number, and amount: 17a

DRAFT AS OF July 27, 2022 DO NOT FILE

b Recapture of federal mortgage subsidy, if you sold your home see instructions . . . . . . . . . . . . . . . . . . . 17b c Additional tax on HSA distributions. Attach Form 8889 . . . .

17c

d Additional tax on an HSA because you didn’t remain an eligible individual. Attach Form 8889 . . . . . . . . . . . . . . 17d e Additional tax on Archer MSA distributions. Attach Form 8853 .

17e

f Additional tax on Medicare Advantage MSA distributions. Attach Form 8853 . . . . . . . . . . . . . . . . . . . . . 17f

Section 72(m)(5) excess benefits tax . . . . . . . . . . .

k Golden parachute payments l

17j

. . . . . . . . . . . . . .

17k

Tax on accumulation distribution of trusts . . . . . . . . .

17l

17q

z Any other taxes. List type and amount: 17z 18

Total additional taxes. Add lines 17a through 17z . . . . . . . . . . . . . .

Reserved for future use

20 21

. . . . . . . . . . . . . . . . . . . . . . . .

11,639

Schedule 2 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 1A, cont.

Itemized Deductions

SCHEDULE A (Form 1040)

OMB No. 1545-0074

2022

Your social security number

Richard and Christine McCarthy Medical and Dental Expenses Taxes You Paid

Caution: Your mortgage interest deduction may be limited. See instructions.

100-10-9090

DRAFT AS OF July 21, 2022 DO NOT FILE 1 2 3 4

. .

5 State and local taxes. 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. If you elect to include general sales taxes instead of income taxes, check this box . . . . . . . . . . . . . . . . . b State and local real estate taxes (see instructions) . . . . . . . c State and local personal property taxes . . . . . . . . . . d Add lines 5a 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: 7 Add lines 5e and 6 .

Interest You Paid

3 . .

Caution: If you made a gift and got a benefit for it, see instructions.

5a 5b 5c 5d

16,325 (a) 5,600

10,000

21,925

6 . .

10,000

15,600

7,600

15,600

Gifts to Charity

Attachment Sequence No. 07

15,600 .

7,600

For Paperwork Reduction Act Notice, see the Instructions for Form 1040.

33,200

Cat. No. 17145C

(a) $16,325 = $13,900 SIT paid shown on W-2 + $2,425 estimated SIT payments.

Schedule A (Form 1040) 2022

6-11

6-12

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 1A, cont. SCHEDULE B

OMB No. 1545-0074

Interest and Ordinary Dividends

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Go to www.irs.gov/ScheduleB for instructions and the latest information. Attach to Form 1040 or 1040-SR.

Name(s) shown on return

Attachment Sequence No. 08 Your social security number

Richard and Christine McCarthy 1 List name of payer. If any interest is from a seller-financed mortgage and the Part I buyer used the property as a personal residence, see the instructions and list this Interest interest first. Also, show that buyer’s social security number and address: (See instructions National Bank of Scranton and the Instructions for Form 1040, line 2b.)

Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm’s name as the payer and enter the total interest shown on that form.

Amount

DRAFT AS OF July 7, 2022 DO NOT FILE

23,500

2 3

Part II Ordinary Dividends

100-10-9090

(See instructions and the Instructions for Form 1040, line 3b.)

2 3 4

23,500 23,500 Amount

x x

b If you are required to file FinCEN Form 114, list the name(s) of the foreign country(-ies) where the financial account(s) are located: Scotland 8

During 2022, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If “Yes,” you may have to file Form 3520. See instructions . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 17146N

Schedule B (Form 1040) 2022

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 1A, cont. SCHEDULE C (Form 1040)

Profit or Loss From Business

Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

2022

(Sole Proprietorship) Go to www.irs.gov/ScheduleC for instructions and the latest information.

Attachment Sequence No. 09

Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.

Name of proprietor

Social security number (SSN)

Christine McCarthy

101-21-3434

Principal business or profession, including product or service (see instructions)

Business name. If no separate business name, leave blank.

Business address (including suite or room no.)

F G

City, town or post office, state, and ZIP code Clarks Summit, PA 18411 (2) Accrual (3) Other (specify) Accounting method: (1) x Cash Did you “materially participate” in the operation of this business during 2022? If “No,” see instructions for limit on losses

x Yes

H I J

. . .

x Yes x Yes

No No

B Enter code from instructions

6 2 1 3 2 0

Optometrist

DRAFT AS OF July 15, 2022 DO NOT FILE

The Eyes of March

Part I 1

D Employer ID number (EIN) (see instr.)

1030 Morgan Highway

. . .

Income

2 3 4

1 2 3 4

5 6 7

. . .

5 6 7

Office expense (see instructions) . Pension and profit-sharing plans .

18 19

Rent or lease (see instructions): Vehicles, machinery, and equipment Other business property . . .

20a 20b

42,000 2,800

Part II

Advertising .

Car and truck expenses (see instructions) . . . Commissions and fees . Contract labor (see instructions)

12 13

Depletion . . . . . Depreciation and section 179 expense deduction (not included in Part III) (see instructions) . . . .

14 15 16 a b

. . .

164,700

Expenses. Enter expenses for business use of your home only on line 30.

10 11

. . .

292,000 8,300 283,700 119,000 164,700

Employee benefit programs (other than on line 19) . Insurance (other than health) Interest (see instructions): Mortgage (paid to banks, etc.)

18 19

9 10 11

21 22 23

Repairs and maintenance . . . Supplies (not included in Part III) . Taxes and licenses . . . . .

21 22 23

Travel and meals: Travel . . . .

24a

Deductible meals (see instructions) . . . . . . . Utilities . . . . . . . . Wages (less employment credits)

24b 25 26

a b

5,000

a 14 15

11,500 25 26

16a

17 28

Other . . . . . . 16b 27a Other expenses (from line 48) . Legal and professional services 17 b Reserved for future use . . 3,200 Total expenses before expenses for business use of home. Add lines 8 through 27a . . . . . .

. . .

27a 27b 28

Tentative profit or (loss). Subtract line 28 from line 7 .

and (b) the part of your home used for business: Method Worksheet in the instructions to figure the amount to enter on line 30

. Use the Simplified . . . . . . .

Net profit or (loss). Subtract line 30 from line 29.

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

}

2,000

4,000 35,000 105,500 59,200

32a 32b

59,200

All investment is at risk. Some investment is not at risk. Schedule C (Form 1040) 2022

6-13

6-14

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 1A, cont. Christine McCarthy

Schedule C (Form 1040) 2022

Part III

101-21-3434

Page 2

Cost of Goods Sold (see instructions)

Method(s) used to value closing inventory:

Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . .

x Cost

Lower of cost or market

Other (attach explanation) Yes

DRAFT AS OF July 15, 2022 DO NOT FILE

x No

Inventory at beginning of year. If different from last year’s closing inventory, attach explanation .

25,000

Purchases less cost of items withdrawn for personal use

122,000

Cost of labor. Do not include any amounts paid to yourself .

Materials and supplies

Other costs .

Add lines 35 through 39 .

147,000

Inventory at end of year .

28,000

Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 .

119,000

Part IV

When did you place your vehicle in service for business purposes? (month/day/year)

Of the total number of miles you drove your vehicle during 2022, enter the number of miles you used your vehicle for: a

Business

b Commuting (see instructions)

c Other

Was your vehicle available for personal use during off-duty hours?

Yes

Do you (or your spouse) have another vehicle available for personal use?.

Yes

47a

Do you have evidence to support your deduction?

Yes

If “Yes,” is the evidence written?

Yes

Part V

Other Expenses. List below business expenses not included on lines 8–26 or line 30.

Total other expenses. Enter here and on line 27a

48 Schedule C (Form 1040) 2022

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 1A, cont. SCHEDULE SE Department of the Treasury Internal Revenue Service

2022

Go to www.irs.gov/ScheduleSE for instructions and the latest information. Attach to Form 1040, 1040-SR, or 1040-NR.

Name of person with self-employment income (as shown on Form 1040, 1040-SR, or 1040-NR)

Attachment Sequence No. 17

Social security number of person with self-employment income

Christine McCarthy Part I

OMB No. 1545-0074

Self-Employment Tax

(Form 1040)

101-21-3434

Self-Employment Tax

DRAFT AS OF July 28, 2022 DO NOT FILE

Note: If your only income subject to self-employment tax is church employee income, see instructions for how to report your income and the definition of church employee income. A If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you had $400 or more of other net earnings from self-employment, check here and continue with Part I . . . . . . . . . Skip lines 1a and 1b if you use the farm optional method in Part II. See instructions. 1a Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), 1a box 14, code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b If you received social security retirement or disability benefits, enter the amount of Conservation Reserve Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code AH 1b ( ) Skip line 2 if you use the nonfarm optional method in Part II. See instructions. 2 Net profit or (loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than 2 farming). See instructions for other income to report or if you are a minister or member of a religious order 59,200 3 Combine lines 1a, 1b, and 2 . . . . . . . . . . . . . . . . . . . . . . . . . 3 59,200 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3 . 4a 54,671 Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions. b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here . . . . . 4b c Combine lines 4a and 4b. If less than $400, stop; you don’t owe self-employment tax. Exception: If less than $400 and you had church employee income, enter -0- and continue . . . . . . . . 4c 54,671 5a Enter your church employee income from Form W-2. See instructions for definition of church employee income . . . . . . . . . . . . . 5a b Multiply line 5a by 92.35% (0.9235). If less than $100, enter -0- . . . . . . . . . . . . . 5b 6 Add lines 4c and 5b . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 54,671 7 Maximum amount of combined wages and self-employment earnings subject to social security tax or 147,000 the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2022 . . . . . . . . . . . 7 8a Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2) and railroad retirement (tier 1) compensation. If $147,000 or more, skip lines 8b through 10, and go to line 11 . . . . . . . . . . . . . . . 8a b Unreported tips subject to social security tax from Form 4137, line 10 . . . 8b c Wages subject to social security tax from Form 8919, line 10 . . . . . . 8c d Add lines 8a, 8b, and 8c . . . . . . . . . . . . . . . . . . . . . . . . . . 8d 9 Subtract line 8d from line 7. If zero or less, enter -0- here and on line 10 and go to line 11 . . . . 9 147,000 10 Multiply the smaller of line 6 or line 9 by 12.4% (0.124) . . . . . . . . . . . . . . . . 10 6,779 11 Multiply line 6 by 2.9% (0.029) . . . . . . . . . . . . . . . . . . . . . . . . 11 1,585 12 Self-employment tax. Add lines 10 and 11. Enter here and on Schedule 2 (Form 1040), line 4 . . 12 8,364 13 Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50). Enter here and on Schedule 1 (Form 1040), line 15 . . . . . . . . . . . . . . . . . . . . . . . . 4,182 13

Part II

Optional Methods To Figure Net Earnings (see instructions)

For Paperwork Reduction Act Notice, see your tax return instructions.

3 4

6,040

16 17

From Sch. C, line 31; and Sch. K-1 (Form 1065), box 14, code A. From Sch. C, line 7; and Sch. K-1 (Form 1065), box 14, code C. Cat. No. 11358Z

Schedule SE (Form 1040) 2022

6-15

6-16

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 1A, cont. SCHEDULE H (Form 1040) Department of the Treasury Internal Revenue Service

Household Employment Taxes

OMB No. 1545-0074

(For Social Security, Medicare, Withheld Income, and Federal Unemployment (FUTA) Taxes) Attach to Form 1040, 1040-SR, 1040-NR, 1040-SS, or 1041. Go to www.irs.gov/ScheduleH for instructions and the latest information.

Name of employer

2022

Attachment Sequence No. 44

Social security number

Richard and Christine McCarthy

100-10-9090 Employer identification number

2 2 2 3 4 5 6 7 8

DRAFT AS OF August 23, 2022 DO NOT FILE

Calendar year taxpayers having no household employees in 2022 don’t have to complete this form for 2022. Did you pay any one household employee cash wages of $2,400 or more in 2022? (If any household employee was your spouse, A your child under age 21, your parent, or anyone under age 18, see the line A instructions before you answer this question.) x Yes. Skip lines B and C and go to line 1a. No. Go to line B. B Did you withhold federal income tax during 2022 for any household employee? Yes. Skip line C and go to line 7. No. Go to line C. C Did you pay total cash wages of $1,000 or more in any calendar quarter of 2021 or 2022 to all household employees? (Don’t count cash wages paid in 2021 or 2022 to your spouse, your child under age 21, or your parent.) No. Stop. Don’t file this schedule. Yes. Skip lines 1a–9 and go to line 10.

Part I

Social Security, Medicare, and Federal Income Taxes

1a Total cash wages subject to social security tax . . . . . . . . . . 1a 13,000 b Qualified sick and family leave wages paid in 2022 for leave taken after March 31, 2020, and before April 1, 2021, included on line 1a . . . . . . . . 1b 2a Social security tax. Multiply line 1a by 12.4% (0.124) . . . . . . . . . . . . . . . . 2a 1,612 b Employer share of social security tax on qualified sick and family leave wages paid in 2022 for leave taken after March 31, 2020, and before April 1, 2021. Multiply line 1b by 6.2% (0.062) . . . . . 2b c Total social security tax. Subtract line 2b from line 2a . . . . . . . . . . . . . . . . 2c 1,612 3 Total cash wages subject to Medicare tax . . . . . . . . . . . . 3 13,000 4 Medicare tax. Multiply line 3 by 2.9% (0.029) . . . . . . . . . . . . . . . . . . . 4 377 5 Total cash wages subject to Additional Medicare Tax withholding . . . . 5 6 Additional Medicare Tax withholding. Multiply line 5 by 0.9% (0.009) . . . . . . . . . . . 6 7 Federal income tax withheld, if any . . . . . . . . . . . . . . . . . . . . . . 7 8a Total social security, Medicare, and federal income taxes. Add lines 2c, 4, 6, and 7. . . . . . . 8a 1,989 b Nonrefundable portion of credit for qualified sick and family leave wages for leave taken before April 1, 2021 8b c Nonrefundable portion of credit for qualified sick and family leave wages for leave taken after March 31, 2021, and before October 1, 2021 . . . . . . . . . . . . . . . . . . . . . 8c d Total social security, Medicare, and federal income taxes after nonrefundable credits. Add lines 8b and 8c and then subtract that total from line 8a . . . . . . . . . . . . . . . . . . 1,989 8d e Refundable portion of credit for qualified sick and family leave wages for leave taken before April 1, 2021 8e f Refundable portion of credit for qualified sick and family leave wages for leave taken after March 31, 2021, and before October 1, 2021 . . . . . . . . . . . . . . . . . . . . . . . 8f g Qualified sick leave wages for leave taken before April 1, 2021 . . . . . . . . . . . . . 8g h Qualified health plan expenses allocable to qualified sick leave wages reported on line 8g . . . . 8h i Qualified family leave wages for leave taken before April 1, 2021 . . . . . . . . . . . . 8i j Qualified health plan expenses allocable to qualified family leave wages reported on line 8i . . . . 8j k Qualified sick leave wages for leave taken after March 31, 2021, and before October 1, 2021 . . . 8k l Qualified health plan expenses allocable to qualified sick leave wages reported on line 8k . . . . 8l m Qualified family leave wages for leave taken after March 31, 2021, and before October 1, 2021 . . 8m n Qualified health plan expenses allocable to qualified family leave wages reported on line 8m . . . 8n 9 Did you pay total cash wages of $1,000 or more in any calendar quarter of 2021 or 2022 to all household employees? (Don’t count cash wages paid in 2021 or 2022 to your spouse, your child under age 21, or your parent.) No. Stop. Include the amount from line 8d above on Schedule 2 (Form 1040), line 9. Include the amounts, if any, from line 8e on Schedule 3 (Form 1040), line 13b, and line 8f on Schedule 3 (Form 1040), line 13h. If you’re not required to file Form 1040, see the line 9 instructions. x Yes. Go to line 10. For Privacy Act and Paperwork Reduction Act Notice, see the instructions.

Cat. No. 12187K

Schedule H (Form 1040) 2022

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 1A, cont. Page 2

Schedule H (Form 1040) 2022

Part II

Federal Unemployment (FUTA) Tax Yes No

10 11 12

Did you pay unemployment contributions to only one state? If you paid contributions to a credit reduction state, see instructions and check “No” . . . . . . . . . . . . . . . . . . . . . . . Did you pay all state unemployment contributions for 2022 by April 18, 2023? Fiscal year filers, see instructions Were all wages that are taxable for FUTA tax also taxable for your state’s unemployment tax? . . . . .

10 11 12

DRAFT AS OF August 23, 2022 DO NOT FILE

x x x

Next: If you checked the “Yes” box on all the lines above, complete Section A. If you checked the “No” box on any of the lines above, skip Section A and complete Section B.

Section A

Name of the state where you paid unemployment contributions

14 15 16

Contributions paid to your state unemployment fund . . . . . . . . 14 380 Total cash wages subject to FUTA tax . . . . . . . . . . . . . . . . . . . . . FUTA tax. Multiply line 15 by 0.6% (0.006). Enter the result here, skip Section B, and go to line 25 .

Complete all columns below that apply (if you need more space, see instructions):

15 16

Section B

(a) Name of state

(b) Taxable wages (as defined in state act)

(g) Subtract col. (f) from col. (e). If zero or less, enter -0-.

19 20 21 22 23

Add columns (g) and (h) of line 18 . . . . . . . . . . . . . . . 19 Total cash wages subject to FUTA tax (see the line 15 instructions) . . . . . . . . . . . . Multiply line 20 by 6.0% (0.06) . . . . . . . . . . . . . . . . . . . . . . . . Multiply line 20 by 5.4% (0.054) . . . . . . . . . . . . . . . 22 Enter the smaller of line 19 or line 22. (If you paid state unemployment contributions late or you’re in a credit reduction state, see instructions and check here) . . . . . . . . . . . . . . . . . . . . . . . . . . . . FUTA tax. Subtract line 23 from line 21. Enter the result here and go to line 25 . . . . . . . .

25 26 27

(f) Multiply col. (b) by col. (d)

Totals .

Part III

(e) Multiply col. (b) by 0.054

(d) State experience rate

7,000 42

(h) Contributions paid to state unemployment fund

18 20 21

23 24

Total Household Employment Taxes

Enter the amount from line 8d. If you checked the “Yes” box on line C of page 1, enter -0- . . . . 25 1,989 Add line 16 (or line 24) and line 25 . . . . . . . . . . . . . . . . . . . . . . 26 2,031 Are you required to file Form 1040? x Yes. Stop. Include the amount from line 26 above on Schedule 2 (Form 1040), line 9. Include the amounts, if any, from line 8e on Schedule 3 (Form 1040), line 13b, and line 8f on Schedule 3 (Form 1040), line 13h. Don’t complete Part IV below. No. You may have to complete Part IV. See instructions for details.

Part IV

Address and Signature — Complete this part only if required. See the line 27 instructions.

Address (number and street) or P.O. box if mail isn’t delivered to street address

Apt., room, or suite no.

City, town or post office, state, and ZIP code

Under penalties of perjury, I declare that I have examined this schedule, including accompanying statements, and to the best of my knowledge and belief, it is true, correct, and complete. No part of any payment made to a state unemployment fund claimed as a credit was, or is to be, deducted from the payments to employees. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

Employer’s signature Print/Type preparer’s name

Paid Preparer Use Only Firm’s name

Firm’s address

Date Preparer’s signature

Date

Check if PTIN self-employed Firm’s EIN Phone no. Schedule H (Form 1040) 2022

6-17

6-18

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 1A, cont.

Form

8995

Department of the Treasury Internal Revenue Service

Qualified Business Income Deduction Simplified Computation

OMB No. 1545-2294

2021

a Attach to your tax return.

Attachment Sequence No. 55

a Go to www.irs.gov/Form8995 for instructions and the latest information.

Your taxpayer identification number

Name(s) shown on return

Richard and Christine McCarthy

100-10-9090

(a) Trade, business, or aggregation name

The Eyes of March

(b) Taxpayer identification number

101-21-3434

55,018 (a)

ii iii iv v 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Total qualified business income or (loss). Combine lines 1i through 1v, 2 column (c) . . . . . . . . . . . . . . . . . . . . . . 55,018 Qualified business net (loss) carryforward from the prior year . . . . . . . 3 ( ) Total qualified business income. Combine lines 2 and 3. If zero or less, enter -04 55,018 Qualified business income component. Multiply line 4 by 20% (0.20) . . . . . . . . . . . 5 Qualified REIT dividends and publicly traded partnership (PTP) income or (loss) 6 (see instructions) . . . . . . . . . . . . . . . . . . . . Qualified REIT dividends and qualified PTP (loss) carryforward from the prior ) year . . . . . . . . . . . . . . . . . . . . . . . . . 7 ( Total qualified REIT dividends and PTP income. Combine lines 6 and 7. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . 8 REIT and PTP component. Multiply line 8 by 20% (0.20) . . . . . . . . . . . . . . . 9 Qualified business income deduction before the income limitation. Add lines 5 and 9 . . . . . . 10 Taxable income before qualified business income deduction (see instructions) 11 276,818 (b) Net capital gain (see instructions) . . . . . . . . . . . . . . . 12 0 Subtract line 12 from line 11. If zero or less, enter -0- . . . . . . . . 13 276,818 Income limitation. Multiply line 13 by 20% (0.20) . . . . . . . . . . . . . . . . . . 14 Qualified business income deduction. Enter the smaller of line 10 or line 14. Also enter this amount on the applicable line of your return (see instructions) . . . . . . . . . . . . . . . . a 15 Total qualified business (loss) carryforward. Combine lines 2 and 3. If greater than zero, enter -0- . . 16 ( Total qualified REIT dividends and PTP (loss) carryforward. Combine lines 6 and 7. If greater than zero, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (

For Privacy Act and Paperwork Reduction Act Notice, see instructions.

Cat. No. 37806C

11,004

55,364 11,004 ) ) Form 8995 (2021)

(a) $59,200 (Schedule C) – $4,182 (Schedule SE) (b) $310,018 (AGI) – $33,200 (itemized deductions) Please go to www.irs.gov to download the latest Form 8995. The 2022 version of Form 8995 was not available as we went to print.

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 1A, cont. Form

8959

Department of the Treasury Internal Revenue Service

Additional Medicare Tax

OMB No. 1545-0074

Attach to Form 1040, 1040-SR, 1040-NR, 1040-PR, or 1040-SS. Go to www.irs.gov/Form8959 for instructions and the latest information.

Name(s) shown on return

1 2 3 4 5

6 7

10 11 12 13

16 17

19 20 21 22 23 24

42,171

380

Additional Medicare Tax on Railroad Retirement Tax Act (RRTA) Compensation

16 17

Total Additional Medicare Tax

Add lines 7, 13, and 17. Also include this amount on Schedule 2 (Form 1040), line 11 (Form 1040-PR or 1040-SS filers, see instructions), and go to Part V . . . . . . . . . . . . . . . . .

Part V

Additional Medicare Tax on Self-Employment Income

Railroad retirement (RRTA) compensation and tips from Form(s) W-2, box 14 (see instructions) . . . . . . . . . . . . . . . . . . . . 14 Enter the following amount for your filing status: Married filing jointly . . . . . . . . . . . . . . $250,000 Married filing separately . . . . . . . . . . . . . . $125,000 Single, Head of household, or Qualifying widow(er) . . . . . $200,000 15 Subtract line 15 from line 14. If zero or less, enter -0- . . . . . . . . . . . . . . . . Additional Medicare Tax on railroad retirement (RRTA) compensation. Multiply line 16 by 0.9% (0.009). Enter here and go to Part IV . . . . . . . . . . . . . . . . . . . . . . . . .

Part IV 18

DRAFT AS OF August 4, 2022 DO NOT FILE

Self-employment income from Schedule SE (Form 1040), Part I, line 6. If you 8 had a loss, enter -0- (Form 1040-PR or 1040-SS filers, see instructions.) . . 54,671 Enter the following amount for your filing status: Married filing jointly . . . . . . . . . . . . . . . . $250,000 Married filing separately . . . . . . . . . . . . . . $125,000 9 Single, Head of household, or Qualifying widow(er) . . . . . $200,000 250,000 Enter the amount from line 4 . . . . . . . . . . . . . . . . 10 237,500 Subtract line 10 from line 9. If zero or less, enter -0- . . . . . . . . . 11 12,500 Subtract line 11 from line 8. If zero or less, enter -0- . . . . . . . . . . . . . . . . . Additional Medicare Tax on self-employment income. Multiply line 12 by 0.9% (0.009). Enter here and go to Part III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part III 14

100-10-9090

Additional Medicare Tax on Medicare Wages

Medicare wages and tips from Form W-2, box 5. If you have more than one Form W-2, enter the total of the amounts from box 5 . . . . . . . . 1 237,500 Unreported tips from Form 4137, line 6 . . . . . . . . . . . . . 2 Wages from Form 8919, line 6 . . . . . . . . . . . . . . . . 3 Add lines 1 through 3 . . . . . . . . . . . . . . . . . . . 4 237,500 Enter the following amount for your filing status: Married filing jointly . . . . . . . . . . . . . . . $250,000 Married filing separately . . . . . . . . . . . . . . $125,000 Single, Head of household, or Qualifying widow(er) . . . . . $200,000 5 250,000 Subtract line 5 from line 4. If zero or less, enter -0- . . . . . . . . . . . . . . . . . Additional Medicare Tax on Medicare wages. Multiply line 6 by 0.9% (0.009). Enter here and go to Part II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part II 8

Attachment Sequence No. 71 Your social security number

Richard and Christine McCarthy Part I

2022

If any line does not apply to you, leave it blank. See separate instructions.

380

337

Withholding Reconciliation

Medicare tax withheld from Form W-2, box 6. If you have more than one Form W-2, enter the total of the amounts from box 6 . . . . . . . . . . 19 3,781 Enter the amount from line 1 . . . . . . . . . . . . . . . . 20 237,500 Multiply line 20 by 1.45% (0.0145). This is your regular Medicare tax 21 withholding on Medicare wages . . . . . . . . . . . . . . . 3,444 Subtract line 21 from line 19. If zero or less, enter -0-. This is your Additional Medicare Tax withholding on Medicare wages . . . . . . . . . . . . . . . . . . . . . . . Additional Medicare Tax withholding on railroad retirement (RRTA) compensation from Form W-2, box 14 (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Additional Medicare Tax withholding. Add lines 22 and 23. Also include this amount with federal income tax withholding on Form 1040, 1040-SR, or 1040-NR, line 25c (Form 1040-PR or 1040-SS filers, see instructions) . . . . . . . . . . . . . . . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 59475X

337 Form 8959 (2022)

6-19

6-20

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 1A, cont.

Form

8960

Department of the Treasury Internal Revenue Service

Net Investment Income Tax— Individuals, Estates, and Trusts

OMB No. 1545-2227

2022

Attach to your tax return. Go to www.irs.gov/Form8960 for instructions and the latest information.

Attachment Sequence No. 72

Name(s) shown on your tax return

Your social security number or EIN

Richard and Christine McCarthy Part I

100-10-9090

Investment Income

Section 6013(g) election (see instructions) Section 6013(h) election (see instructions) Regulations section 1.1411-10(g) election (see instructions) 1 Taxable interest (see instructions) . . . . . . . . . . . . . . . . . . . . 2 Ordinary dividends (see instructions) . . . . . . . . . . . . . . . . . . . 3 Annuities (see instructions) . . . . . . . . . . . . . . . . . . . . . . 4a Rental real estate, royalties, partnerships, S corporations, trusts, etc. (see 4a instructions) . . . . . . . . . . . . . . . . . . . . . . b Adjustment for net income or loss derived in the ordinary course of a nonsection 1411 trade or business (see instructions) . . . . . . . . . . 4b c Combine lines 4a and 4b . . . . . . . . . . . . . . . . . . . . . . . 5a Net gain or loss from disposition of property (see instructions) . . . . . 5a b Net gain or loss from disposition of property that is not subject to net investment income tax (see instructions) . . . . . . . . . . . . 5b c Adjustment from disposition of partnership interest or S corporation stock (see instructions) . . . . . . . . . . . . . . . . . . . . . . 5c d Combine lines 5a through 5c . . . . . . . . . . . . . . . . . . . . . 6 Adjustments to investment income for certain CFCs and PFICs (see instructions) . . . . 7 Other modifications to investment income (see instructions) . . . . . . . . . . . 8 Total investment income. Combine lines 1, 2, 3, 4c, 5d, 6, and 7 . . . . . . . . . .

DRAFT AS OF September 14, 2022 DO NOT FILE Part II 9a b c d 10 11

. . .

1 2 3

. . . .

5d 6 7 8

23,500

Investment Expenses Allocable to Investment Income and Modifications

Investment interest expenses (see instructions) . . . State, local, and foreign income tax (see instructions) . Miscellaneous investment expenses (see instructions) . Add lines 9a, 9b, and 9c . . . . . . . . . . . Additional modifications (see instructions) . . . . . Total deductions and modifications. Add lines 9d and 10

. . . . . .

9a 9b 9c . . . . . . . . .

751 . . .

. . .

751

. . .

9d 10 11

Net investment income. Subtract Part II, line 11, from Part I, line 8. Individuals, complete lines 13–17. Estates and trusts, complete lines 18a–21. If zero or less, enter -0- . . . . . . . . . . . .

22,749

864

Part III 12

. . .

751

Tax Computation

Individuals: 13 14 15 16 17

Modified adjusted gross income (see instructions) . . . . . . . . . 13 310,018 Threshold based on filing status (see instructions) . . . . . . . . . 14 250,000 Subtract line 14 from line 13. If zero or less, enter -0- . . . . . . . . 15 60,018 Enter the smaller of line 12 or line 15 . . . . . . . . . . . . . . . . . . . . . . Net investment income tax for individuals. Multiply line 16 by 3.8% (0.038). Enter here and include on your tax return (see instructions) . . . . . . . . . . . . . . . . . . . . . .

Estates and Trusts: 18a Net investment income (line 12 above) . . . . . . . . . . . . . 18a b Deductions for distributions of net investment income and deductions under section 642(c) (see instructions) . . . . . . . . . . . . . . . 18b c Undistributed net investment income. Subtract line 18b from line 18a (see instructions). If zero or less, enter -0- . . . . . . . . . . . . . 18c 19a Adjusted gross income (see instructions) . . . . . . . . . . . . 19a b Highest tax bracket for estates and trusts for the year (see instructions) . . 19b c Subtract line 19b from line 19a. If zero or less, enter -0- . . . . . . . 19c 20 Enter the smaller of line 18c or line 19c . . . . . . . . . . . . . . . . . . . . . 21 Net investment income tax for estates and trusts. Multiply line 20 by 3.8% (0.038). Enter here and include on your tax return (see instructions) . . . . . . . . . . . . . . . . . . . For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 59474M

20 21 Form 8960 (2022)

Solutions for Questions and Problems – Chapter 6

Form

Comprehensive Problem 1B

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

x Single

Filing Status

Married filing jointly

OMB No. 1545-0074

Married filing separately (MFS)

IRS Use Only—Do not write or staple in this space.

Head of household (HOH)

Check only one box.

Your first name and middle initial

Last name

Jack

Your social security number

McCarthy

555 55 1212

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Spouse’s social security number

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

100 Duval Street

B12

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Key West

Foreign country name

33040

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

. . .

Credit for other dependents

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Child tax credit

. . .

. . 2a 3a

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Was born before January 2, 1958

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

x No

Someone can claim: Your spouse as a dependent x You as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

. . .

. .

. . .

Cat. No. 11320B

12,900

12,900 14,500

27,400 27,400 12,950 12,950 14,450 Form 1040 (2022)

6-21

6-22

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 1B, cont. Jack McCarthy

Form 1040 (2022)

Tax and Credits

555-55-1212 2

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

Page 2

16 17

3,154

16 17

. . .

18 19 20

. . .

21 22 23

3,154

25d

1,100

3,154

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

. . .

. . 27 28 29 30 31

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

1,100

Phone no.

. Savings

35a

Yes. Complete below.

1,100

2,054 No

Personal identification number (PIN)

Your signature

Date

Your occupation

Spouse’s signature. If a joint return, both must sign.

Date

Spouse’s occupation

Phone no.

Email address

Student

Preparer’s name

Preparer’s signature

Date

If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 1B, cont. SCHEDULE B

OMB No. 1545-0074

Interest and Ordinary Dividends

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Go to www.irs.gov/ScheduleB for instructions and the latest information. Attach to Form 1040 or 1040-SR.

Name(s) shown on return

Attachment Sequence No. 08 Your social security number

Jack McCarthy 1 List name of payer. If any interest is from a seller-financed mortgage and the Part I buyer used the property as a personal residence, see the instructions and list this Interest interest first. Also, show that buyer’s social security number and address: (See instructions Tandy Corporation Bonds and the Instructions for Form 1040, line 2b.)

Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm’s name as the payer and enter the total interest shown on that form.

Amount

DRAFT AS OF July 7, 2022 DO NOT FILE

14,500

2 3

Part II Ordinary Dividends

555-55-1212

(See instructions and the Instructions for Form 1040, line 3b.)

2 3 4

14,500 14,500 Amount

b If you are required to file FinCEN Form 114, list the name(s) of the foreign country(-ies) where the financial account(s) are located: 8

During 2022, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If “Yes,” you may have to file Form 3520. See instructions . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 17146N

Schedule B (Form 1040) 2022

6-23

6-24

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 1B, cont.

8615

Tax for Certain Children Who Have Unearned Income

Department of the Treasury Internal Revenue Service

Attach only to the child’s Form 1040 or 1040-NR. Go to www.irs.gov/Form8615 for instructions and the latest information.

Form

OMB No. 1545-0074

2022

Attachment Sequence No. 33 Child’s social security number

Child’s name shown on return

Jack McCarthy

555-55-1212

A Parent’s name (first, initial, and last). Caution: See instructions before completing.

B Parent’s social security number

Richard and Christine McCarthy

100-10-9090

DRAFT AS OF August 4, 2022 DO NOT FILE

C Parent’s filing status (check one): Single

Part I 1 2 3 4 5

7 8

Married filing separately

Head of household

Qualifying widow(er)

Enter the child’s unearned income. See instructions . . . . . . . . . . . . . . . . . If the child did not itemize deductions on Schedule A (Form 1040) or Schedule A (Form 1040-NR), enter $2,300. Otherwise, see instructions . . . . . . . . . . . . . . . . . . . . Subtract line 2 from line 1. If zero or less, stop; do not complete the rest of this form but do attach it to the child’s return . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enter the child’s taxable income from Form 1040 or 1040-NR, line 15. If the child files Form 2555, see the instructions. . . . . . . . . . . . . . . . . . . . . . . . . . . . Enter the smaller of line 3 or line 4. If zero, stop; do not complete the rest of this form but do attach it to the child’s return . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part II 6

X Married filing jointly

Child’s Net Unearned Income

14,500

2,300

12,200

14,450

12,200

265,814

7 8

278,014

54,394 (a)

51,466

2,928

12b 13

× .

15 16

226 3,154

1,532

Tentative Tax Based on the Tax Rate of the Parent

Enter the parent’s taxable income from Form 1040 or 1040-NR, line 15. If zero or less, enter -0-. If the parent files Form 2555, see the instructions . . . . . . . . . . . . . . . . . . Enter the total, if any, from Forms 8615, line 5, of all other children of the parent named above. Do not include the amount from line 5 above . . . . . . . . . . . . . . . . . . . . Add lines 5, 6, and 7. See instructions . . . . . . . . . . . . . . . . . . . . .

Enter the tax on the amount on line 8 based on the parent’s filing status above. See instructions. If the Qualified Dividends and Capital Gain Tax Worksheet, Schedule D Tax Worksheet, or Schedule J (Form 1040) is used to figure the tax, check here . . . . . . . . . . . . . . . . . Enter the parent’s tax from Form 1040 or 1040-NR, line 16, minus any alternative minimum tax. Do 10 not include any tax from Form 4972 or Form 8814, or any tax from the recapture of an education credit. If the parent files Form 2555, see the instructions. If the Qualified Dividends and Capital Gain Tax Worksheet, Schedule D Tax Worksheet, or Schedule J (Form 1040) was used to figure the tax, check here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Subtract line 10 from line 9 and enter the result. If line 7 is blank, also enter this amount on line 13 and go to Part III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12a Add lines 5 and 7 . . . . . . . . . . . . . . . . . . . . 12a b Divide line 5 by line 12a. Enter the result as a decimal (rounded to at least three places) . . . . . 13 Multiply line 11 by line 12b . . . . . . . . . . . . . . . . . . . . . . . . .

Part III

Subtract line 5 from line 4

Enter the tax on the amount on line 14 based on the child’s filing status. See instructions. If the Qualified Dividends and Capital Gain Tax Worksheet, Schedule D Tax Worksheet, or Schedule J (Form 1040) is used to figure the tax, check here . . . . . . . . . . . . . . . . . Add lines 13 and 15 . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,250

2,928

Child’s Tax—If lines 4 and 5 above are the same, enter -0- on line 15 and go to line 16.

Enter the tax on the amount on line 4 based on the child’s filing status. See instructions. If the Qualified Dividends and Capital Gain Tax Worksheet, Schedule D Tax Worksheet, or Schedule J (Form 1040) is used to figure the tax, check here . . . . . . . . . . . . . . . . . Enter the larger of line 16 or line 17 here and on the child’s Form 1040 or 1040-NR, line 16. If the child files Form 2555, see the instructions . . . . . . . . . . . . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

(a) $30,427 + [($278,014 – $178,150) x 24%]

Cat. No. 64113U

3,154 Form 8615 (2022)

Solutions for Questions and Problems – Chapter 6

Form

Comprehensive Problem 2A

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

OMB No. 1545-0074

IRS Use Only—Do not write or staple in this space.

Your first name and middle initial

Last name

Warner

Your social security number

Robins

798 09 8526

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Augustine

Spouse’s social security number

Robins

445 81 1423

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

638 Russell Parkway

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Macon

Foreign country name

31207

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

. . .

Credit for other dependents

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Child tax credit

. . .

. . 2a 3a

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Was born before January 2, 1958

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

x No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

. . .

. .

. . .

Cat. No. 11320B

133,600

133,600 540

710 134,850 12,250 122,600 87,442 87,442 35,158 Form 1040 (2022)

6-25

6-26

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 2A, cont. Warner and Augustine Robins

Form 1040 (2022)

Tax and Credits

798-09-8526

16 17

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

Page 2

3,810

16 17

. . .

18 19 20

. . .

21 22 23

3,810

25d

6,200

3,810

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

. . .

. . 27 28 29 30 31

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

6,200

. Savings

35a

Yes. Complete below.

Phone no.

6,200 2,390 2,390

Personal identification number (PIN)

Date

Your occupation

Company President Spouse’s signature. If a joint return, both must sign.

Date

Phone no.

Email address

Spouse’s occupation

Consultant Preparer’s name

Preparer’s signature

Date

If the IRS sent you an Identity Protection PIN, enter it here (see inst.) If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 2A, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

Warner and Augustine Robins Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

798-09-8526

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

710 (a)

710

Schedule 1 (Form 1040) 2022

(a) Prior year included itemized deduction for which a benefit was received; thus, the state income tax refund is income this year.

6-27

6-28

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 2A, cont. Warner and Augustine Robins Part II Adjustments to Income

Schedule 1 (Form 1040) 2022

11 12 13 14 15 16 17 18 19a b c 20 21 22 23 24 a b c d e f g h i

j k z 25 26

798-09-8526

Page 2

Educator expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 . . . . . . . . . . . . . . . . . . . . . . . . 12 Health savings account deduction. Attach Form 8889 . . . . . . . . . . . . . . 13 Moving expenses for members of the Armed Forces. Attach Form 3903 . . . . . . . 14 Deductible part of self-employment tax. Attach Schedule SE . . . . . . . . . . . 15 Self-employed SEP, SIMPLE, and qualified plans . . . . . . . . . . . . . . . . 16 Self-employed health insurance deduction . . . . . . . . . . . . . . . . . . 17 Penalty on early withdrawal of savings . . . . . . . . . . . . . . . . . . . . 18 Alimony paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19a Recipient’s SSN . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): IRA deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Student loan interest deduction . . . . . . . . . . . . . . . . . . . . . . 21 22 Reserved for future use . . . . . . . . . . . . . . . . . . . . . . . . . Archer MSA deduction . . . . . . . . . . . . . . . . . . . . . . . . . 23 Other adjustments: Jury duty pay (see instructions) . . . . . . . . . . . . . . 24a Deductible expenses related to income reported on line 8l from the rental of personal property engaged in for profit . . . . . . . . 24b Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 8m . . . . . . . . . . 24c Reforestation amortization and expenses . . . . . . . . . . . 24d Repayment of supplemental unemployment benefits under the Trade Act of 1974 . . . . . . . . . . . . . . . . . . . . . . 24e Contributions to section 501(c)(18)(D) pension plans . . . . . . . 24f Contributions by certain chaplains to section 403(b) plans . . . . 24g Attorney fees and court costs for actions involving certain unlawful discrimination claims (see instructions) . . . . . . . . . . . . 24h Attorney fees and court costs you paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations . . . . . . . . . . . . . . . . . . . 24i Housing deduction from Form 2555 . . . . . . . . . . . . . 24j Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041) . . . . . . . . . . . . . . . . . . . . . . . . 24k Other adjustments. List type and amount: 24z Total other adjustments. Add lines 24a through 24z . . . . . . . . . . . . . . . 25 Add lines 11 through 23 and 25. These are your adjustments to income. Enter here and on Form 1040 or 1040-SR, line 10, or Form 1040-NR, line 10a . . . . . . . . . . . . 26

DRAFT AS OF July 27, 2022 DO NOT FILE

250

12,000

12,250

Schedule 1 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 2A, cont.

Itemized Deductions

SCHEDULE A (Form 1040)

OMB No. 1545-0074

2022

Your social security number

Warner and Augustine Robins Medical and Dental Expenses Taxes You Paid

Caution: Your mortgage interest deduction may be limited. See instructions.

798-09-8526

Caution: Do not include expenses reimbursed or paid by others. Medical and dental expenses (see instructions) . . . . . . . Enter amount from Form 1040 or 1040-SR, line 11 2 122,600 Multiply line 2 by 7.5% (0.075) . . . . . . . . . . . . . Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- . . .

14,757 (a)

DRAFT AS OF July 21, 2022 DO NOT FILE 1 2 3 4

5 State and local taxes. 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. If you elect to include general sales taxes instead of income taxes, check this box . . . . . . . . . . . . . . . . . b State and local real estate taxes (see instructions) . . . . . . . c State and local personal property taxes . . . . . . . . . . d Add lines 5a 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: 7 Add lines 5e and 6 .

Interest You Paid

3 . .

Caution: If you made a gift and got a benefit for it, see instructions.

9,195

10,250

10,000

6 . .

5,562

10,000

27,400

3,600 6,650

5a 5b 5c 5d

27,400

Gifts to Charity

Attachment Sequence No. 07

27,400 .

7,700 36,780 (b) .

44,480

For Paperwork Reduction Act Notice, see the Instructions for Form 1040.

Cat. No. 17145C

87,442

. Schedule A (Form 1040) 2022

(a) $11,400 + $6,500 – $3,200 + (130 x 2 x $0.22) (b) Contribution of capital gain property ($54,000 – $25) is subject to 30% AGI limit. AGI $122,600 x 30% limit = $36,780. The cash contributions are subject to a 60% AGI limitation and are fully deductible.

6-29

6-30

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 2A, cont. SCHEDULE D

OMB No. 1545-0074

Capital Gains and Losses

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/ScheduleD for instructions and the latest information. Use Form 8949 to list your transactions for lines 1b, 2, 3, 8b, 9, and 10.

Name(s) shown on return

Attachment Sequence No. 12 Your social security number

Warner and Augustine Robins

Part I

798-09-8526

DRAFT AS OF July 15, 2022 DO NOT FILE

Short-Term Capital Gains and Losses—Generally Assets Held One Year or Less (see instructions)

See instructions for how to figure the amounts to enter on the lines below. This form may be easier to complete if you round off cents to whole dollars.

(d) Proceeds (sales price)

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part I, line 2, column (g)

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

Part II

4 5 6

(

)

Long-Term Capital Gains and Losses—Generally Assets Held More Than One Year (see instructions)

See instructions for how to figure the amounts to enter on the lines below. This form may be easier to complete if you round off cents to whole dollars.

(d) Proceeds (sales price)

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part II, line 2, column (g)

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

75,000

160,000

85,000

Cat. No. 11338H

11 12 13 14 ( 15

)

Schedule D (Form 1040) 2022

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 2A, cont. Page 2

Schedule D (Form 1040) 2022

Part III 16

Summary

Combine lines 7 and 15 and enter the result

DRAFT AS OF July 15, 2022 DO NOT FILE

Are lines 15 and 16 both gains? Yes. Go to line 18. No. Skip lines 18 through 21, and go to line 22.

If you are required to complete the 28% Rate Gain Worksheet (see instructions), enter the amount, if any, from line 7 of that worksheet . . . . . . . . . . . . . . . . . .

If you are required to complete the Unrecaptured Section 1250 Gain Worksheet (see instructions), enter the amount, if any, from line 18 of that worksheet . . . . . . . . . .

If line 16 is a loss, enter here and on Form 1040, 1040-SR, or 1040-NR, line 7, the smaller of: • The loss on line 16; or • ($3,000), or if married filing separately, ($1,500)

}

21 (

)

Note: When figuring which amount is smaller, treat both amounts as positive numbers. 22

Do you have qualified dividends on Form 1040, 1040-SR, or 1040-NR, line 3a? Yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 16.

x No. Complete the rest of Form 1040, 1040-SR, or 1040-NR. Schedule D (Form 1040) 2022

6-31

6-32

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 2A, cont. Form

8949

Department of the Treasury Internal Revenue Service

Name(s) shown on return

OMB No. 1545-0074

2022

Attachment Sequence No. 12A

Social security number or taxpayer identification number

Warner and Augustine Robins

798-09-8526

Part I

DRAFT AS OF August 17, 2022 DO NOT FILE

(a) Description of property (Example: 100 sh. XYZ Co.)

(b) Date acquired (Mo., day, yr.)

(d) Proceeds (sales price) (see instructions)

Cat. No. 37768Z

Form 8949 (2022)

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 2A, cont. Attachment Sequence No. 12A

Form 8949 (2022) Name(s) shown on return. Name and SSN or taxpayer identification no. not required if shown on other side

Page 2

Social security number or taxpayer identification number

Warner and Augustine Robins

798-09-8526

Part II

DRAFT AS OF August 17, 2022 DO NOT FILE

You must check Box D, E, or F below. Check only one box. If more than one box applies for your long-term transactions, complete a separate Form 8949, page 2, for each applicable box. If you have more long-term transactions than will fit on this page for one or more of the boxes, complete as many forms with the same box checked as you need. (D) Long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS (see Note above) (E) Long-term transactions reported on Form(s) 1099-B showing basis wasn’t reported to the IRS X (F) Long-term transactions not reported to you on Form 1099-B 1

(a) Description of property (Example: 100 sh. XYZ Co.)

Land

(b) Date acquired (Mo., day, yr.)

01/01/17 01/01/22

(d) Proceeds (sales price) (see instructions)

75,000

160,000

75,000

160,000

85,000

0 (a)

85,000

(a) Related party transaction; thus, loss is disallowed.

6-33

6-34

Chapter 6 – Accounting Periods and Other Taxes

Form

Comprehensive Problem 2B

1040-X

Department of the Treasury—Internal Revenue Service

Amended U.S. Individual Income Tax Return

OMB No. 1545-0074

a Use this revision to amend 2019 or later tax returns.

a Go to www.irs.gov/Form1040X for instructions and the latest information.

(Rev. July 2021)

This return is for calendar year (enter year)

or fiscal year (enter month and year ended)

Your first name and middle initial

Last name

Warner

Robins

798 09 8526

If joint return, spouse’s first name and middle initial

Last name

Spouse’s social security number

Augustine

Robins

Your social security number

DRAFT AS OF July 28, 2021 DO NOT FILE

445 81 1423

Current home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Your phone number

638 Russell Parkway

800-555-1212

City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below. See instructions.

Macon, GA 31207 Foreign country name

Foreign postal code

Foreign province/state/county

Amended return filing status. You must check one box even if you are not changing your filing status. Caution: In general, you can’t change your filing status from married filing jointly to married filing separately after the return due date. Single

x Married filing jointly

Married filing separately (MFS)

Head of household (HOH)

Qualifying widow(er) (QW)

If you checked the MFS box, enter the name of your 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 a Use Part III on page 2 to explain any changes. Enter on lines 1 through 23, columns A through C, the amounts for the return year entered above.

A. Original amount B. Net change— reported or as amount of increase previously adjusted or (decrease)— (see instructions) explain in Part III

C. Correct amount

Income and Deductions Adjusted gross income. If a net operating loss (NOL) carryback is included, check here . . . . . . . . . . . . . . . a 2 Itemized deductions or standard deduction . . . . . . . . . 3 Subtract line 2 from line 1 . . . . . . . . . . . . . . . 4a Reserved for future use . . . . . . . . . . . . . . . . b Qualified business income deduction . . . . . . . . . . . . 5 Taxable income. Subtract line 4b from line 3. If the result is zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . 1

122,600 87,442 35,158

4,640 (4,640)

122,600 92,082 30,518

35,158

(4,640)

30,518

3,810

(558)

3,252

7 8 9 10 11

3,810

(558)

3,252

1 2 3 4a 4b

Tax Liability 6

Tax. Enter method(s) used to figure tax (see instructions):

Nonrefundable credits. If a general business credit carryback is included, check here . . . . . . . . . . . . . . . Subtract line 7 from line 6. If the result is zero or less, enter -0- . Reserved for future use . . . . . . . . . . . . . . Other taxes . . . . . . . . . . . . . . . . . . Total tax. Add lines 8 and 10 . . . . . . . . . . . .

8 9 10 11

. . . .

Payments 12 13 14 15 16 17

Federal income tax withheld and excess social security and tier 1 RRTA 12 tax withheld. (If changing, see instructions.) . . . . . . . . . 6,200 Estimated tax payments, including amount applied from prior year’s return 13 Earned income credit (EIC) . . . . . . . . . . . . . . . 14 Refundable credits from: Schedule 8812 Form(s) 2439 4136 8863 8885 8962 or other (specify): 15 Total amount paid with request for extension of time to file, tax paid with original return, and additional tax paid after return was filed . . . . . . . . . . . . . . . . . . . . . . . . Total payments. Add lines 12 through 15, column C, and line 16 . . . . . . . . . . . . .

6,200

16 17

Refund or Amount You Owe 18 19 20 21 22 23

Overpayment, if any, as shown on original return or as previously adjusted by the IRS . . . . . Subtract line 18 from line 17. (If less than zero, see instructions.) . . . . . . . . . . . . Amount you owe. If line 11, column C, is more than line 19, enter the difference . . . . . . . If line 11, column C, is less than line 19, enter the difference. This is the amount overpaid on this return Amount of line 21 you want refunded to you . . . . . . . . . . . . . . . . . . . Amount of line 21 you want applied to your (enter year): estimated tax 23

18 19 20 21 22

6,200 2,390 3,810 558 558

Complete and sign this form on page 2. For Paperwork Reduction Act Notice, see separate instructions.

Cat. No. 11360L

Form 1040-X (Rev. 7-2021)

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 2B, cont. Page 2

Form 1040-X (Rev. 7-2021)

Part I

Dependents A. Original number B. Net change — of dependents amount of increase reported or as or (decrease) previously adjusted

Complete this part to change any information relating to your dependents. This would include a change in the number of dependents. Enter the information for the return year entered at the top of page 1. 24 25 26

Reserved for future use . . . . . . . . . . . . . . . . 24 Your dependent children who lived with you . . . . . . . . . 25 Your dependent children who didn’t live with you due to divorce or separation . . . . . . . . . . . . . . . . . . . . 26 27 Other dependents . . . . . . . . . . . . . . . . . . 27 28 Reserved for future use . . . . . . . . . . . . . . . . 28 29 Reserved for future use . . . . . . . . . . . . . . . . 29 30 List ALL dependents (children and others) claimed on this amended return. Dependents (see instructions): If more than four dependents, see instructions and check here a

Part II

DRAFT AS OF July 28, 2021 DO NOT FILE

(a) First name

Last name

(b) Social security number

C. Correct number

(d) if qualifies for (see instructions):

Child tax credit

to you

Credit for other dependents

Presidential Election Campaign Fund (for the return year entered at the top of page 1)

Checking below won’t increase your tax or reduce your refund. Check here if you didn’t previously want $3 to go to the fund, but now do. Check here if this is a joint return and your spouse did not previously want $3 to go to the fund, but now does. Part III Explanation of Changes. In the space provided below, tell us why you are filing Form 1040-X. a Attach any supporting documents and new or changed forms and schedules.

Taxpayer is filing an amended return under a Section 165(i) election due to a federally declared disaster. Details of the disaster are Hurricane Gator (DR-4690-GA) on July 14, 2023 causing a deductible casualty loss to the principal residence of the taxpayers located at 638 Russell Parkway, Macon, GA 31207 (Bibb County, GA).

Remember to keep a copy of this form for your records. Under penalties of perjury, I declare that I have filed an original return, and that I have examined this amended return, including accompanying schedules and statements, and to the best of my knowledge and belief, this amended return is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information about which the preparer has any knowledge.

Your signature

Paid Preparer Use Only

Sign Here

Spouse’s signature. If a joint return, both must sign.

Print/Type preparer’s name

Firm’s name

Firm’s address a

For forms and publications, visit www.irs.gov.

Date

Preparer’s signature

Your occupation

Date

Spouse’s occupation Date

Check if self-employed

PTIN

Firm’s EIN a Phone no. Form 1040-X (Rev. 7-2021)

6-35

6-36

Chapter 6 – Accounting Periods and Other Taxes

Form

Comprehensive Problem 2B, cont.

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

OMB No. 1545-0074

IRS Use Only—Do not write or staple in this space.

Your first name and middle initial

Last name

Warner

Your social security number

Robins

798 09 8526

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Augustine

Spouse’s social security number

Robins

445 81 1423

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

638 Russell Parkway

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Macon

Foreign country name

31207

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

. . .

Credit for other dependents

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Child tax credit

. . .

. . 2a 3a

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Was born before January 2, 1958

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

x No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

. . .

. .

. . .

Cat. No. 11320B

133,600

133,600 540

710 134,850 12,250 122,600 92,082 92,082 30,518 Form 1040 (2022)

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 2B, cont. Warner and Augustine Robins

Form 1040 (2022)

Tax and Credits

798-09-8526

16 17

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

Page 2

3,252

16 17

. . .

18 19 20

. . .

21 22 23

3,252

25d

6,200

3,252

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

. . .

. . 27 28 29 30 31

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

6,200

. Savings

35a

Yes. Complete below.

Phone no.

6,200 2,948 2,948

Personal identification number (PIN)

Date

Your occupation

Company President Spouse’s signature. If a joint return, both must sign.

Date

Phone no.

Email address

Spouse’s occupation

Consultant Preparer’s name

Preparer’s signature

Date

If the IRS sent you an Identity Protection PIN, enter it here (see inst.) If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

6-37

6-38

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 2B, cont.

Itemized Deductions

SCHEDULE A (Form 1040)

OMB No. 1545-0074

2022

Your social security number

Warner and Augustine Robins Medical and Dental Expenses Taxes You Paid

Caution: Your mortgage interest deduction may be limited. See instructions.

798-09-8526

14,757 (a)

DRAFT AS OF July 21, 2022 DO NOT FILE 1 2 3 4

5 State and local taxes. 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. If you elect to include general sales taxes instead of income taxes, check this box . . . . . . . . . . . . . . . . . b State and local real estate taxes (see instructions) . . . . . . . c State and local personal property taxes . . . . . . . . . . d Add lines 5a 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: 7 Add lines 5e and 6 .

Interest You Paid

3 . .

Caution: If you made a gift and got a benefit for it, see instructions.

9,195

10,250

10,000

6 . .

5,562

10,000

27,400

3,600 6,650

5a 5b 5c 5d

27,400

Gifts to Charity

Attachment Sequence No. 07

27,400 .

7,700 36,780 (b) .

44,480

4,640

For Paperwork Reduction Act Notice, see the Instructions for Form 1040.

Cat. No. 17145C

92,082

. Schedule A (Form 1040) 2022

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 2B, cont.

Section 165(i) Election Form

4684

Casualties and Thefts

Department of the Treasury Internal Revenue Service

OMB No. 1545-0177

2022

Go to www.irs.gov/Form4684 for instructions and the latest information. Attach to your tax return. Use a separate Form 4684 for each casualty or theft.

Attachment Sequence No. 26

Name(s) shown on tax return

Identifying number

Warner and Augustine Robins

798-09-8526

SECTION A—Personal Use Property (Use this section to report casualties and thefts of property not used in a trade or business or for income-producing purposes. For tax years 2018 through 2025, if you are an individual, casualty or theft losses of personal-use property are deductible only if the loss is attributable to a federally declared disaster. You must use a separate Form 4684 (through line 12) for each casualty or theft event involving personal-use property. If reporting a qualified disaster loss, see the instructions for special rules that apply before completing this section.)

DRAFT AS OF August 17, 2022 DO NOT FILE

If the casualty or theft loss is attributable to a federally declared disaster, check here x and enter the DR- 4690 or EMdeclaration number assigned by FEMA. (See instructions.)

1 Description of properties (show type, location (city, state, and ZIP code), and date acquired for each property). Use a separate line for each property lost or damaged from the same casualty or theft. If you checked the box and entered the FEMA disaster declaration number above, enter the ZIP code for the property most affected on the line for Property A. Type of Property

Property A Property B

City and State

Primary residence

Date Acquired

ZIP Code

Macon, GA

31207

10/13/2014

Property C Property D

Properties

2 Cost or other basis of each property .

3 Insurance or other reimbursement (whether or not you filed a claim) (see instructions) . . . . . . . . Note: If line 2 is more than line 3, skip line 4. 4 Gain from casualty or theft. If line 3 is more than line 2, enter the difference here and skip lines 5 through 9 for that column. See instructions if line 3 includes insurance or other reimbursement you did not claim, or you received payment for your loss in a later tax year . . 5 Fair market value before casualty or theft . . . . 6 Fair market value after casualty or theft . . . . . 7 Subtract line 6 from line 5 . . . . . . . . . 8 Enter the smaller of line 2 or line 7 . . . . . . 9 Subtract line 3 from line 8. If zero or less, enter -0- . .

800,000

3,000

4 5 6 7 8 9

900,000 880,000 20,000 20,000 17,000

17,000 100 16,900

14 Add the amounts on line 12 of all Forms 4684. If you have losses not attributable to a federally declared disaster, see the instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Caution: See instructions before completing line 15.

16,900

10 Casualty or theft loss. Add the amounts on line 9 in columns A through D . 11 Enter $100 ($500 if qualified disaster loss rules apply; see instructions) . .

. .

10 11

12 Subtract line 11 from line 10. If zero or less, enter -0- . . Caution: Use only one Form 4684 for lines 13 through 18. 13 Add the amounts on line 4 of all Forms 4684 . . . .

15 • If line 13 is more than line 14, enter the difference here and on Schedule D. Do not complete the rest of this section. • If line 13 is equal to line 14, enter -0- here. Do not complete the rest of this section. • If line 13 is less than line 14, and you have no qualified disaster losses subject to the $500 reduction on line 11 on any Form(s) 4684, enter -0- here and go to line 16. If you have qualified disaster losses subject to the $500 reduction, subtract line 13 from line 14 and enter the smaller of this difference or the amount on line 12 of the Form(s) 4684 reporting those losses. Enter that result here and on Schedule A (Form 1040), line 16; or Schedule A (Form 1040-NR), line 7. If you claim the standard deduction, also include on Schedule A (Form 1040), line 16, the amount of your standard deduction (see the Instructions for Form 1040). Do not complete the rest of this section if all of your casualty or theft losses are subject to the $500 reduction.

}

16,900

17 Enter 10% of your adjusted gross income from Form 1040, 1040-SR, or 1040-NR, line 11. Estates and trusts, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12,260

18 Subtract line 17 from line 16. If zero or less, enter -0-. Also, enter the result on Schedule A (Form 1040), line 15; or Schedule A (Form 1040-NR), line 6. Estates and trusts, enter the result on the “Other deductions” line of your tax return

16 Add lines 13 and 15. Subtract the result from line 14

For Paperwork Reduction Act Notice, see instructions.

Cat. No. 12997O

4,640 Form 4684 (2022)

6-39

6-40

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 2B, cont. Form 4684 (2022)

Page 2

Attachment Sequence No. 26 Identifying number

Name(s) shown on tax return. Do not enter name and identifying number if shown on other side.

SECTION B—Business and Income-Producing Property Part I Casualty or Theft Gain or Loss (Use a separate Part l for each casualty or theft.) 19 Description of properties (show type, location, and date acquired for each property). Use a separate line for each property lost or damaged from the same casualty or theft. See instructions if claiming a loss due to a Ponzi-type investment scheme and Section C is not completed.

DRAFT AS OF August 17, 2022 DO NOT FILE

Property A

Property B Property C Property D

Properties

20 Cost or adjusted basis of each property .

21 Insurance or other reimbursement (whether or not you filed a claim). See the instructions for line 3 . . . . Note: If line 20 is more than line 21, skip line 22.

22 Gain from casualty or theft. If line 21 is more than line 20, enter the difference here and on line 29 or line 34, column (c), except as provided in the instructions for line 33. Also, skip lines 23 through 27 for that column. See the instructions for line 4 if line 21 includes insurance or other reimbursement you did not claim, or you received payment for your loss in a later tax year 23 Fair market value before casualty or theft . . . . 24 Fair market value after casualty or theft . . . . . 25 Subtract line 24 from line 23 . . . . . . . . 26 Enter the smaller of line 20 or line 25 . . . . .

22 23 24 25 26

Note: If the property was totally destroyed by casualty or lost from theft, enter on line 26 the amount from line 20. 27 Subtract line 21 from line 26. If zero or less, enter -0- . 27 28 Casualty or theft loss. Add the amounts on line 27. Enter the total here and on line 29 or line 34. See instructions .

Part II

Summary of Gains and Losses (from separate Parts l)

(b) Losses from casualties or thefts (i) Trade, business, rental, or royalty property

(a) Identify casualty or theft

(ii) Incomeproducing property

Casualty or Theft of Property Held One Year or Less 29 30 Totals. Add the amounts on line 29

( (

) ( ) (

) )

(

) (

)

31 Combine line 30, columns (b)(i) and (c). Enter the net gain or (loss) here and on Form 4797, line 14. If Form 4797 is not otherwise required, see instructions . . . . . . . . . . . . . . . . . . . . . . .

32 Enter the amount from line 30, column (b)(ii), here. Individuals, enter the amount from income-producing property on Schedule A (Form 1040), line 16; or Schedule A (Form 1040-NR), line 7. (Do not include any loss on property used as an employee.) Estates and trusts, partnerships, and S corporations, see instructions . . . . . . . . . .

Casualty or Theft of Property Held More Than One Year 33 Casualty or theft gains from Form 4797, line 32 . . . . . . . . . . . . . . . . . . . . . . . . . ( ) ( ( ) (

33 ) )

35 Total losses. Add amounts on line 34, columns (b)(i) and (b)(ii) . . . . .

(

) (

)

36 Total gains. Add lines 33 and 34, column (c) . . . . . . . . . . . . . . . . . . . . . . 37 Add amounts on line 35, columns (b)(i) and (b)(ii) . . . . . . . . . . . . . . . . . . . . 38 If the loss on line 37 is more than the gain on line 36: a Combine line 35, column (b)(i), and line 36, and enter the net gain or (loss) here. Partnerships and S corporations, see the Note below. All others, enter this amount on Form 4797, line 14. If Form 4797 is not otherwise required, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

36 37

38a

b Enter the amount from line 35, column (b)(ii), here. Individuals, enter the amount from income-producing property on Schedule A (Form 1040), line 16; or Schedule A (Form 1040-NR), line 7. (Do not include any loss on property used as an employee.) Estates and trusts, enter on the “Other deductions” line of your tax return. Partnerships and S corporations, see the Note below . . . . . . . . . . . . . . . . . . . . . . . . .

38b

39 If the loss on line 37 is less than or equal to the gain on line 36, combine lines 36 and 37 and enter here. Partnerships, see the Note below. All others, enter this amount on Form 4797, line 3 . . . . . . . . . . . . . .

Note: Partnerships, enter the amount from line 38a, 38b, or 39 on Form 1065, Schedule K, line 11. S corporations, enter the amount from line 38a or 38b on Form 1120-S, Schedule K, line 10. Form 4684 (2022)

Solutions for Questions and Problems – Chapter 6

Comprehensive Problem 2B, cont. Form 4684 (2022)

Page 3

Attachment Sequence No. 26

Name(s) shown on tax return

Identifying number

SECTION C—Theft Loss Deduction for Ponzi-Type Investment Scheme Using the Procedures in Revenue Procedure 2009-20 (Complete this section in lieu of Appendix A in Revenue Procedure 2009-20. See instructions.) Part I Computation of Deduction 40 Initial investment . . . . . . . . . 41 Subsequent investments (see instructions) .

. .

40 41

DRAFT AS OF August 17, 2022 DO NOT FILE

42 Income reported on your tax returns for tax years prior to the discovery year (see instructions) . . . . . . . . . . . . . . . . . .

. .

44 45

46 Enter 0.95 (95%) if you have no potential third-party recovery. Enter 0.75 (75%) if you have potential third-party recovery . . . . . . . . . . . . . . . . . . . 47 Multiply line 46 by line 45 . . . . . . . . . . . . . . . . . . . . 48 Actual recovery . . . . . . . . . . . . . . . . . . . . . . .

46 47 48

49 Potential insurance/Securities Investor Protection Corporation (SIPC) recovery 50 Add lines 48 and 49. This is your total recovery . . . . . . . . . .

. .

49 50

51 Subtract line 50 from line 47. This is your deductible theft loss. Include this amount on line 28 of Section B, Part I. Do not complete lines 19–27 for this loss. Then complete Section B, Part II . . . . . . . . . . . . . . . . . . . . . . . . . .

43 Add lines 40, 41, and 42 . . . . . . . . . . . . . 44 Withdrawals for all years (see instructions) . . . . . . . . 45 Subtract line 44 from line 43. This is your total qualified investment .

Part II

. .

Required Statements and Declarations (See instructions.)

• I am claiming a theft loss deduction pursuant to Revenue Procedure 2009-20 from a specified fraudulent arrangement conducted by the following individual or entity. Name of individual or entity Taxpayer identification number (if known) Address • I have written documentation to support the amounts reported in Part I of this Section C. • I am a qualified investor, as defined in section 4.03 of Revenue Procedure 2009-20. • If I have determined the amount of my theft loss deduction using 0.95 on line 46 above, I declare that I have not pursued and do not intend to pursue any potential third-party recovery, as that term is defined in section 4.10 of Revenue Procedure 2009-20. • I agree to comply with the conditions and agreements set forth in Revenue Procedure 2009-20 and this Section C. • If I have already filed a return or amended return that does not satisfy the conditions in section 6.02 of Revenue Procedure 2009-20, I agree to all adjustments or actions that are necessary to comply with those conditions. The tax year(s) for which I filed the return(s) or amended return(s) and the date(s) on which they were filed are as follows:

Form 4684 (2022)

6-41

6-42

Chapter 6 – Accounting Periods and Other Taxes

Comprehensive Problem 2B, cont. Form 4684 (2022)

Page 4

Attachment Sequence No. 26

Name(s) shown on tax return

Identifying number

SECTION D—Election To Deduct Federally Declared Disaster Loss in Preceding Tax Year (See instructions.) Part I Election Statement By providing all of the information below, the taxpayer elects, under section 165(i) of the Internal Revenue Code, to deduct a loss attributable to a federally declared disaster and that occurred in a federally declared disaster area in the tax year immediately preceding the tax year the loss was sustained.

DRAFT AS OF August 17, 2022 DO NOT FILE

Attach this Section D to your return or amended return for the tax year immediately preceding the tax year the loss was sustained to claim the disaster loss deduction. 52 Provide the name or a description of the federally declared disaster.

53 Provide the date or dates (mm/dd/yyyy) of the loss or losses attributable to the federally declared disaster.

54 Specify the address, including the city or town, county or parish, state, and ZIP code where the damaged or destroyed property was located at the time of the disaster.

Part II

Revocation of Prior Election

By providing all of the information below, the taxpayer revokes the prior election under section 165(i) of the Internal Revenue Code to deduct a loss attributable to a federally declared disaster and that occurred in a federally declared disaster area in the tax year immediately preceding the tax year the loss was sustained. Attach this Section D to your amended return for the tax year immediately preceding the tax year the loss was sustained to remove the previous disaster loss deduction. 55 Provide the name or a description of the federally declared disaster and the address of the property that was damaged or destroyed and for which the election was claimed. 56 Specify the date (mm/dd/yyyy) you filed the prior election, which you are now revoking. (See instructions and note that new rules went into effect on October 13, 2016.) 57 Enclose your payment or otherwise provide evidence for, or explanation of, your arrangements for the repayment of the amount of any credit or refund which you received and which resulted from the prior election (which you are now revoking). Form 4684 (2022)

Solutions for Questions and Problems – Chapter 6

6-43

Key Number Tax Return Summary Chapter 6 Comprehensive Problem 1A Schedule C, Net Profit or (Loss) (Line 31)

59,200

Schedule SE, Self-Employment Tax (Line 12)

8,364

Schedule H, Total Household Employment Taxes (Line 26)

2,031

Form 1040, Taxable Income (Line 15)

265,814

Form 1040, Total Tax (Line 24)

60,605

Comprehensive Problem 1B Form 8615, Child’s Net Unearned Income (Line 3)

12,200

Form 8615, Tentative Tax Based on Parent Tax Rate (Line 11)

2,928

Form 8615, Child’s Tax (Line 18)

3,154

Form 1040, Taxable Income (Line 15)

14,450

Form 1040, Amount You Owe (Line 37)

2,054

Comprehensive Problem 2A Total Income (Line 9)

134,850

Adjusted Gross Income (Line 11)

122,600

Standard Deduction or Itemized Deductions (Line 12)

87,442

Total Tax (Line 24)

3,810

Amount Overpaid (Line 34)

2,390

Comprehensive Problem 2B Form 4684, Casualty or Theft Loss (Line 10)

17,000

Form 4884, Deductible Casualty Loss (Line 18)

4,640

Form 1040-X, Total Tax (Line 11, Column c)

3,252

Form 1040-X, Amount Overpaid (Line 21)

558

6-44

Chapter 6 – Accounting Periods and Other Taxes

CHAPTER 7 TAX CREDITS Group 1 – Multiple Choice Questions 1. C Must be under age 17 (LO 7.1) 2. A CTC is $2,000 and subject to AGI limits (LO 7.1) 3. B $3,400. The original credit is $2,000 + $2,000 + $500 less phase-out of $1,100 ($21,400/$1,000 = 21.4 rounded to 22 x $50) = $1,100 (LO 7.1) 4. C $2,000 x 3 (LO 7.1) 5. B The investment income limit is $10,300 in 2022 (LO 7.2) 6. B Meets the qualifying child and cannot be claimed by mother. (LO 7.2) 7. C Married filing separately and those claimed as a dependent are not generally eligible for the EIC (LO 7.2) 8. D Payments to a taxpayer’s child under age 19 does not qualify (LO 7.3) 9. B $250 x 8 months (LO 7.3) 10. C For 2022, the income limit on the premium tax credit is 400% of the FPL (LO 7.4) 11. D Household income must include AGI for all members that file a tax return plus tax-exempt income and nontaxable Social Security benefits (LO 7.4) 12. C All of the first $2,000 and 25% of the next $2,000 for a maximum of $2,500 (LO 7.5) 13. B The first $2,000 plus 25% of the next $2,000. The payment for next semester is includible in this year’s AOTC if the semester begins within 3 months (LO 7.5)

14. B

15. A 16. E 17. B 18. A 19. D 20. C 21. B 22. D 23. A

24. C 25. D 26. B

Student loan payments are not qualifying expenses for the AOTC (but see Chapter 2 for excluded distributions from a 529 plan) (LO 7.5) $1,100 x 20% (LO 7.5) Since Simon was reimbursed, he incurred no qualifying costs (LO 7.5) $2,500 – [($83,000-$80,000)/$10,000 x $2,500] (LO 7.5) AGI exceeds maximum of $90,000 (LO 7.5) Parents can claim the amount paid by the student if claiming the student as a dependent (LO 7.5) The 2022 foreign income exclusion is $112,000 (LO 7.6) Limited to [($55,000 + $45,000) / $300,000 x $105,000] (LO 7.6) The maximum credit in 2022 is $14,890 (LO 7.7) The credit is allowed for the tax year that follows the year during which the expenses are paid or incurred, unless the expenses are paid or incurred in the tax year the adoption becomes final (LO 7.7) The carryforward period is 5 years (LO 7.7) This vehicle is eligible for the clean vehicle credit of $7,500 (LO 7.8) ($1,500 + $1,500) x 20% (LO 7.9)

Group 2 – Problems 1. a. $2,000. b. $4,000. $2,000 x 2 c. $2,950. The credit is ($2,000 x 2) + $500 = $4,500; however, AGI of $430,300 exceeds MFJ threshold by $30,300. Round up and divide by $1,000 = 31 x $50 = $1,550 phase-out ($4,500 – $1,550). (LO 7.1) 2. The earned income credit is a refundable credit designed to provide financial relief to low-income working taxpayers. Taxpayers may receive a refund for the credit even though the credit exceeds their tax liability. (LO 7.2) 3. 1. AGI may not be higher than limits 2. Taxpayer, spouse and all qualifying children must have a SSN issued prior to return due date 3. Married filing separately not allowed, except in certain situations 4. U.S. citizenship or resident alien status required 5. Foreign income exclusion not permitted 6. Investment income cannot exceed $10,300 (2022 limit) 7. Must have earned income (LO 7.2) 7-1

7-2

Chapter 7 – Tax Credits

4. In addition to meeting the 7 general rules, a taxpayer without a qualifying child must also meet the following additional 4 rules: 1. Taxpayer must be at least 25 years old and less than 65 years old 2. Cannot be claimed as a dependent by another 3. Cannot be a qualifying child 4. Must have lived in the U.S. for over half the year (LO 7.2) 5. In addition to meeting the 7 general rules, a taxpayer with at least one qualifying child must also meet the following additional 3 rules: 1. The child must meet the qualifying child tests 2. Qualifying child cannot be claimed by more than one person 3. The taxpayer cannot be the qualifying child of another taxpayer (LO 7.2) 6. Earned income credit for 2 qualifying children: Amount from Earned Income Credit Table for earned income of $19,800 = $6,164 Amount from Earned Income Credit Table for AGI of $21,000 = 5,976 Lesser of two amounts $5,976 Diane must compute the credit using both earned income and AGI because her AGI exceeds the threshhold amount of $20,130. (LO 7.2) 7. Earned income credit: $6,164 See Schedule EIC and Earned Income Credit Worksheet A, on Pages 7-3 and 7-4. (LO 7.2) 8. A taxpayer may have a maximum of $10,300 of investment income in 2022 and still claim the earned income credit. The likely reason for the investment income limit is that the government intends the earned income credit to give financial assistance to the working poor. If a low-income worker has investment income over $10,300, they have savings that indicate to the government that the taxpayer may not need financial assistance as badly as other taxpayers. (LO 7.2) 9. a. $630.00 = $2,250 (student income limitation $250 x 9 months) x 28%. The standard deduction reduces taxable income to $0. b. $1,200. $6,000 (maximum expenses for more than one dependent) X 20% (AGI = $222,000) (LO 7.3) 10. Clarita’s taxable income is only $2,000 ($21,400 – $19,400). Her pre-credit tax liability is $201. Because the child and dependent care credit comes “before” the child tax credit in the pecking order, her child and dependent care credit is limited to $201, reducing the liability to $0. Her earned income credit is $5,891. She would also be eligible for the refundable portion of the child tax credit. (LO 7.2, 7.3) 11. Total credits of $4,600. Clarita’s taxable income is $50,600. Her pre-credit tax liability is $5,782. Her child and dependent credit is $600 ($3,000 x 20%) leaving tax liability of $5,182. Her child tax credit will be $4,000. Her earned income credit is entirely phased out for a head of household taxpayer with 2 qualifying children and is $0. (LO 7.2, 7.3) 12. None. The credit is intended to help taxpayers who work at income-earning jobs. Therefore, since John does not earn income (though many would argue that he has a very difficult job caring for two young children and deserves a respite), no credit is allowed. (LO 7.3) 13. $600. 20% of the 2022 qualified expense limitation of $3,000 for one dependent. (LO 7.3) 14. $900. Jean gets credit for $500 a month of earned income while she attends school for 9 months, or $4,500 of earned income for the year. Therefore, the maximum qualifying expenses for their dependents are limited to $4,500. The credit is calculated as $4,500 (which is less than the $6,000 qualified expense limitation allowed for two children, and less than the $10,000 actually paid) x 20% = $900. (LO 7.3)

Solutions for Questions and Problems – Chapter 7

Group 2: Problem 7

Earned Income Credit

SCHEDULE EIC (Form 1040) Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

Qualifying Child Information

2022

Complete and attach to Form 1040 or 1040-SR only if you have a qualifying child. Go to www.irs.gov/ScheduleEIC for the latest information.

Name(s) shown on return

Attachment Sequence No. 43 Your social security number

David and Margaret Simmons

DRAFT AS OF July 21, 2022 F DO NOT FILE

If you are separated from your spouse, filing a separate return, and meet the requirements to claim the EIC (see instructions), check here

Before you begin:

CAUTION

• See the instructions for Form 1040, line 27, to make sure that (a) you can take the EIC, and (b) you have a qualifying child. • Be sure the child’s name on line 1 and social security number (SSN) on line 2 agree with the child’s social security card. Otherwise, at the time we process your return, we may reduce your EIC. If the name or SSN on the child’s social security card is not correct, call the Social Security Administration at 800-772-1213. • If you have a child who meets the conditions to be your qualifying child for purposes of claiming the EIC, but that child doesn’t have an SSN as defined in the instructions for Form 1040, line 27, see the instructions.

• You can’t claim the EIC for a child who didn’t live with you for more than half of the year. • If your child doesn’t have an SSN as defined in the instructions for Form 1040, line 27, see the instructions. • If you take the EIC even though you are not eligible, you may not be allowed to take the credit for up to 10 years. See the instructions for details. • It will take us longer to process your return and issue your refund if you do not fill in all lines that apply for each qualifying child.

Qualifying Child Information 1 Child’s name

If you have more than three qualifying children, you have to list only three to get the maximum credit.

Child 1

First name

Child 2

Last name

Margo

Simmons

Child 3

First name

Last name

Daniel

Simmons

First name

Last name

2 Child’s SSN The child must have an SSN as defined in the instructions for Form 1040, line 27, unless the child was born and died in 2022 or you are claiming the self-only EIC; see instructions. If your child was born and died in 2022 and did not have an SSN, enter “Died” on this line and attach a copy of the child’s birth certificate, death certificate, or hospital medical records showing a live birth.

3 Child’s year of birth

316-31-4890

Year

316-31-7894

If born after 2003 and the child is younger than you (or your spouse, if filing jointly), skip lines 4a and 4b; go to line 5.

4a Was the child under age 24 at the end of 2022, a student, and younger than you (or your spouse, if filing jointly)?

b Was the child permanently and totally disabled during any part of 2022?

Yes. Go to line 5. Yes. Go to line 5.

5 Child’s relationship to you (for example, son, daughter, grandchild, niece, nephew, eligible foster child, etc.)

No. Go to line 4b. No. The child is not a qualifying child.

Year

If born after 2003 and the child is younger than you (or your spouse, if filing jointly), skip lines 4a and 4b; go to line 5.

Yes. Go to line 5.

No. Go to line 4b.

Yes. Go to line 5.

No. The child is not a qualifying child.

Daughter

Year If born after 2003 and the child is younger than you (or your spouse, if filing jointly), skip lines 4a and 4b; go to line 5.

Yes. Go to line 5. Yes. Go to line 5.

No. Go to line 4b. No. The child is not a qualifying child.

Son

6 Number of months child lived with you in the United States during 2022 • If the child lived with you for more than half of 2022 but less than 7 months, enter “7.” • If the child was born or died in 2022 and your home was the child’s home for more than half the time he or she was alive during 2022, enter “12.”

months Do not enter more than 12 months.

For Paperwork Reduction Act Notice, see your tax return instructions.

months Do not enter more than 12 months. Cat. No. 13339M

months Do not enter more than 12 months. Schedule EIC (Form 1040) 2022

7-3

7-4

Chapter 7 – Tax Credits

Group 2: Problem 7, cont.

Worksheet

A—2022 EIC—Line 27*

Before you begin:

Part 1

All Filers Using Worksheet A

Keep for Your Records

Be sure you are using the correct worksheet. Use this worksheet only if you answered “No” to Step 5, question 2. Otherwise, use Worksheet B.

Enter your earned income from Step 5.

17,000

Wages, salaries 2.

Look up the amount on line 1 above in the EIC Table (right after

6,164

credit here. STOP

If line 2 is zero, You can’t take the credit. Enter “No” on the dotted line next to Form 1040 or 1040-SR, line 27.

Enter the amount from Form 1040 or 1040-SR, line 11.

Are the amounts on lines 3 and 1 the same?

Adjusted gross income

17,200

Yes. Skip line 5; enter the amount from line 2 on line 6.

x No. 5.

Part 2

Filers Who Answered “No” on Line 4

Go to line 5.

If you have: No qualifying children, is the amount on line 3 less than $9,200 ($15,300 1 or more qualifying children, is the amount on line 3 less than $20,150 ($26,300

x Yes. Leave line 5 blank; enter the amount from line 2 on line 6. No. 5

status and the number of children you have. Enter the credit here. Look at the amounts on lines 5 and 2. Then, enter the smaller amount on line 6.

Part 3

Your Earned Income Credit

This is your earned income credit.

6,164

Enter this amount on Form 1040 or 1040-SR, line 27.

Reminder—

1040 or If you have a qualifying child, complete and attach Schedule EIC. 1040-SR

10o4r0

EIC

CAUTION

1040-S

If your EIC for a year after 1996 was reduced or disallowed, see , earlier, to ﬁnd out if you must ﬁle Form 8862 to take the credit for 2022.

*Download the latest version of this worksheet from the Form 1040 Instructions available at www.irs.gov. The 2022 worksheet was not available as we went to print. This worksheet is adapted from the 2021 version.

Solutions for Questions and Problems – Chapter 7

7-5

15. $9,465. Modified household income is $55,620. The FPL for a family of 4 is $26,500. The Collins’ income is $55,620 ÷ $26,500 = 2.10 or 210% of the FPL. The applicable amount is 0.024. Thus the annual contribution amount is $55,620 x 0.024 = $1,335. The cost of a silver plan for a four-person household in Iowa is $10,800; thus, the actual premium tax credit is $10,800 – $1,335 = $9,465, which is less than the maximum of actual premiums paid of $9,800. (LO 7.4) 16. $1,650. The maximum premium assistance is $9,465 (the cost of the silver plan of $10,800 less the annual contribution amount calculated in the previous solution $1,335). The actual amount advanced is $11,200 resulting in a net excess advance premium tax credit of $1,735 ($11,200 – $9,465). However, the repayment amount is capped at $1,650 for a married filing jointly taxpayer with income at the 210% FPL (calculated in previous question). (LO 7.4) 17. The American Opportunity tax credit and lifetime learning credit are in the tax law to give assistance to low and middle-income students and/or their parents in paying for education after high school. As discussed in Chapter 1, the tax law is used to encourage certain activities, and a well-educated, skilled and competitive workforce is obviously the goal of these education tax credits. Congress hopes to encourage students in pursuing college and ongoing lifetime education. (LO 7.5) 18. The American Opportunity tax credit covers only the first 4 years of postsecondary education with at least a half-time course load, so it encourages students to continue their education after high school. The lifetime learning credit may be claimed for any year of college or graduate school, and may also be claimed for educational courses taken during any stage of life to encourage lifelong ongoing education. The education is not required to be at the more than half-time level, so the lifetime learning credit benefits students who take a class occasionally. (LO 7.5) 19. a. $1,000. Janie’s American Opportunity tax credit before any phase-out, will be 100% of the first $2,000 plus 25% of the next $2,000, or $2,500. Because her parents have AGI over $160,000, the credit is phased-out partially: the credit is reduced by the following amount [$2,500 x ($172,000 – $160,000) / $20,000] = $1,500. Therefore, the credit is $2,500 – $1,500 = $1,000. b. $2,500. Janie’s parents have AGI below the phase-out range so they qualify for the full American Opportunity tax credit. (LO 7.5) 20. $160. The lifetime learning credit is $400 ($2,000 x 20%) but is limited due to Jasper’s income. The credit he can claim is $160 [$400 x ($90,000 – $86,000)/$10,000]. If Jasper were married and supporting a non-working wife, however, he would qualify for the full credit since the credit begins to phase-out for married taxpayers at $160,000. If he were married, his credit would be $400, or 20% of $2,000. (LO 7.5) 21. Martha and Lew should claim the credit. If they deduct the taxes, they will have a $96 tax benefit ($400 deduction at a 24% tax rate). If they claim the $400 credit, they will have a full $400 tax benefit with which to reduce their tax liability. (LO 7.6) 22. a. $14,890. They may claim the maximum credit of $14,890 in 2022 since that is the year the foreign adoption was finalized and their qualified adoption expenses exceed the amount of the credit. b. $0. If the adoption is never finalized, no credit is allowed, since it is a foreign adoption. c. $12,656. Carl and Jenny’s income is in the phase-out range for the adoption credit. The phase-out amount is calculated as follows: ($229,410 – $223,410) / $40,000 x $14,890 = $2,234. Only $12,656 of the credit is allowed ($14,890 – $2,234). (LO 7.7) 23. Mike’s credit would be $0. No credit is allowed if the property is used to heat a swimming pool or spa. (LO 7.8) 24. Jeff ’s credit is $1,800. ($6,000 x 30%) (LO 7.8) 25. $1,600. ($1,600 x 2) x 50% (LO 7.9)

7-6

Chapter 7 – Tax Credits

Group 3 – Writing Assignment Research Solution: Whittenburg and Gill, CPAs San Diego, CA March 22, 20xx Relevant Facts Scott and Heather Moore are married and file a joint return. The Moores have one daughter, Elizabeth, age 8. Scott is a wildlife biologist, earning $36,000, and Heather is a full-time student at Online University. Online University offers courses only through the Internet. Scott and Heather pay $3,000 for child care expenses during the year. Specific Issue How much of the child care expenses paid can be claimed as a child and dependent care credit? Conclusion Mr. and Mrs. Moore are not allowed to claim a child and dependent care credit for the child care expenses paid. Support A child and dependent care credit is allowed for married taxpayers who file a joint return. The qualifying dependent care expenses are limited to the lesser of either spouse’s earned income. In the case of taxpayers who are students, earned income of $250 per month (for one dependent) is deemed to be income of the taxpayer, provided the taxpayer is a full-time student enrolled at school. This would generally apply to Heather; however, IRS Publication 503, Child and Dependent Care Expenses, specifically states that a school which only offers courses through the Internet does not qualify. A school that is temporarily offering only online courses during the COVID-19 pandemic would continue to qualify. Since Heather does not meet the qualifications of a full-time student, she is treated as having no earned income. The Moore’s dependent care expenses would be limited to the lesser of $3,000 or $0. Actions to Be Taken Review results with client. Preparer: Trevor Malcolm Reviewer: Martha Altus-Buller

Group 4 – Comprehensive Problems 1. See Forms on Pages 7-7 to 7-16. 2A. See Forms on Pages 7-17 to 7-26. 2B. See Forms on Pages 7-27 to 7-35.

Group 5 – Cumulative Software Problem The solution to the Cumulative Software Problem is posted on the website for the textbook at www.cengage.com/login.

Solutions for Questions and Problems – Chapter 7

Form

Comprehensive Problem 1

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

Single

x Married filing jointly

OMB No. 1545-0074

Married filing separately (MFS)

IRS Use Only—Do not write or staple in this space.

Head of household (HOH)

Your first name and middle initial

Last name

David

Your social security number

Jasper

577 11 3311

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Darlene

Spouse’s social security number

Jasper

477 98 4731

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

4639 Honeysuckle Lane

1201

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Los Angeles

Foreign country name

Foreign province/state/county

90248

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four Sam dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

Last name

(2) Social security number

Jasper

589 22 1142

Was born before January 2, 1958 Child tax credit

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

. . 2a 3a 4a 5a 6a

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Credit for other dependents

Son

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

x No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

. .

. . .

Cat. No. 11320B

53,600

53,600 1,000

54,600 500 54,100 25,900 25,900 28,200 Form 1040 (2022)

7-7

7-8

Chapter 7 – Tax Credits

Comprehensive Problem 1, cont. David and Darlene Jasper

Form 1040 (2022)

Tax and Credits

577-11-3311 2

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

. .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

32 33 34

35a b d 36

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

4972 3 . . . .

Page 2

16 17

2,976

16 17

. . .

18 19 20

. . .

21 22 23

326

25d

1,850

2,976 2,000 650 2,650 326

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

Direct deposit? See instructions.

Amount You Owe Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

. . .

. . 27 28 29 30 31

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. . .

1,850

Phone no.

. Savings

35a

Yes. Complete below.

1,850 1,524 1,524

Personal identification number (PIN)

Date

Your occupation

Spouse’s signature. If a joint return, both must sign.

Date

Spouse’s occupation

Phone no.

Email address

Office Manager Perfume Tester Preparer’s name

Preparer’s signature

Date

If the IRS sent you an Identity Protection PIN, enter it here (see inst.) If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 7

Comprehensive Problem 1, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

David and Darlene Jasper Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

577-11-3311

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

Schedule 1 (Form 1040) 2022

7-9

7-10

Chapter 7 – Tax Credits

Comprehensive Problem 1, cont. David and Darlene Jasper Part II Adjustments to Income

Schedule 1 (Form 1040) 2022

11 12 13 14 15 16 17 18 19a b c 20 21 22 23 24 a b c d e f g h i

j k z 25 26

577-11-3311

Page 2

Educator expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 . . . . . . . . . . . . . . . . . . . . . . . . 12 Health savings account deduction. Attach Form 8889 . . . . . . . . . . . . . . 13 Moving expenses for members of the Armed Forces. Attach Form 3903 . . . . . . . 14 Deductible part of self-employment tax. Attach Schedule SE . . . . . . . . . . . 15 Self-employed SEP, SIMPLE, and qualified plans . . . . . . . . . . . . . . . . 16 Self-employed health insurance deduction . . . . . . . . . . . . . . . . . . 17 Penalty on early withdrawal of savings . . . . . . . . . . . . . . . . . . . . 18 Alimony paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19a Recipient’s SSN . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): IRA deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Student loan interest deduction . . . . . . . . . . . . . . . . . . . . . . 21 22 Reserved for future use . . . . . . . . . . . . . . . . . . . . . . . . . Archer MSA deduction . . . . . . . . . . . . . . . . . . . . . . . . . 23 Other adjustments: Jury duty pay (see instructions) . . . . . . . . . . . . . . 24a Deductible expenses related to income reported on line 8l from the rental of personal property engaged in for profit . . . . . . . . 24b Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 8m . . . . . . . . . . 24c Reforestation amortization and expenses . . . . . . . . . . . 24d Repayment of supplemental unemployment benefits under the Trade Act of 1974 . . . . . . . . . . . . . . . . . . . . . . 24e Contributions to section 501(c)(18)(D) pension plans . . . . . . . 24f Contributions by certain chaplains to section 403(b) plans . . . . 24g Attorney fees and court costs for actions involving certain unlawful discrimination claims (see instructions) . . . . . . . . . . . . 24h Attorney fees and court costs you paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations . . . . . . . . . . . . . . . . . . . 24i Housing deduction from Form 2555 . . . . . . . . . . . . . 24j Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041) . . . . . . . . . . . . . . . . . . . . . . . . 24k Other adjustments. List type and amount: 24z Total other adjustments. Add lines 24a through 24z . . . . . . . . . . . . . . . 25 Add lines 11 through 23 and 25. These are your adjustments to income. Enter here and on Form 1040 or 1040-SR, line 10, or Form 1040-NR, line 10a . . . . . . . . . . . . 26

DRAFT AS OF July 27, 2022 DO NOT FILE

500

Schedule 1 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 7

Comprehensive Problem 1, cont. SCHEDULE 3

OMB No. 1545-0074

Additional Credits and Payments

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 03

Your social security number

David and Darlene Jasper Part I Nonrefundable Credits

577-11-3311

DRAFT AS OF July 27, 2022 DO NOT FILE

Foreign tax credit. Attach Form 1116 if required

. . . . . . . . . . . . . .

Credit for child and dependent care expenses from Form 2441, line 11. Attach Form 2441 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Education credits from Form 8863, line 19 . . . . . . . . . . . . . . . . .

Retirement savings contributions credit. Attach Form 8880 . . . . . . . . . .

Residential energy credits. Attach Form 5695

Other nonrefundable credits:

a General business credit. Attach Form 3800

. . . . . . . . . . . . . . .

. . . . . . . .

b Credit for prior year minimum tax. Attach Form 8801

c Adoption credit. Attach Form 8839 . . . . . . . . . . . .

d Credit for the elderly or disabled. Attach Schedule R . . . . .

e Alternative motor vehicle credit. Attach Form 8910

. . . . .

f Qualified plug-in motor vehicle credit. Attach Form 8936 . . .

g Mortgage interest credit. Attach Form 8396 . . . . . . . .

h District of Columbia first-time homebuyer credit. Attach Form 8859

Qualified electric vehicle credit. Attach Form 8834

. . . . .

Reserved for future use . . . . . . . . . . . . . . . . .

k Credit to holders of tax credit bonds. Attach Form 8912 . . .

. . . . . .

. . . .

Amount on Form 8978, line 14. See instructions

600

z Other nonrefundable credits. List type and amount: 6z 7 8

Total other nonrefundable credits. Add lines 6a through 6z . . . . . . . . . . Add lines 1 through 5 and 7. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7 8

650

(continued on page 2) For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71480G

Schedule 3 (Form 1040) 2022

7-11

7-12

Chapter 7 – Tax Credits

Comprehensive Problem 1, cont. David and Darlene Jasper Part II Other Payments and Refundable Credits

Schedule 3 (Form 1040) 2022

577-11-3311

Page 2

Net premium tax credit. Attach Form 8962 . . . . . . . . . . . . . . . . .

Amount paid with request for extension to file (see instructions) . . . . . . . .

Excess social security and tier 1 RRTA tax withheld . . . . . . . . . . . . .

Credit for federal tax on fuels. Attach Form 4136 . . . . . . . . . . . . . .

Other payments or refundable credits:

DRAFT AS OF July 27, 2022 DO NOT FILE 12

a Form 2439 . . . . . . . . . . . . . . . . . . . . . 13a b Credit for qualified sick and family leave wages paid in 2022 from Schedule(s) H for leave taken before April 1, 2021 . . . . . . 13b c Reserved for future use . . . . . . . . . . . . . . . . 13c d Credit for repayment of amounts included in income from earlier years . . . . . . . . . . . . . . . . . . . . . . . . 13d e Reserved for future use

. . . . . . . . . . . . . . . .

13e

f Deferred amount of net 965 tax liability (see instructions) . . .

13f

g Reserved for future use . . . . . . . . . . . . . . . . 13g h Credit for qualified sick and family leave wages paid in 2022 from Schedule(s) H for leave taken after March 31, 2021, and before October 1, 2021 . . . . . . . . . . . . . . . . 13h z Other payments or refundable credits. List type and amount: 13z 14 15

Total other payments or refundable credits. Add lines 13a through 13z . . . . . Add lines 9 through 12 and 14. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14 15 Schedule 3 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 7

Comprehensive Problem 1, cont.

2441

Child and Dependent Care Expenses

Department of the Treasury Internal Revenue Service

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form2441 for instructions and the latest information.

Form

OMB No. 1545-0074

2022

Attachment Sequence No. 21 Your social security number

Name(s) shown on return

David and Darlene Jasper

577-11-3311

A You can’t claim a credit for child and dependent care expenses if your filing status is married filing separately unless you meet the requirements listed in the instructions under Married Persons Filing Separately. If you meet these requirements, check this box . . B If you or your spouse was a student or was disabled during 2022 and you’re entering deemed income of $250 or $500 a month on Form 2441 based on the income rules listed in the instructions under If You or Your Spouse Was a Student or Disabled, check this box .

DRAFT AS OF August 1, 2022 DO NOT FILE

Part I

Persons or Organizations Who Provided the Care—You must complete this part. If you have more than three care providers, see the instructions and check this box . . . . . . . .

1 (a) Care provider’s

(b) Address (number, street, apt. no., city, state, and ZIP code)

name

(d) Was the care provider your household employee in 2022? (c) Identifying number For example, this generally includes (SSN or EIN) nannies but not daycare centers. (see instructions)

10250 Santa Monica Blvd. Los Angeles, CA 90067

Kiddiecare Inc.

Did you receive dependent care benefits?

13-3345678

Yes

x No

Yes

Complete only Part II below.

Yes

Complete Part III on page 2 next.

(e) Amount paid (see instructions)

3,680

Caution: If the care provider is your household employee, you may owe employment taxes. For details, see the Instructions for Schedule H (Form 1040). If you incurred care expenses in 2022 but didn’t pay them until 2023, or if you prepaid in 2022 for care to be provided in 2023, don’t include these expenses in column (d) of line 2 for 2022. See the instructions.

Part II 2

Credit for Child and Dependent Care Expenses

Information about your qualifying person(s). If you have more than three qualifying persons, see the instructions and check this box (a) Qualifying person’s name First

(b) Qualifying person’s social security number Last

Sam

Jasper

589-22-1142

3,680

Add the amounts in column (d) of line 2. Don’t enter more than $3,000 if you had one qualifying person or $6,000 if you had two or more persons. If you completed Part III, enter the amount from line 31

4 5

Enter your earned income. See instructions . . . . . . . . . . . . . . . . . If married filing jointly, enter your spouse’s earned income (if you or your spouse was a student or was disabled, see the instructions); all others, enter the amount from line 4 . . . . . .

6 7 8

Enter the smallest of line 3, 4, or 5 . . . . . . . . . . . . . . . . . Enter the amount from Form 1040, 1040-SR, or 1040-NR, line 11 . . . 7 Enter on line 8 the decimal amount shown below that applies to the amount on line 7. If line 7 is: But not Over over $0—15,000 15,000—17,000 17,000—19,000 19,000—21,000 21,000—23,000 23,000—25,000

If line 7 is: Decimal amount is .35 .34 .33 .32 .31 .30

Over

(d) Qualified expenses you incurred and paid in 2022 for the person listed in column (a)

54,100

3 4

3,000 27,100

5 6

26,500 3,000

X . 20

600

9b 9c

600

If line 7 is: But not over

$25,000—27,000 27,000—29,000 29,000—31,000 31,000—33,000 33,000—35,000 35,000—37,000

Decimal amount is .29 .28 .27 .26 .25 .24

Over

But not over

$37,000—39,000 39,000—41,000 41,000—43,000 43,000—No limit

Decimal amount is .23 .22 .21 .20

9a Multiply line 6 by the decimal amount on line 8 . . . . . . . . . . . . . . . . b If you paid 2021 expenses in 2022, complete Worksheet A in the instructions. Enter the amount from line 13 of the worksheet here. Otherwise, enter -0- on line 9b and go to line 9c . . . . c Add lines 9a and 9b and enter the result . . . . . . . . . . . . . . . . . . 10 Tax liability limit. Enter the amount from the Credit Limit Worksheet in the instructions 10 2,976 11 Credit for child and dependent care expenses. Enter the smaller of line 9c or line 10 here and on Schedule 3 (Form 1040), line 2 . . . . . . . . . . . . . . . . . . . . . For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 11862M

600 Form 2441 (2022)

7-13

7-14

Chapter 7 – Tax Credits

Comprehensive Problem 1, cont. Page 2

Form 2441 (2022)

Part III

Dependent Care Benefits

Enter the total amount of dependent care benefits you received in 2022. Amounts you received as an employee should be shown in box 10 of your Form(s) W-2. Don’t include amounts reported as wages in box 1 of Form(s) W-2. If you were self-employed or a partner, include amounts you received under a dependent care assistance program from your sole proprietorship or partnership . . . . . . . . . . . . . . . . . . . . . . . . . . .

13 14

Enter the amount, if any, you carried over from 2020 and/or 2021 and used in 2022. See instructions If you forfeited or carried over to 2023 any of the amounts reported on line 12 or 13, enter the amount. See instructions . . . . . . . . . . . . . . . . . . . . . . . .

15 16

Combine lines 12 through 14. See instructions . . . . . . . Enter the total amount of qualified expenses incurred in 2022 for the care of the qualifying person(s) . . . . . . . . . .

17 18 19

Enter the smaller of line 15 or 16 . . . . . . . Enter your earned income. See instructions . . . Enter the amount shown below that applies to you. • If married filing jointly, enter your spouse’s earned income (if you or your spouse was a student or was disabled, see the instructions . for line 5).

20 21

23 24 25 26

12 13

DRAFT AS OF August 1, 2022 } FILE DO NOT

• If married filing separately, see instructions. • All others, enter the amount from line 18. Enter the smallest of line 17, 18, or 19 . . .

. .

16 17 18

14 ( 15

)

Enter $5,000 ($2,500 if married filing separately and you were required to enter your spouse’s earned income on line 19). If you entered an amount on line 13, add it to the $5,000 or $2,500 amount you enter on line 21. However, don’t enter more than the maximum amount allowed under your dependent care plan. If your dependent care plan uses a non-calendar plan year, see instructions . . . . . . . . . . . . . . . . . .

21 Is any amount on line 12 or 13 from your sole proprietorship or partnership? No. Enter -0-. Yes. Enter the amount here . . . . . . . . . . . . . . . . . . . . . . Subtract line 22 from line 15 . . . . . . . . . . . . 23 Deductible benefits. Enter the smallest of line 20, 21, or 22. Also, include this amount on the appropriate line(s) of your return. See instructions . . . . . . . . . . . . . . . Excluded benefits. If you checked “No” on line 22, enter the smaller of line 20 or 21. Otherwise, subtract line 24 from the smaller of line 20 or line 21. If zero or less, enter -0- . . . . . . Taxable benefits. Subtract line 25 from line 23. If zero or less, enter -0-. Also, enter this amount on Form 1040, 1040-SR, or 1040-NR, line 1e . . . . . . . . . . . . . . . . .

24 25 26

To claim the child and dependent care credit, complete lines 27 through 31 below. 27 28 29 30 31

Enter $3,000 ($6,000 if two or more qualifying persons) . . . . . . . . . . . . . . Add lines 24 and 25 . . . . . . . . . . . . . . . . . . . . . . . . . Subtract line 28 from line 27. If zero or less, stop. You can’t take the credit. Exception. If you paid 2021 expenses in 2022, see the instructions for line 9b . . . . . . . . . . . . Complete line 2 on page 1 of this form. Don’t include in column (d) any benefits shown on line 28 above. Then, add the amounts in column (d) and enter the total here . . . . . . . . Enter the smaller of line 29 or 30. Also, enter this amount on line 3 on page 1 of this form and complete lines 4 through 11 . . . . . . . . . . . . . . . . . . . . . . .

27 28 29 30 31 Form 2441 (2022)

Solutions for Questions and Problems – Chapter 7

Comprehensive Problem 1, cont.

Credits for Qualifying Children and Other Dependents

SCHEDULE 8812 (Form 1040) Department of the Treasury Internal Revenue Service

7 8 9

577-11-3311

Child Tax Credit and Credit for Other Dependents

DRAFT AS OF August 3, 2022 DO NOT FILE

Enter the amount from line 11 of your Form 1040, 1040-SR, or 1040-NR . . . . . . . . . . . . Enter income from Puerto Rico that you excluded . . . . . . . . . . . 2a Enter the amounts from lines 45 and 50 of your Form 2555 . . . . . . . . 2b Enter the amount from line 15 of your Form 4563 . . . . . . . . . . . 2c Add lines 2a through 2c . . . . . . . . . . . . . . . . . . . . . . . . . . . Add lines 1 and 2d . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of qualifying children under age 17 with the required social security number 4 1 Multiply line 4 by $2,000 . . . . . . . . . . . . . . . . . . . . . . . . . . Number of other dependents, including any qualifying children who are not under age 17 or who do not have the required social security number . . . . . . . . 6 Caution: Do not include yourself, your spouse, or anyone who is not a U.S. citizen, U.S. national, or U.S. resident alien. Also, do not include anyone you included on line 4. Multiply line 6 by $500 . . . . . . . . . . . . . . . . . . . . . . . . . . . Add lines 5 and 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enter the amount shown below for your filing status. • Married filing jointly—$400,000 . . . . . . . . . . . . . . . . . . . . . . • All other filing statuses—$200,000 Subtract line 9 from line 3. • If zero or less, enter -0-. • If more than zero and not a multiple of $1,000, enter the next multiple of $1,000. For example, if the result is $425, enter $1,000; if the result is $1,025, enter $2,000, etc. . . . . . . . Multiply line 10 by 5% (0.05) . . . . . . . . . . . . . . . . . . . . . . . . . Is the amount on line 8 more than the amount on line 11? . . . . . . . . . . . . . . . . . No. STOP. You cannot take the child tax credit, credit for other dependents, or additional child tax credit. Skip Parts II-A and II-B. Enter -0- on lines 14 and 27. x Yes. Subtract line 11 from line 8. Enter the result. Enter the amount from the Credit Limit Worksheet A . . . . . . . . . . . . . . . . . Enter the smaller of line 12 or 13. This is your child tax credit and credit for other dependents . . . . . Enter this amount on Form 1040, 1040-SR, or 1040-NR, line 19.

}

11 12

13 14

Attachment Sequence No. 47 Your social security number

David and Darlene Jasper

1 2a b c d 3 4 5

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Schedule8812 for instructions and the latest information.

Name(s) shown on return

Part I

OMB No. 1545-0074

54,100

2d 3

54,100

2,000

7 8

2,000

400,000

10 11 12

0 0 2,000

13 14

2,326 (a) 2,000

If the amount on line 12 is more than the amount on line 14, you may be able to take the additional child tax credit on Form 1040, 1040-SR, or 1040-NR, line 28. Complete your Form 1040, 1040-SR, or 1040-NR through line 27 (also complete Schedule 3, line 11) before completing Part II-A. For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 59761M

Schedule 8812 (Form 1040) 2022

(a) $2,976 tax liability less $600 child and dependent care expense credit (Form 2441) and $50 Saver’s credit (Form 8880).

7-15

7-16

Chapter 7 – Tax Credits

Comprehensive Problem 1, cont.

8880

Credit for Qualified Retirement Savings Contributions

Department of the Treasury Internal Revenue Service

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form8880 for the latest information.

Form

OMB No. 1545-0074

2022

Attachment Sequence No. 54 Your social security number

Name(s) shown on return

David and Darlene Jasper

577-11-3311

You cannot take this credit if either of the following applies.

! F

DRAFT AS OF September 19, 2022 DO NOT FILE CAUTION

• The amount on Form 1040, 1040-SR, or 1040-NR, line 11, is more than $34,000 ($51,000 if head of household; $68,000 if married filing jointly).

• The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 2005; (b) is claimed as a dependent on someone else’s 2022 tax return; or (c) was a student (see instructions).

(a) You

Traditional and Roth IRA contributions, and ABLE account contributions by the designated beneficiary for 2022. Do not include rollover contributions . . . . . Elective deferrals to a 401(k) or other qualified employer plan, voluntary employee contributions, and 501(c)(18)(D) plan contributions for 2022 (see instructions) . .

3 4

Add lines 1 and 2 . . . . . . . . . . . . . . . . . . . . . . Certain distributions received after 2019 and before the due date (including extensions) of your 2022 tax return (see instructions). If married filing jointly, include both spouses’ amounts in both columns. See instructions for an exception . . .

5 6 7 8 9

Subtract line 4 from line 3. If zero or less, enter -0- . . . . . In each column, enter the smaller of line 5 or $2,000 . . . . Add the amounts on line 6. If zero, stop; you can’t take this credit Enter the amount from Form 1040, 1040-SR, or 1040-NR, line 11* Enter the applicable decimal amount from the table below. If line 8 is— Over—

But not over—

. . . .

500

2 3

500

4 . 5 . 6 . . . . 8

0 500 500

500

54,100

And your filing status is— Married filing jointly

Head of household

Enter on line 9—

Single, Married filing separately, or Qualifying surviving spouse

0.5 0.5 0.5 $20,500 0.5 0.5 0.2 $22,000 0.5 0.5 0.1 $30,750 0.5 0.2 0.1 $33,000 0.5 0.1 0.1 $34,000 0.5 0.1 0.0 $41,000 0.2 0.1 0.0 $44,000 0.1 0.1 0.0 $51,000 0.1 0.0 0.0 $68,000 --0.0 0.0 0.0 Note: If line 9 is zero, stop; you can’t take this credit. Multiply line 7 by line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . Limitation based on tax liability. Enter the amount from the Credit Limit Worksheet in the instructions Credit for qualified retirement savings contributions. Enter the smaller of line 10 or line 11 here and on Schedule 3 (Form 1040), line 4 . . . . . . . . . . . . . . . . . . . . . --$20,500 $22,000 $30,750 $33,000 $34,000 $41,000 $44,000 $51,000 $68,000

10 11 12

(b) Your spouse

x0.

10 11

50 2,376 (a)

* See Pub. 590-A for the amount to enter if you claim any exclusion or deduction for foreign earned income, foreign housing, or income from Puerto Rico or for bona fide residents of American Samoa.

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 33394D

Form 8880 (2022)

(a) The Saver’s Credit comes after the child and dependent care expense credit in ordering credits. Tax liability $2,976 less $600 child and dependent care expense credit.

Solutions for Questions and Problems – Chapter 7

Form

Comprehensive Problem 2A

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

Single

Married filing jointly

OMB No. 1545-0074

IRS Use Only—Do not write or staple in this space.

x Head of household (HOH)

Married filing separately (MFS)

Your first name and middle initial

Last name

Steve

Your social security number

Jackson

465 88 9415

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Spouse’s social security number

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

3215 Pacific Drive

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Pacific Beach

Foreign country name

92109

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four Janet dependents, Reggie see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

Jackson Jackson

Was born before January 2, 1958

654 12 6543 667 21 8998

Child tax credit

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

. . 2a 3a

. . .

Credit for other dependents

Daughter Brother

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

. .

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

x No

Yes

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Spouse

Cat. No. 11320B

22,600

22,600 22,600 19,400 19,400 3,200 Form 1040 (2022)

7-17

7-18

Chapter 7 – Tax Credits

Comprehensive Problem 2A, cont. Steve Jackson

Form 1040 (2022)

Tax and Credits

465-88-9415

16 17

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

4972 3 . . . .

Page 2

323

16 17

. . .

18 19 20

. . .

21 22 23

25d

220

323 13 310 323 0

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

. . .

220

. . 27 28

5,639 1,500

29 30 31

35a Direct deposit? b See instructions. d 36

Amount You Owe

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

Phone no.

. .

. Savings

35a

7,139 7,359 7,359 7,359

32 33 34

Yes. Complete below.

Personal identification number (PIN)

Date

Your occupation

Laundry Attendant Spouse’s signature. If a joint return, both must sign.

Date

Phone no.

Email address

Preparer’s name

Preparer’s signature

Spouse’s occupation

Date

If the IRS sent you an Identity Protection PIN, enter it here (see inst.) If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 7

Comprehensive Problem 2A, cont. SCHEDULE 3

OMB No. 1545-0074

Additional Credits and Payments

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 03

Your social security number

Steve Jackson Part I Nonrefundable Credits

465-88-9415

DRAFT AS OF July 27, 2022 DO NOT FILE

Foreign tax credit. Attach Form 1116 if required

. . . . . . . . . . . . . .

Credit for child and dependent care expenses from Form 2441, line 11. Attach Form 2441 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Education credits from Form 8863, line 19 . . . . . . . . . . . . . . . . .

Retirement savings contributions credit. Attach Form 8880 . . . . . . . . . .

Residential energy credits. Attach Form 5695

Other nonrefundable credits:

a General business credit. Attach Form 3800

. . . . . . . . . . . . . . .

. . . . . . . .

b Credit for prior year minimum tax. Attach Form 8801

. . . .

c Adoption credit. Attach Form 8839 . . . . . . . . . . . .

d Credit for the elderly or disabled. Attach Schedule R . . . . .

e Alternative motor vehicle credit. Attach Form 8910

. . . . .

f Qualified plug-in motor vehicle credit. Attach Form 8936 . . .

g Mortgage interest credit. Attach Form 8396 . . . . . . . .

h District of Columbia first-time homebuyer credit. Attach Form 8859

Qualified electric vehicle credit. Attach Form 8834

. . . . .

Reserved for future use . . . . . . . . . . . . . . . . .

k Credit to holders of tax credit bonds. Attach Form 8912 . . .

Amount on Form 8978, line 14. See instructions

. . . . . .

310

z Other nonrefundable credits. List type and amount: 6z 7 8

7 8

310

(continued on page 2) For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71480G

Schedule 3 (Form 1040) 2022

7-19

7-20

Chapter 7 – Tax Credits

Comprehensive Problem 2A, cont. Schedule 3 (Form 1040) 2022

Steve Jackson

465-88-9415

Page 2

Part II Other Payments and Refundable Credits 9

Net premium tax credit. Attach Form 8962 . . . . . . . . . . . . . . . . .

Amount paid with request for extension to file (see instructions) . . . . . . . .

Excess social security and tier 1 RRTA tax withheld . . . . . . . . . . . . .

Credit for federal tax on fuels. Attach Form 4136 . . . . . . . . . . . . . .

Other payments or refundable credits:

DRAFT AS OF July 27, 2022 DO NOT FILE 12

. . . . . . . . . . . . . . . .

13e

f Deferred amount of net 965 tax liability (see instructions) . . .

13f

14 15 Schedule 3 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 7

Comprehensive Problem 2A, cont.

2441

Child and Dependent Care Expenses

Department of the Treasury Internal Revenue Service

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form2441 for instructions and the latest information.

Form

OMB No. 1545-0074

2022

Attachment Sequence No. 21 Your social security number

Name(s) shown on return

Steve Jackson

465-88-9415

Part I

DRAFT AS OF August 1, 2022 DO NOT FILE

Persons or Organizations Who Provided the Care—You must complete this part. If you have more than three care providers, see the instructions and check this box . . . . . . . .

1 (a) Care provider’s

(b) Address (number, street, apt. no., city, state, and ZIP code)

name

HomeAid

(d) Was the care provider your household employee in 2022? (c) Identifying number For example, this generally includes (SSN or EIN) nannies but not daycare centers. (see instructions)

456 La Jolla Dr. San Diego, CA 92182

Did you receive dependent care benefits?

17-9876543

Yes

x No

Yes

Complete only Part II below.

Yes

Complete Part III on page 2 next.

(e) Amount paid (see instructions)

1,000

Part II 2

Credit for Child and Dependent Care Expenses

Information about your qualifying person(s). If you have more than three qualifying persons, see the instructions and check this box (a) Qualifying person’s name First

(b) Qualifying person’s social security number

667-21-8998

Last

Reggie

Jackson

1,000

4 5

6 7 8

If line 7 is: Decimal amount is .35 .34 .33 .32 .31 .30

Over

(d) Qualified expenses you incurred and paid in 2022 for the person listed in column (a)

22,600

3 4

1,000 22,600

5 6

22,600 1,000

X . 31

310

9b 9c

310

If line 7 is: But not over

$25,000—27,000 27,000—29,000 29,000—31,000 31,000—33,000 33,000—35,000 35,000—37,000

Decimal amount is .29 .28 .27 .26 .25 .24

Over

But not over

$37,000—39,000 39,000—41,000 41,000—43,000 43,000—No limit

Decimal amount is .23 .22 .21 .20

9a Multiply line 6 by the decimal amount on line 8 . . . . . . . . . . . . . . . . b If you paid 2021 expenses in 2022, complete Worksheet A in the instructions. Enter the amount from line 13 of the worksheet here. Otherwise, enter -0- on line 9b and go to line 9c . . . . c Add lines 9a and 9b and enter the result . . . . . . . . . . . . . . . . . . 10 Tax liability limit. Enter the amount from the Credit Limit Worksheet in the instructions 10 323 11 Credit for child and dependent care expenses. Enter the smaller of line 9c or line 10 here and on Schedule 3 (Form 1040), line 2 . . . . . . . . . . . . . . . . . . . . . For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 11862M

310 Form 2441 (2022)

7-21

7-22

Chapter 7 – Tax Credits

Comprehensive Problem 2A, cont. Page 2

Form 2441 (2022)

Part III

Dependent Care Benefits

13 14

15 16

Combine lines 12 through 14. See instructions . . . . . . . Enter the total amount of qualified expenses incurred in 2022 for the care of the qualifying person(s) . . . . . . . . . .

17 18 19

20 21

23 24 25 26

12 13

DRAFT AS OF August 1, 2022 } FILE DO NOT

• If married filing separately, see instructions. • All others, enter the amount from line 18. Enter the smallest of line 17, 18, or 19 . . .

. .

16 17 18

14 ( 15

)

24 25 26

To claim the child and dependent care credit, complete lines 27 through 31 below. 27 28 29 30 31

27 28 29 30 31 Form 2441 (2022)

Solutions for Questions and Problems – Chapter 7

Comprehensive Problem 2A, cont.

Earned Income Credit

SCHEDULE EIC (Form 1040) Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

Qualifying Child Information

2022

Complete and attach to Form 1040 or 1040-SR only if you have a qualifying child. Go to www.irs.gov/ScheduleEIC for the latest information.

Name(s) shown on return

Attachment Sequence No. 43 Your social security number

Steve Jackson

465-88-9415

DRAFT AS OF July 21, 2022 F DO NOT FILE

If you are separated from your spouse, filing a separate return, and meet the requirements to claim the EIC (see instructions), check here

Before you begin:

CAUTION

Qualifying Child Information 1 Child’s name

If you have more than three qualifying children, you have to list only three to get the maximum credit.

Child 1

First name

Child 2

Last name

Janet

Jackson

Child 3

First name

Last name

Reggie

Jackson

First name

Last name

3 Child’s year of birth

654-12-6543

Year

667-21-8998

If born after 2003 and the child is younger than you (or your spouse, if filing jointly), skip lines 4a and 4b; go to line 5.

4a Was the child under age 24 at the end of 2022, a student, and younger than you (or your spouse, if filing jointly)?

b Was the child permanently and totally disabled during any part of 2022?

Yes.

Go to line 4b.

5 Child’s relationship to you (for example, son, daughter, grandchild, niece, nephew, eligible foster child, etc.)

No.

Go to line 5.

Daughter

Yes. Go to line 5.

The child is not a qualifying child.

Yes. Go to line 5.

If born after 2003 and the child is younger than you (or your spouse, if filing jointly), skip lines 4a and 4b; go to line 5.

No.

Go to line 5.

Year

No.

Go to line 4b.

Yes.

No. The child is not a qualifying child.

Year If born after 2003 and the child is younger than you (or your spouse, if filing jointly), skip lines 4a and 4b; go to line 5.

Yes. Go to line 5. Yes. Go to line 5.

No. Go to line 4b. No. The child is not a qualifying child.

Brother

months Do not enter more than 12 months.

For Paperwork Reduction Act Notice, see your tax return instructions.

12 months Do not enter more than 12 months. Cat. No. 13339M

months Do not enter more than 12 months. Schedule EIC (Form 1040) 2022

7-23

7-24

Chapter 7 – Tax Credits

Comprehensive Problem 2A, cont.

Worksheet

A—2022 EIC—Line 27*

Before you begin:

Part 1

All Filers Using Worksheet A

Keep for Your Records

Be sure you are using the correct worksheet. Use this worksheet only if you answered “No” to Step 5, question 2. Otherwise, use Worksheet B.

Enter your earned income from Step 5.

22,600

Wages, salaries 2.

Look up the amount on line 1 above in the EIC Table (right after

5,639

credit here. STOP

If line 2 is zero, You can’t take the credit. Enter “No” on the dotted line next to Form 1040 or 1040-SR, line 27.

Enter the amount from Form 1040 or 1040-SR, line 11.

Are the amounts on lines 3 and 1 the same?

Adjusted gross income

22,600

x Yes. Skip line 5; enter the amount from line 2 on line 6. No. 5.

Part 2

Filers Who Answered “No” on Line 4

Go to line 5.

If you have: No qualifying children, is the amount on line 3 less than $9,200 ($15,300 1 or more qualifying children, is the amount on line 3 less than $20,150 ($26,300 Yes. Leave line 5 blank; enter the amount from line 2 on line 6. No. 5

status and the number of children you have. Enter the credit here. Look at the amounts on lines 5 and 2. Then, enter the smaller amount on line 6.

Part 3

Your Earned Income Credit

This is your earned income credit.

5,639

Enter this amount on Form 1040 or 1040-SR, line 27.

Reminder—

1040 or If you have a qualifying child, complete and attach Schedule EIC. 1040-SR

10o4r0

EIC

CAUTION

1040-S

If your EIC for a year after 1996 was reduced or disallowed, see , earlier, to ﬁnd out if you must ﬁle Form 8862 to take the credit for 2022.

Solutions for Questions and Problems – Chapter 7

Comprehensive Problem 2A, cont.

Credits for Qualifying Children and Other Dependents

SCHEDULE 8812 (Form 1040) Department of the Treasury Internal Revenue Service

7 8 9

Your social security number

465-88-9415

Child Tax Credit and Credit for Other Dependents

DRAFT AS OF August 3, 2022 DO NOT FILE

Enter the amount from line 11 of your Form 1040, 1040-SR, or 1040-NR . . . . . . . . . . . . Enter income from Puerto Rico that you excluded . . . . . . . . . . . 2a Enter the amounts from lines 45 and 50 of your Form 2555 . . . . . . . . 2b Enter the amount from line 15 of your Form 4563 . . . . . . . . . . . 2c Add lines 2a through 2c . . . . . . . . . . . . . . . . . . . . . . . . . . . Add lines 1 and 2d . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of qualifying children under age 17 with the required social security number 4 1 Multiply line 4 by $2,000 . . . . . . . . . . . . . . . . . . . . . . . . . . Number of other dependents, including any qualifying children who are not under age 17 or who do not have the required social security number . . . . . . . . 6 1 Caution: Do not include yourself, your spouse, or anyone who is not a U.S. citizen, U.S. national, or U.S. resident alien. Also, do not include anyone you included on line 4. Multiply line 6 by $500 . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Add lines 5 and 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enter the amount shown below for your filing status. • Married filing jointly—$400,000 . . . . . . . . . . . . . . . . . . . . . . • All other filing statuses—$200,000 Subtract line 9 from line 3. • If zero or less, enter -0-. • If more than zero and not a multiple of $1,000, enter the next multiple of $1,000. For example, if the result is $425, enter $1,000; if the result is $1,025, enter $2,000, etc. . . . . . . . Multiply line 10 by 5% (0.05) . . . . . . . . . . . . . . . . . . . . . . . . . Is the amount on line 8 more than the amount on line 11? . . . . . . . . . . . . . . . . . No. STOP. You cannot take the child tax credit, credit for other dependents, or additional child tax credit. Skip Parts II-A and II-B. Enter -0- on lines 14 and 27. x Yes. Subtract line 11 from line 8. Enter the result. Enter the amount from the Credit Limit Worksheet A . . . . . . . . . . . . . . . . . Enter the smaller of line 12 or 13. This is your child tax credit and credit for other dependents . . . . . Enter this amount on Form 1040, 1040-SR, or 1040-NR, line 19.

}

11 12

13 14

Attachment Sequence No. 47

Go to www.irs.gov/Schedule8812 for instructions and the latest information.

Steve Jackson

1 2a b c d 3 4 5

2022

Attach to Form 1040, 1040-SR, or 1040-NR.

Name(s) shown on return

Part I

OMB No. 1545-0074

22,600

2d 3

22,600

2,000

7 8

500 2,500

200,000

10 11 12

0 0 2,500

13 14

13 (a) 13

Cat. No. 59761M

Schedule 8812 (Form 1040) 2022

(a) Limited to tax liability. [$323 tax liability less $310 child and dependent care expense credit (Form 2441), which comes before child tax credit in the pecking order]

7-25

7-26

Chapter 7 – Tax Credits

Comprehensive Problem 2A, cont. Schedule 8812 (Form 1040) 2022

Steve Jackson

465-88-9415

Page 2

Part II-A Additional Child Tax Credit for All Filers Caution: If you file Form 2555, you cannot claim the additional child tax credit. 15 Check this box if you do not want to claim the additional child tax credit. Skip Parts II-A and II-B. Enter -0- on line 27 . 16a Subtract line 14 from line 12. If zero, stop here; you cannot take the additional child tax credit. Skip Parts II-A and II-B. Enter -0- on line 27 . . . . . . . . . . . . . . . . . . . . . . . . . 16a b Number of qualifying children under 17 with the required social security number: x $1,500. 1 Enter the result. If zero, stop here; you cannot claim the additional child tax credit. Skip Parts II-A and II-B. 16b Enter -0- on line 27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . TIP: The number of children you use for this line is the same as the number of children you used for line 4. 17 Enter the smaller of line 16a or line 16b . . . . . . . . . . . . . . . . . . . . . . 17 18a Earned income (see instructions) . . . . . . . . . . . . . . . . 18a 22,600 b Nontaxable combat pay (see instructions) . . . . . . 18b 19 Is the amount on line 18a more than $2,500? No. Leave line 19 blank and enter -0- on line 20. 19 x Yes. Subtract $2,500 from the amount on line 18a. Enter the result . . . . 20,100 20 Multiply the amount on line 19 by 15% (0.15) and enter the result . . . . . . . . . . . . . . 20 Next. On line 16b, is the amount $4,500 or more? x No. If you are a bona fide resident of Puerto Rico, go to line 21. Otherwise, skip Part II-B and enter the smaller of line 17 or line 20 on line 27. Yes. If line 20 is equal to or more than line 17, skip Part II-B and enter the amount from line 17 on line 27. Otherwise, go to line 21.

DRAFT AS OF August 3, 2022 DO NOT FILE

2,487 1,500 1,500

3,015

Part II-B Certain Filers Who Have Three or More Qualifying Children and Bona Fide Residents of Puerto Rico 21

22 23 24

Withheld social security, Medicare, and Additional Medicare taxes from Form(s) W-2, boxes 4 and 6. If married filing jointly, include your spouse’s amounts with yours. If your employer withheld or you paid Additional Medicare Tax or tier 1 RRTA taxes, see instructions . . . . . . . . . . . . . . . . . . . . . . .

21 Enter the total of the amounts from Schedule 1 (Form 1040), line 15; Schedule 2 (Form 1040), line 5; Schedule 2 (Form 1040), line 6; and Schedule 2 (Form 1040), line 13 . 22 Add lines 21 and 22 . . . . . . . . . . . . . . . . . . . . 23 1040 and 1040-SR filers: Enter the total of the amounts from Form 1040 or 1040-SR, line 27, and Schedule 3 (Form 1040), line 11. 1040-NR filers: Enter the amount from Schedule 3 (Form 1040), line 11. 24 Subtract line 24 from line 23. If zero or less, enter -0- . . . . . . . . . . . . . Enter the larger of line 20 or line 25 . . . . . . . . . . . . . . . . . . Next, enter the smaller of line 17 or line 26 on line 27.

}

25 26

. .

25 26

This is your additional child tax credit. Enter this amount on Form 1040, 1040-SR, or 1040-NR, line 28 .

. .

Part II-C Additional Child Tax Credit 27

1,500

Schedule 8812 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 7

Form

Comprehensive Problem 2B

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

x Single

Married filing jointly

OMB No. 1545-0074

Married filing separately (MFS)

IRS Use Only—Do not write or staple in this space.

Head of household (HOH)

Your first name and middle initial

Last name

David

Your social security number

Fleming

865 68 9635

DRAFT AS OF September 1, 2022 DO NOT FILE

If joint return, spouse’s first name and middle initial

Last name

Spouse’s social security number

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

169 Trendie Street

City, town, or post office. If you have a foreign address, also complete spaces below.

State

La Jolla

Foreign country name

92037

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four dependents, see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

(2) Social security number

Last name

. . .

Credit for other dependents

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Child tax credit

. . .

. . 2a 3a

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Was born before January 2, 1958

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

x No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

. . .

. .

. . .

Cat. No. 11320B

24,000

10,000 34,000 34,000 12,950 12,950 21,050 Form 1040 (2022)

7-27

7-28

Chapter 7 – Tax Credits

Comprehensive Problem 2B, cont. David Fleming

Form 1040 (2022)

Tax and Credits

865-68-9635

16 17

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

4972 3 . . . .

Page 2

2,324

16 17

. . .

18 19 20

. . .

21 22 23

1,103

25d

3,690

2,324 1,221 1,221 1,103

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

. . .

. . 27 28

1,290 2,400

814

29 30 31

839

35a Direct deposit? b See instructions. d 36

Amount You Owe

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

Phone no.

. .

. Savings

35a

1,653 5,343 4,240 4,240

32 33 34

Yes. Complete below.

Personal identification number (PIN)

Your signature

Date

Your occupation

Spouse’s signature. If a joint return, both must sign.

Date

Spouse’s occupation

Phone no.

Email address

Cook

Preparer’s name

Preparer’s signature

Date

If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Questions and Problems – Chapter 7

Comprehensive Problem 2B, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

David Fleming Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

865-68-9635

DRAFT AS OF July 27, 2022 DO NOT FILE

Cat. No. 71479F

10,000 10,000

Schedule 1 (Form 1040) 2022

7-29

7-30

Chapter 7 – Tax Credits

Comprehensive Problem 2B, cont. David Fleming Part II Adjustments to Income

Schedule 1 (Form 1040) 2022

11 12 13 14 15 16 17 18 19a b c 20 21 22 23 24 a b c d e f g h i

j k z 25 26

865-68-9635

Page 2

DRAFT AS OF July 27, 2022 DO NOT FILE

Schedule 1 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 7

Comprehensive Problem 2B, cont. SCHEDULE 3

OMB No. 1545-0074

Additional Credits and Payments

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 03

Your social security number

David Fleming Part I Nonrefundable Credits

865-68-9635

DRAFT AS OF July 27, 2022 DO NOT FILE

Foreign tax credit. Attach Form 1116 if required

. . . . . . . . . . . . . .

Credit for child and dependent care expenses from Form 2441, line 11. Attach Form 2441 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Education credits from Form 8863, line 19 . . . . . . . . . . . . . . . . .

Retirement savings contributions credit. Attach Form 8880 . . . . . . . . . .

Residential energy credits. Attach Form 5695

Other nonrefundable credits:

a General business credit. Attach Form 3800

. . . . . . . . . . . . . . .

. . . . . . . .

b Credit for prior year minimum tax. Attach Form 8801

. . . .

c Adoption credit. Attach Form 8839 . . . . . . . . . . . .

d Credit for the elderly or disabled. Attach Schedule R . . . . .

e Alternative motor vehicle credit. Attach Form 8910

. . . . .

f Qualified plug-in motor vehicle credit. Attach Form 8936 . . .

g Mortgage interest credit. Attach Form 8396 . . . . . . . .

h District of Columbia first-time homebuyer credit. Attach Form 8859

Qualified electric vehicle credit. Attach Form 8834

. . . . .

Reserved for future use . . . . . . . . . . . . . . . . .

k Credit to holders of tax credit bonds. Attach Form 8912 . . .

Amount on Form 8978, line 14. See instructions

. . . . . .

1,221

z Other nonrefundable credits. List type and amount: 6z 7 8

7 8

1,221

(continued on page 2) For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71480G

Schedule 3 (Form 1040) 2022

7-31

7-32

Chapter 7 – Tax Credits

Comprehensive Problem 2B, cont. David Fleming 865-68-9635 Part II Other Payments and Refundable Credits

Page 2

Schedule 3 (Form 1040) 2022

Net premium tax credit. Attach Form 8962 . . . . . . . . . . . . . . . . .

Amount paid with request for extension to file (see instructions) . . . . . . . .

Excess social security and tier 1 RRTA tax withheld . . . . . . . . . . . . .

Credit for federal tax on fuels. Attach Form 4136 . . . . . . . . . . . . . .

Other payments or refundable credits:

839

DRAFT AS OF July 27, 2022 DO NOT FILE 12

. . . . . . . . . . . . . . . .

13e

f Deferred amount of net 965 tax liability (see instructions) . . .

13f

14 15

839

Schedule 3 (Form 1040) 2022

Solutions for Questions and Problems – Chapter 7

Comprehensive Problem 2B, cont.

8863

Education Credits (American Opportunity and Lifetime Learning Credits)

Department of the Treasury Internal Revenue Service

Attach to Form 1040 or 1040-SR. Go to www.irs.gov/Form8863 for instructions and the latest information.

Form

OMB No. 1545-0074

2022

Attachment Sequence No. 50 Your social security number

Name(s) shown on return

David Fleming

865

9635

! F

Complete a separate Part III on page 2 for each student for whom you’re claiming either credit before you complete Parts I and II.

Part I

Refundable American Opportunity Credit

CAUTION

DRAFT AS OF October 3, 2022 DO NOT FILE }

1 2

After completing Part III for each student, enter the total of all amounts from all Parts III, line 30 . . Enter: $180,000 if married filing jointly; $90,000 if single, head of household, 90,000 or qualifying widow(er) . . . . . . . . . . . . . . . . . . 2

Enter the amount from Form 1040 or 1040-SR, line 11. If you’re filing Form 2555 or 4563, or you’re excluding income from Puerto Rico, see Pub. 970 for the amount to enter . . . . . . . . . . . . . . . . . . . 3 Subtract line 3 from line 2. If zero or less, stop; you can’t take any education credit . . . . . . . . . . . . . . . . . . . . . . . . 4 Enter: $20,000 if married filing jointly; $10,000 if single, head of household, or qualifying widow(er) . . . . . . . . . . . . . . . . . . . 5 If line 4 is: • Equal to or more than line 5, enter 1.000 on line 6 . . . . . . . . . . . . . • Less than line 5, divide line 4 by line 5. Enter the result as a decimal (rounded to at least three places) . . . . . . . . . . . . . . . . . . . . . .

4 5 6

11 12 13 14

15 16 17

18 19

34,000 56,000 10,000 .

1 . 000

Multiply line 1 by line 6. Caution: If you were under age 24 at the end of the year and meet the conditions described in the instructions, you can’t take the refundable American opportunity credit; skip line 8, enter the amount from line 7 on line 9, and check this box . . . . . . . . . . Refundable American opportunity credit. Multiply line 7 by 40% (0.40). Enter the amount here and on Form 1040 or 1040-SR, line 29. Then go to line 9 below. . . . . . . . . . . . . . .

2,035

814

1,221

Part II 9 10

2,035

Nonrefundable Education Credits

Subtract line 8 from line 7. Enter here and on line 2 of the Credit Limit Worksheet (see instructions) . After completing Part III for each student, enter the total of all amounts from all Parts III, line 31. If zero, skip lines 11 through 17, enter -0- on line 18, and go to line 19 . . . . . . . . . . . Enter the smaller of line 10 or $10,000 . . . . . . . . . . . . . . . . . . . . . Multiply line 11 by 20% (0.20) . . . . . . . . . . . . . . . . . . . . . . . . Enter: $180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er) . . . . . . . . . . . . . . . . . . . 13 Enter the amount from Form 1040 or 1040-SR, line 11. If you're filing Form 2555 or 4563, or you’re excluding income from Puerto Rico, see Pub. 970 for the amount to enter . . . . . . . . . . . . . . . . . . . 14 Subtract line 14 from line 13. If zero or less, skip lines 16 and 17, enter -0- on line 18, and go to line 19 . . . . . . . . . . . . . . . . . 15 Enter: $20,000 if married filing jointly; $10,000 if single, head of household, or qualifying widow(er) . . . . . . . . . . . . . . . . . . . 16 If line 15 is: • Equal to or more than line 16, enter 1.000 on line 17 and go to line 18 • Less than line 16, divide line 15 by line 16. Enter the result as a decimal (rounded to at least three places) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multiply line 12 by line 17. Enter here and on line 1 of the Credit Limit Worksheet (see instructions) . Nonrefundable education credits. Enter the amount from line 7 of the Credit Limit Worksheet (see instructions) here and on Schedule 3 (Form 1040), line 3 . . . . . . . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 25379M

10 11 12

17 18 19

0 1,221 Form 8863 (2022)

7-33

7-34

Chapter 7 – Tax Credits

Comprehensive Problem 2B, cont. Page 2

Form 8863 (2022)

Your social security number

Name(s) shown on return

David Fleming

865

9635

! F

Complete Part III for each student for whom you’re claiming either the American opportunity credit or lifetime learning credit. Use additional copies of page 2 as needed for each student.

Part III

Student and Educational Institution Information. See instructions.

CAUTION

DRAFT AS OF October 3, 2022 DO NOT FILE

20 Student name (as shown on page 1 of your tax return)

David Fleming 22

Student social security number (as shown on page 1 of your tax return)

865

9635

Educational institution information (see instructions) a. Name of first educational institution

b. Name of second educational institution (if any)

(1) Address. Number and street (or P.O. box). City, town or post office, state, and ZIP code. If a foreign address, see instructions.

Windandsea Community College

1300 Genesee Street San Diego, CA 92037

(2) Did the student receive Form 1098-T from this institution for 2022? (3) Did the student receive Form 1098-T from this institution for 2021 with box 7 checked?

Yes Yes

(4) Enter the institution’s employer identification number (EIN) if you’re claiming the American opportunity credit or if you checked “Yes” in (2) or (3). You can get the EIN from Form 1098-T or from the institution. 1 2 – 7 6 5 2 4 4 4 23

Has the American opportunity credit been claimed for this student for any 4 tax years before 2022? Was the student enrolled at least half-time for at least one academic period that began or is treated as having begun in 2022 at an eligible educational institution in a program leading towards a postsecondary degree, certificate, or other recognized postsecondary educational credential? See instructions.

(2) Did the student receive Form 1098-T from this institution for 2022? (3) Did the student receive Form 1098-T from this institution for 2021 with box 7 checked?

Yes

Yes — Stop! Go to line 31 for this student. x

x Yes — Go to line 25.

No — Go to line 24.

No — Stop! Go to line 31 for this student.

Did the student complete the first 4 years of postsecondary education before 2022? See instructions.

Yes — Stop! Go to line 31 for this student.

No — Go to line 26.

Was the student convicted, before the end of 2022, of a felony for possession or distribution of a controlled substance?

Yes — Stop! Go to line 31 for this student.

No — Complete lines 27 through 30 for this student.

! F CAUTION

You can't take the American opportunity credit and the lifetime learning credit for the same student in the same year. If you complete lines 27 through 30 for this student, don’t complete line 31.

American Opportunity Credit 27 28 29 30

Yes

Adjusted qualified education expenses (see instructions). Don’t enter more than $4,000 . . . . . Subtract $2,000 from line 27. If zero or less, enter -0- . . . . . . . . . . . . . . . . . Multiply line 28 by 25% (0.25) . . . . . . . . . . . . . . . . . . . . . . . . If line 28 is zero, enter the amount from line 27. Otherwise, add $2,000 to the amount on line 29 and enter the result. Skip line 31. Include the total of all amounts from all Parts III, line 30, on Part I, line 1 .

27 28 29

2,140 (a) 140 35

2,035

Lifetime Learning Credit 31

Adjusted qualified education expenses (see instructions). Include the total of all amounts from all Parts III, line 31, on Part II, line 10 . . . . . . . . . . . . . . . . . . . . . . . . .

31 Form 8863 (2022)

(a) $1,800 Form 1098-T + $340 textbooks

Solutions for Questions and Problems – Chapter 7

Comprehensive Problem 2B, cont. Form

8962

Version A, Cycle 4

OMB No. 1545-0074

Premium Tax Credit (PTC)

Department of the Treasury Internal Revenue Service Name shown on your return

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form8962 for instructions and the latest information.

Attachment Sequence No. 73

Your social security number

David Fleming

865-68-9635

A. You cannot take the PTC if your filing status is married filing separately unless you qualify for an exception. See instructions. If you qualify, check the box

Annual and Monthly Contribution Amount

DRAFT AS OF September 19, 2022 DO NOT FILE Part I

34,000

4 5

12,880 263 %

Federal poverty line. Enter the federal poverty line amount from Table 1-1, 1-2, or 1-3. See instructions. Check the Hawaii c x Other 48 states and DC appropriate box for the federal poverty table used. a Alaska b Household income as a percentage of federal poverty line (see instructions) . . . . . . . . . . . . Reserved for future use . . . . . . . . . . . . . . . . . . . . . . . . . . .

Applicable figure. Using your line 5 percentage, locate your “applicable figure” on the table in the instructions

0.0452

Annual contribution amount. Multiply line 3 by line 7. Round to nearest whole dollar amount

b Monthly contribution amount. Divide line 8a by 12. Round to nearest whole dollar amount

128

1 2a

Tax family size. Enter your tax family size. See instructions . Modified AGI. Enter your modified AGI. See instructions .

. .

b 3

Enter the total of your dependents’ modified AGI. See instructions . . Household income. Add the amounts on lines 2a and 2b. See instructions

. .

4 5

Part II 9

. .

1,537

. .

. . 2a

2b . .

34,000

Premium Tax Credit Claim and Reconciliation of Advance Payment of Premium Tax Credit

Are you allocating policy amounts with another taxpayer or do you want to use the alternative calculation for year of marriage? See instructions. Yes. Skip to Part IV, Allocation of Policy Amounts, or Part V, Alternative Calculation for Year of Marriage. x No. Continue to line 10. See the instructions to determine if you can use line 11 or must complete lines 12 through 23. No. Continue to lines 12–23. Compute x Yes. Continue to line 11. Compute your annual PTC. Then skip lines 12–23 and continue to line 24. your monthly PTC and continue to line 24.

Annual Calculation 11

Annual Totals

Monthly Calculation

(a) Annual enrollment premiums (Form(s) 1095-A, line 33A)

(b) Annual applicable SLCSP premium (Form(s) 1095-A, line 33B)

3,792

(d) Annual maximum premium assistance (subtract (c) from (b); if zero or less, enter -0-)

4,200

1,537

(a) Monthly enrollment (b) Monthly applicable premiums (Form(s) SLCSP premium 1095-A, lines 21–32, (Form(s) 1095-A, lines column A) 21–32, column B)

(e) Annual premium tax (f) Annual advance credit allowed payment of PTC (Form(s) 1095-A, line 33C) (smaller of (a) or (d))

2,663

1,824

(d) Monthly maximum (f) Monthly advance (e) Monthly premium tax premium assistance payment of PTC (Form(s) credit allowed (subtract (c) from (b); if 1095-A, lines 21–32, (smaller of (a) or (d)) zero or less, enter -0-) column C)

12 13 14 15 16 17 18 19 20 21 22 23

January February March April May June July August September October November December

Total premium tax credit. Enter the amount from line 11(e) or add lines 12(e) through 23(e) and enter the total here

Advance payment of PTC. Enter the amount from line 11(f) or add lines 12(f) through 23(f) and enter the total here

2,663 1,824

Net premium tax credit. If line 24 is greater than line 25, subtract line 25 from line 24. Enter the difference here and on Schedule 3 (Form 1040), line 9. If line 24 equals line 25, enter -0-. Stop here. If line 25 is greater than line 24, leave this line blank and continue to line 27 . . . . . . . . . . . . . . . . . . . . .

839

Part III

Repayment of Excess Advance Payment of the Premium Tax Credit

Excess advance payment of PTC. If line 25 is greater than line 24, subtract line 24 from line 25. Enter the difference here

28 29

Repayment limitation (see instructions)

Excess advance premium tax credit repayment. Enter the smaller of line 27 or line 28 here and on Schedule 2 (Form 1040), line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 37784Z

Form 8962 (2022)

7-35

7-36

Chapter 7 – Tax Credits

Key Number Tax Return Summary Chapter 7 Comprehensive Problem 1 Adjusted Gross Income (Line 11)

54,100

Taxable Income (Line 15)

28,200

Total Nonrefundable Credits (Schedule 3, Line 8)

650

Child Tax Credit (Line 19)

2,000

Amount Overpaid (Line 34)

1,524

Comprehensive Problem 2A Adjusted Gross Income (Line 11)

22,600

Taxable Income (Line 15)

3,200

Nonrefundable Child Tax Credit or Credit for Other Dependents (Line 19)

Earned Income Credit (line 27)

5,639

Amount Overpaid (Line 34)

7,359

Comprehensive Problem 2B Adjusted Gross Income (Line 11)

34,000

Taxable Income (Line 15)

21,050

Net Premium Tax Credit (Schedule 3, Line 9)

839

Total Tax (Line 24)

1,103

Amount Overpaid (Line 34)

4,240

CHAPTER 8 DEPRECIATION AND SALE OF BUSINESS PROPERTY

Group 1 – Multiple Choice Questions 1. C A capitalized cost is not deducted until later (LO 8.1) 2. C Maintenance is often deductible (LO 8.1) 3. B Other expenditures represent betterments or improvements (LO 8.1) 4. C Small business limit does not apply to the de minimis safe harbor (LO 8.1) 5. A $100,000 x 1.970% (LO 8.2) 6. B $25,000 x 20% (LO 8.2) 7. C $24,000 x 100% (LO 8.2) 8. E $16,000 x 7.14% (LO 8.2) 9. C Real property is depreciated using the mid-month convention (LO 8.2) 10. D Real property is depreciated using the mid-month convention (LO 8.2) 11. C The Section 179 election to expense is limited to net income of $6,000 (LO 8.3) 12. A Section 179 immediate expensing is subject to a total property limit, and income limit, and an annual limit (LO 8.3) 13. D Less than 50% business requires S/L depreciation (LO 8.4) 14. C Lesser of $6,840 ($57,000 x 60% x 20%) of actual depreciation or $6,720 ($11,200 x 60%) limit (LO 8.5) 15. C $19,200 is the 2022 luxury auto limit when bonus is not elected out of (LO 8.5) 16. B 32% x ($62,000 – $19,200) (LO 8.5) 17. D Section 197 intangibles are amortized over 15 years (180 months) (LO 8.6) 18. D The covenant not to complete is an intangible under Section 197 (LO 8.6)

19. B 20. A 21. C 22. D 23. B 24. B 25. B 26. B 27. D 28. B 29. D 30. A 31. B

1231 property is used in a trade or business and held for more than 1 year (LO 8.7) Section 1231 gains are subject to the lookback rule (LO 8.7) Recognized gain of $8,000 with depreciation recaptured as ordinary of $5,000 and remaining gain is 1231. (LO 8.7, 8.8) Recognized gain of $70,000 for which $50,000 is unrecaptured and the remaining $20,000 is 1231 (LO 8.7, 8.8) The unrecaptured depreciation portion of the gain is taxed at the highest rate. (LO 8.8) $10,000 ($50,000 x 20%) ordinary under Section 291 and remaining gain is Section 1231 (LO 8.8) Insurance proceeds of $5,000 less decrease in FMV (partial loss) of $10,000 (LO 8.9) Basis is used for complete loss less insurance (LO 8.9) Cash received of $40,000 x gross profit percentage of 70% ($70,000/$100,000) (LO 8.10) Realized gain of $5,000 recognized to the extent of boot received $4,000 (LO 8.11) Basis of property given up $12,000 + boot paid $4,000 (LO 8.11) All proceeds from the involuntary conversion are reinvested in similar property (LO 8.12) $130,000 plus additional cash invested of $2,000 (LO 8.12)

Group 2 – Problems 1. a. A betterment is an amount paid to fix a material condition or defect that existed prior to acquisition or that arose while the property was created. Expenditures for material additions including enlargement, extension, or the addition of a major component are generally treated as a betterment. Expenditures that are expected to increase the productivity, efficiency, strength, quality, or output of the property are considered a betterment. b. An adaptation is an expenditure that allows the property to be used in a new or different use. c. A restoration is the replacement of a major component, a substantial structural part, or combination of parts that make up a substantial component of the property. A restoration also includes amounts paid to return property to its normal operating condition if the property has deteriorated and is no longer functional for its intended use. Amounts paid to rebuild property to return it to a like-new

8-1

8-2

Chapter 8 – Depreciation and Sale of Business Property

condition after the end of its useful life are also considered a restoration. Lastly, expenditures to replace property for which a gain or loss and associated basis adjustment have been taken are considered restorations. (LO 8.1) 2. For a taxpayer with applicable financial statements, the taxpayer must have a written accounting policy consistent with the tax treatment. The limit is $5,000 per item or invoice. For a taxpayer without applicable financial statements, no written policy is required but the books and records must treat the items consistent with the tax treatment. The limit is $2,500 per item or invoice. (LO 8.1) 3. Land is not allowed to be depreciated. It is held on the taxpayer’s books at its cost basis. Under U.S. tax law, land is considered to be an asset that is not subject to obsolescence. (LO 8.2) 4. Yes, the tax law allows a taxpayer to take tax depreciation on a residential rental building no matter what happens to its fair value in the market. Even if the value of the building doubles or triples, the depreciation is allowed and remains the same regardless of fluctuations up and down in value. The tax law allows depreciation to encourage capital investment. The term depreciation does not necessarily mean physical deterioration or loss of value of the asset, though this is usually true of an asset. The depreciation of computers, office furniture, automobiles, etc. often follows the decline in value of the assets reasonably well. (LO 8.2) 5. a. $5,000 = $50,000 x 10%. The taxpayer must use the annual percentage rates from the optional straight-line table (Table 8.3) b. $50,000 (100% bonus) c. $50,000. All $50,000 can be deducted under the immediate expensing election, since there is no income limitation in this example (LO 8.2, 8.3) 6. a. $15,837 = ($650,000 x 1.970%) + ($400,000 x 0.758%.) b. $38,178 = ($650,000 x 3.636%) + ($400,000 x 3.636%.) (LO 8.2) 7. a. b. c. d. e. f.

5 years 7 years 5 years 27.5 years 39 years Indefinite life, no depreciation allowed. (LO 8.2)

8. When a taxpayer acquires more than 40% of its MACRS depreciable property (other than real estate) during the last quarter of the year, the taxpayer must use the mid-quarter convention in calculating depreciation rather than the half-year convention. There are separate MACRS tables for the midquarter depreciation convention. This treatment requires all assets purchased in any quarter of the year to be treated as purchased in the middle of that quarter. (LO 8.2) 9. a. 1.391% x $250,000 = $3,478

Solutions for Questions and Problems – Chapter 8

8-3

b. $0. The entire cost would have been deducted in 2022 using bonus depreciation. c. 10% x $2,800 = $280 d. 17.49% x $10,000 = $1,749 (LO 8.2) 10. Election to expense Depreciation on automobile: Regular depreciation of $66,000 x 20%, but limited to $11,200 Total depreciation

$ 10,000 11,200 $21,200

For 2022, the automobile is 5-year recovery property; however, the depreciation deduction is subject to the annual automobile depreciation expense limitations. (LO 8.2, 8.3, 8.4, 8.5) 11. $360 = $2,400 x 20% x 75%. The total depreciation on the computer must be divided between the business use, $360, and personal use, $0. Straight-line depreciation is not required as computers are generally no longer listed property. (LO 8.2, 8.4) 12. $14,400. Bonus depreciation of $48,000 x 75% x 100% = $36,000 Limit $19,200 x 75% = $14,400 (LO 8.2, 8.4, 8.5) 13. See Form 4562 on Pages 8-7 and 8-8. Convention test: 4th quarter $1,600 ÷ total personal property $121,100 (note: auto at 90%) = 1%; thus half-year convention Assets Manufacturing Equipment Office Furniture Office Computer Warehouse

Recovery Period 7-year 7-year 5-year 39-year

Depreciation $60,000 x 0.1429 = $8,574 $10,000 x 0.1429 = $1,429 $1,600 x 0.20 = $320 180,000 x 0.01605 = $2,889

Auto depreciation $55,000 x 90% x 20% = $9,900, below the 2022 limit of $11,200 x 90% = $10,080. (LO 8.2, 8.4, 8.5) 14. See Form 4562 on Pages 8-9 and 8-10. Bonus Depreciation on Line 14: ($60,000 + $10,000 + $1,600) x 100% = $71,600 Bonus Depreciation on Line 25: $55,000 x 90% x 100% = $49,500 limited to $17,280 ($19,200 x 90%) (LO 8.2, 8.4, 8.5) 15. Tom should either deduct bonus depreciation or expense the machine under the Section 179 election to expense. Under either option he can write off the entire cost of the machine in 2022 and bring his taxable income down to $75,000 and lower his tax liability. If Tom does not elect to expense the machine and elects out of bonus depreciation, he must depreciate the property over a life of 7 years. (LO 8.2, 8.3) 16. a. $70,000 = $50,000 + $20,000 b. $1,944 deductible for 2022. $70,000/180 x 5 months. (LO 8.6)

8-4

Chapter 8 – Depreciation and Sale of Business Property

17. The purchased goodwill and going-concern value of $54,000 should be amortized over 15 years at $300 a month as Section 197 intangible assets. (LO 8.6) 18. See Form 4797 on Pages 8-11 and 8-12. (LO 8.7, 8.8) 19. a. $35,000 gain = $100,000 + 50,000 + $30,000 – $145,000. b. See Form 6252 on Page 8-13. c. $1,165 = 23.3% (from Form 6252, Part II) x $5,000. (LO 8.8, 8.10) 20. a. $18,000 = $40,000 – $22,000. b. $8,000 = $26,000 – $18,000. c. $8,000. The depreciation recapture is the lesser of the realized gain ($8,000) or the total depreciation taken ($22,000). d. $0. The entire gain recognized of $8,000 is ordinary income. (LO 8.7, 8.8) 21. $8,000 ordinary loss. Assuming this is the taxpayer’s only casualty gain or loss as a result of the destruction of business or investment property, the loss on the destruction of the machine is an ordinary loss. (LO 8.9) 22. a. $35,000. The gain recognized is equal to the lesser of the gain realized, $35,000 ($100,000 + $40,000 + $10,000 – $115,000), or the boot received, $50,000 ($10,000 cash + $40,000 relief of a liability). b. $100,000 = $115,000 – $50,000 + $35,000. The basis of the property received is equal to the basis of the property given up plus the boot paid ($0 in this case) less the boot received plus the gain recognized. (LO 8.11) 23. a. $0. No gain is recognized since the amount of the insurance proceeds was fully reinvested. b. $280,000 = $420,000 – $140,000 ($410,000 – $270,000). The basis is equal to the newly acquired property’s cost reduced by the amount of the realized gain which is not recognized. (LO 8.12)

Group 3 – Writing Assignment Research Solution: Whittenburg and Gill CPAs San Diego, CA April 13, 20xx Relevant Facts Owen and Lisa Cordoncillo exchanged land held for investment in May 2022. Owen and Lisa are brother and sister. Lisa gave Texas land with an adjusted basis of $2,000 and a fair market value of $6,000 in exchange for Arkansas land from Owen. Owen’s Arkansas land at the time of the exchange had a fair market value of $5,500 and an adjusted basis of $2,500. In addition, Owen gave Lisa $500 cash. The following March, Owen sold the Texas land to a third party for $5,800.

Solutions for Questions and Problems – Chapter 8

8-5

Specific Issues What are the amounts of Owen and Lisa’s gain recognition for 2022? What are the effects, if any, of the sale in 2023? Conclusions In 2022, Owen will have a $3,000 gain realized on the exchange of which $0 will be recognized. Lisa will have a $4,000 gain realized of which $500, the amount received in cash, will be recognized. The sale in 2023 causes disqualification from nonrecognition treatment. Owen will be required to recognize the $3,000 gain deferred from 2022 and Lisa will recognize the remaining gain of $3,500. In addition, Owen will have to report any additional gain or loss from the sale of the land. Support Exchanges of like-kind property, such as the exchange of land, generally qualify as nontaxable exchanges. The parties involved would recognize gain in an amount equal to the lesser of (1) the gain realized or (2) the “boot” received. In 2022, Owen would have a $3,000 gain realized ($6,000 – $500 – $2,500) and $0 “boot” received. His gain recognition in 2022 would therefore be $0. Lisa would have a $4,000 gain realized ($5,500 + $500 – $2,000) and $500 “boot” received. Her 2022 gain recognition would be $500, the amount of the “boot” received. According to IRS Publication 544, special rules apply when related parties are involved. In this case, since Owen and Lisa are brother and sister, they are considered to be related parties. Like-kind exchanges between related parties can be disqualified if, within 2 years after the exchange, either party disposes of the exchanged property. This disqualification can cause gain recognition of the previously deferred amount. In 2023, when Owen sells the Texas land, he causes automatic disqualification of the like-kind exchange for both Lisa and himself. Owen will be required to recognize immediately the amount of gain deferred in 2022, $3,000. Lisa will also have to recognize the 2022 gain deferred of $3,500 ($4,000 – $500). Actions to Be Taken Review results with client. Preparer: Trevor Malcolm Reviewer: Martha Altus-Buller

Group 4 – Comprehensive Problems 1. See Pages 8-14 to 8-18. 2022 depreciation on property placed in service in prior years: Cash register $10,000 x 19.20% = $1,920 Fixtures* $5,500 x 24.49% = $1,347 Furniture* $4,100 x 24.49% = $1,004 Total $4,271 * Use Table 8.2 – Half-year convention because assets were purchased in 2nd quarter of 2021. 2. See Pages 8-19 to 8-28.

8-6

Chapter 8 – Depreciation and Sale of Business Property

Group 5 – Cumulative Software Problem The solution to the Cumulative Software Problem is posted on the website for the textbook at www.cengage.com/login.

Solutions for Questions and Problems – Chapter 8

See depreciation calculations on Page 8-3. Group 2: Problem 13

4562

(Including Information on Listed Property)

Department of the Treasury Internal Revenue Service

Attach to your tax return. Go to www.irs.gov/Form4562 for instructions and the latest information.

Form

Depreciation and Amortization

Name(s) shown on return

Business or activity to which this form relates

Pepe Guardio Part I 1 2 3 4 5

OMB No. 1545-0172

Identifying number

Manufacturing

Election To Expense Certain Property Under Section 179 Note: If you have any listed property, complete Part V before you complete Part I.

DRAFT AS OF June 9, 2022 DO NOT FILE

Maximum amount (see instructions) . . . . . . . . . . . . . . . . . . . . . . . Total cost of section 179 property placed in service (see instructions) . . . . . . . . . . . Threshold cost of section 179 property before reduction in limitation (see instructions) . . . . . . Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0- . . . . . . . . . . Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -0-. If married filing separately, see instructions . . . . . . . . . . . . . . . . . . . . . . . . .

2022

Attachment Sequence No. 179

(a) Description of property

(b) Cost (business use only)

1 2 3 4 5

7 Listed property. Enter the amount from line 29 . . . . . . . . . 7 8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 . . . . . . 8 9 Tentative deduction. Enter the smaller of line 5 or line 8 . . . . . . . . . . . . . . . . 9 10 Carryover of disallowed deduction from line 13 of your 2021 Form 4562 . . . . . . . . . . . 10 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5. See instructions 11 12 Section 179 expense deduction. Add lines 9 and 10, but don’t enter more than line 11 . . . . . . 12 13 13 Carryover of disallowed deduction to 2023. Add lines 9 and 10, less line 12 . Note: Don’t use Part II or Part III below for listed property. Instead, use Part V. Part II Special Depreciation Allowance and Other Depreciation (Don’t include listed property. See instructions.) 14 Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year. See instructions . . . . . . . . . . . . . . . . . . . . . . . 14 15 Property subject to section 168(f)(1) election . . . . . . . . . . . . . . . . . . . . 15 16 Other depreciation (including ACRS) . . . . . . . . . . . . . . . . . . . . . . 16 Part III MACRS Depreciation (Don’t include listed property. See instructions.) Section A 17 17 MACRS deductions for assets placed in service in tax years beginning before 2022 . . . . . . . 18 If you are electing to group any assets placed in service during the tax year into one or more general asset accounts, check here . . . . . . . . . . . . . . . . . . . . . . . Section B—Assets Placed in Service During 2022 Tax Year Using the General Depreciation System (a) Classification of property

(b) Month and year placed in service

(d) Recovery period

(e) Convention

(f) Method

(g) Depreciation deduction

19a 3-year property b 5-year property 5 yrs HY 200 DB 320 1,600 c 7-year property 70,000 7 yrs HY 200 DB 10,003 d 10-year property e 15-year property f 20-year property 25 yrs. S/L g 25-year property 27.5 yrs. MM S/L h Residential rental 27.5 yrs. MM S/L property 39 yrs. MM S/L i Nonresidential real 05/22 180,000 2,889 MM S/L property Section C—Assets Placed in Service During 2022 Tax Year Using the Alternative Depreciation System S/L 20a Class life 12 yrs. S/L b 12-year 30 yrs. MM S/L c 30-year 40 yrs. MM S/L d 40-year

Part IV

Summary (See instructions.)

21 Listed property. Enter amount from line 28 . . . . . . . . . . . . . . . . . . . . 22 Total. Add amounts from line 12, lines 14 through 17, lines 19 and 20 in column (g), and line 21. Enter here and on the appropriate lines of your return. Partnerships and S corporations—see instructions . 23 For assets shown above and placed in service during the current year, enter the portion of the basis attributable to section 263A costs . . . . . . . . . 23 For Paperwork Reduction Act Notice, see separate instructions.

Cat. No. 12906N

9,900

23,112 Form 4562 (2022)

8-7

8-8

Chapter 8 – Depreciation and Sale of Business Property See depreciation calculations on Page 8-3.

Group 2: Problem 13, cont. Page 2 Listed Property (Include automobiles, certain other vehicles, certain aircraft, and property used for entertainment, recreation, or amusement.)

Form 4562 (2022)

Part V

Note: For any vehicle for which you are using the standard mileage rate or deducting lease expense, complete only 24a, 24b, columns (a) through (c) of Section A, all of Section B, and Section C if applicable. Section A—Depreciation and Other Information (Caution: See the instructions for limits for passenger automobiles.) 24a Do you have evidence to support the business/investment use claimed? x Yes 24b If “Yes,” is the evidence written? x Yes No No (c) (a) (b) (d) Business/ Type of property (list Date placed investment use Cost or other basis vehicles first) in service percentage

(e) Basis for depreciation (business/investment use only)

DRAFT AS OF June 9, 2022 DO NOT FILE (f) Recovery period

(g) Method/ Convention

(h) Depreciation deduction

(i) Elected section 179 cost

25 Special depreciation allowance for qualified listed property placed in service during the tax year and used more than 50% in a qualified business use. See instructions .

25 26 Property used more than 50% in a qualified business use: % Passenger automobile 05/22 90 % 55,000 49,500 (a) 5 yrs HY 9,900 0 % 27 Property used 50% or less in a qualified business use: S/L – % S/L – % S/L – % 28 Add amounts in column (h), lines 25 through 27. Enter here and on line 21, page 1 . 28 9,900 29 Add amounts in column (i), line 26. Enter here and on line 7, page 1 . . . . . . . . . . . . 29 Section B—Information on Use of Vehicles Complete this section for vehicles used by a sole proprietor, partner, or other “more than 5% owner,” or related person. If you provided vehicles to your employees, first answer the questions in Section C to see if you meet an exception to completing this section for those vehicles. (a) Vehicle 1

30 Total business/investment miles driven during the year (don’t include commuting miles) .

(b) Vehicle 2

(d) Vehicle 4

(e) Vehicle 5

(f) Vehicle 6

31 Total commuting miles driven during the year 32 Total other personal (noncommuting) miles driven . . . . . . . . . 33 Total miles driven during the year. Add lines 30 through 32 . . . . . . . 34 Was the vehicle available for personal use during off-duty hours? . . . . . 35 Was the vehicle used primarily by a more than 5% owner or related person? . .

Yes

36 Is another vehicle available for personal use? Section C—Questions for Employers Who Provide Vehicles for Use by Their Employees Answer these questions to determine if you meet an exception to completing Section B for vehicles used by employees who aren’t more than 5% owners or related persons. See instructions. 37 Do you maintain a written policy statement that prohibits all personal use of vehicles, including commuting, by Yes No your employees? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Do you maintain a written policy statement that prohibits personal use of vehicles, except commuting, by your employees? See the instructions for vehicles used by corporate officers, directors, or 1% or more owners . . 39 Do you treat all use of vehicles by employees as personal use? . . . . . . . . . . . . . . . . 40 Do you provide more than five vehicles to your employees, obtain information from your employees about the use of the vehicles, and retain the information received? . . . . . . . . . . . . . . . . . . . 41 Do you meet the requirements concerning qualified automobile demonstration use? See instructions . . Note: If your answer to 37, 38, 39, 40, or 41 is “Yes,” don’t complete Section B for the covered vehicles.

Part VI

Amortization (a) Description of costs

(b) Date amortization begins

(e) Amortization period or percentage

(d) Code section

(f) Amortization for this year

42 Amortization of costs that begins during your 2022 tax year (see instructions):

43 Amortization of costs that began before your 2022 tax year . . . . . . 44 Total. Add amounts in column (f). See the instructions for where to report .

. .

43 44 Form 4562 (2022)

(a) $55,000 x 90%

Solutions for Questions and Problems – Chapter 8

See depreciation calculations on Page 8-3. Group 2: Problem 14

4562

(Including Information on Listed Property)

Department of the Treasury Internal Revenue Service

Attach to your tax return. Go to www.irs.gov/Form4562 for instructions and the latest information.

Form

Depreciation and Amortization

Name(s) shown on return

Business or activity to which this form relates

Pepe Guardio Part I 1 2 3 4 5

OMB No. 1545-0172

Identifying number

Manufacturing

Election To Expense Certain Property Under Section 179 Note: If you have any listed property, complete Part V before you complete Part I.

DRAFT AS OF June 9, 2022 DO NOT FILE

2022

Attachment Sequence No. 179

(a) Description of property

(b) Cost (business use only)

1 2 3 4 5

7 Listed property. Enter the amount from line 29 . . . . . . . . . 7 8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 . . . . . . 8 9 Tentative deduction. Enter the smaller of line 5 or line 8 . . . . . . . . . . . . . . . . 9 10 Carryover of disallowed deduction from line 13 of your 2021 Form 4562 . . . . . . . . . . . 10 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5. See instructions 11 12 Section 179 expense deduction. Add lines 9 and 10, but don’t enter more than line 11 . . . . . . 12 13 13 Carryover of disallowed deduction to 2023. Add lines 9 and 10, less line 12 . Note: Don’t use Part II or Part III below for listed property. Instead, use Part V. Part II Special Depreciation Allowance and Other Depreciation (Don’t include listed property. See instructions.) 14 Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year. See instructions . . . . . . . . . . . . . . . . . . . . . . . 71,600 14 15 Property subject to section 168(f)(1) election . . . . . . . . . . . . . . . . . . . . 15 16 Other depreciation (including ACRS) . . . . . . . . . . . . . . . . . . . . . . 16 Part III MACRS Depreciation (Don’t include listed property. See instructions.) Section A 17 17 MACRS deductions for assets placed in service in tax years beginning before 2022 . . . . . . . 18 If you are electing to group any assets placed in service during the tax year into one or more general asset accounts, check here . . . . . . . . . . . . . . . . . . . . . . . Section B—Assets Placed in Service During 2022 Tax Year Using the General Depreciation System (a) Classification of property

(b) Month and year placed in service

(d) Recovery period

(e) Convention

(f) Method

(g) Depreciation deduction

19a 3-year property b 5-year property c 7-year property d 10-year property e 15-year property f 20-year property 25 yrs. S/L g 25-year property 27.5 yrs. MM S/L h Residential rental 27.5 yrs. MM S/L property 39 yrs. MM S/L i Nonresidential real 05/22 180,000 MM S/L property Section C—Assets Placed in Service During 2022 Tax Year Using the Alternative Depreciation System S/L 20a Class life 12 yrs. S/L b 12-year 30 yrs. MM S/L c 30-year 40 yrs. MM S/L d 40-year

Part IV

2,889

Summary (See instructions.)

Cat. No. 12906N

17,280

91,769 Form 4562 (2022)

8-9

8-10

Chapter 8 – Depreciation and Sale of Business Property See depreciation calculations on Page 8-3.

Group 2: Problem 14, cont. Page 2 Listed Property (Include automobiles, certain other vehicles, certain aircraft, and property used for entertainment, recreation, or amusement.)

Form 4562 (2022)

Part V

Note: For any vehicle for which you are using the standard mileage rate or deducting lease expense, complete only 24a, 24b, columns (a) through (c) of Section A, all of Section B, and Section C if applicable. Section A—Depreciation and Other Information (Caution: See the instructions for limits for passenger automobiles.) 24a Do you have evidence to support the business/investment use claimed? x Yes 24b If “Yes,” is the evidence written? x Yes No No (c) (a) (b) Business/ (d) Type of property (list Date placed investment use Cost or other basis vehicles first) in service percentage

(e) Basis for depreciation (business/investment use only)

DRAFT AS OF June 9, 2022 DO NOT FILE (f) Recovery period

(g) Method/ Convention

(h) Depreciation deduction

(i) Elected section 179 cost

25 Special depreciation allowance for qualified listed property placed in service during the tax year and used more than 50% in a qualified business use. See instructions .

25 17,280 (a) 26 Property used more than 50% in a qualified business use: % Passenger automobile 05/22 90 % 55,000 32,220 (b) 5 yrs HY 0 0 % 27 Property used 50% or less in a qualified business use: S/L – % S/L – % S/L – % 28 Add amounts in column (h), lines 25 through 27. Enter here and on line 21, page 1 . 28 17,280 29 Add amounts in column (i), line 26. Enter here and on line 7, page 1 . . . . . . . . . . . . 29 Section B—Information on Use of Vehicles Complete this section for vehicles used by a sole proprietor, partner, or other “more than 5% owner,” or related person. If you provided vehicles to your employees, first answer the questions in Section C to see if you meet an exception to completing this section for those vehicles. (a) Vehicle 1

30 Total business/investment miles driven during the year (don’t include commuting miles) .

(b) Vehicle 2

(d) Vehicle 4

(e) Vehicle 5

(f) Vehicle 6

Yes

Part VI

Amortization (a) Description of costs

(b) Date amortization begins

(e) Amortization period or percentage

(d) Code section

(f) Amortization for this year

42 Amortization of costs that begins during your 2022 tax year (see instructions):

43 Amortization of costs that began before your 2022 tax year . . . . . . 44 Total. Add amounts in column (f). See the instructions for where to report .

. .

43 44 Form 4562 (2022)

(a) $19,200 limit x 90% (b) ($55,000 x 90%) – $17,280

Solutions for Questions and Problems – Chapter 8

Group 2: Problem 18

4797

Form

Sales of Business Property

Department of the Treasury Internal Revenue Service

OMB No. 1545-0184

(Also Involuntary Conversions and Recapture Amounts Under Sections 179 and 280F(b)(2))

2022

Attach to your tax return. Go to www.irs.gov/Form4797 for instructions and the latest information.

Attachment Sequence No. 27

Name(s) shown on return

Identifying number

Nadia Shalom

924-56-5783

DRAFT AS OF July 26, 2022 DO NOT FILE

Enter the gross proceeds from sales or exchanges reported to you for 2022 on Form(s) 1099-B or 1099-S (or substitute statement) that you are including on line 2, 10, or 20. See instructions . . . . . . . . . .

Enter the total amount of gain that you are including on lines 2, 10, and 24 due to the partial dispositions of MACRS assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Enter the total amount of loss that you are including on lines 2 and 10 due to the partial dispositions of MACRS assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part I

Sales or Exchanges of Property Used in a Trade or Business and Involuntary Conversions From Other Than Casualty or Theft—Most Property Held More Than 1 Year (see instructions) (a) Description of property

Land

(b) Date acquired (mo., day, yr.)

02/01/11

04/19/22

(d) Gross sales price

(e) Depreciation allowed or allowable since acquisition

(f) Cost or other basis, plus improvements and expense of sale

132,700

121,000

Gain, if any, from Form 4684, line 39

4 5 6

Section 1231 gain from installment sales from Form 6252, line 26 or 37 . Section 1231 gain or (loss) from like-kind exchanges from Form 8824. . Gain, if any, from line 32, from other than casualty or theft . . . . .

. . .

4 5 6

Combine lines 2 through 6. Enter the gain or (loss) here and on the appropriate line as follows

(g) Gain or (loss) Subtract (f) from the sum of (d) and (e)

(11,700)

70,000 58,300

Partnerships and S corporations. Report the gain or (loss) following the instructions for Form 1065, Schedule K, line 10, or Form 1120-S, Schedule K, line 9. Skip lines 8, 9, 11, and 12 below. Individuals, partners, S corporation shareholders, and all others. If line 7 is zero or a loss, enter the amount from line 7 on line 11 below and skip lines 8 and 9. If line 7 is a gain and you didn’t have any prior year section 1231 losses, or they were recaptured in an earlier year, enter the gain from line 7 as a long-term capital gain on the Schedule D filed with your return and skip lines 8, 9, 11, and 12 below. 8

Nonrecaptured net section 1231 losses from prior years. See instructions

Subtract line 8 from line 7. If zero or less, enter -0-. If line 9 is zero, enter the gain from line 7 on line 12 below. If line 9 is more than zero, enter the amount from line 8 on line 12 below and enter the gain from line 9 as a long-term capital gain on the Schedule D filed with your return. See instructions. . . . . . . . . . . . . .

Part II

Ordinary Gains and Losses (see instructions)

Ordinary gains and losses not included on lines 11 through 16 (include property held 1 year or less):

Loss, if any, from line 7

11 (

12 13 14

Gain, if any, from line 7 or amount from line 8, if applicable . Gain, if any, from line 31 . . . . . . . . . . . Net gain or (loss) from Form 4684, lines 31 and 38a . . .

. . .

12 13 14

15 16 17

Ordinary gain from installment sales from Form 6252, line 25 or 36 Ordinary gain or (loss) from like-kind exchanges from Form 8824 . Combine lines 10 through 16. . . . . . . . . . . .

. . .

15 16 17

For all except individual returns, enter the amount from line 17 on the appropriate line of your return and skip lines a and b below. For individual returns, complete lines a and b below.

a If the loss on line 11 includes a loss from Form 4684, line 35, column (b)(ii), enter that part of the loss here. Enter the loss from income-producing property on Schedule A (Form 1040), line 16. (Do not include any loss on property used as an employee.) Identify as from “Form 4797, line 18a.” See instructions . . . . . . . . . . . . . . .

18a

b Redetermine the gain or (loss) on line 17 excluding the loss, if any, on line 18a. Enter here and on Schedule 1 (Form 1040), Part I, line 4 . . . . . . . . . . . . . . . . . . . . . . . . . .

18b

For Paperwork Reduction Act Notice, see separate instructions.

Cat. No. 13086I

)

13,500

13,500 Form 4797 (2022)

8-11

8-12

Chapter 8 – Depreciation and Sale of Business Property

Group 2: Problem 18, cont. Page 2

Form 4797 (2022)

Part III 19 A B C D

Gain From Disposition of Property Under Sections 1245, 1250, 1252, 1254, and 1255 (see instructions)

(a) Description of section 1245, 1250, 1252, 1254, or 1255 property:

07/01/20 02/01/11

03/15/22 04/19/22

Office Equipment Office Building

DRAFT AS OF July 26, 2022 DO NOT FILE Property A

Property B

20 21 22 23

Gross sales price (Note: See line 1a before completing.) . Cost or other basis plus expense of sale . . . . . Depreciation (or depletion) allowed or allowable . . . Adjusted basis. Subtract line 22 from line 21. . . .

20 21 22 23

13,500 21,500 21,500 0

250,000 242,500 62,500 180,000

24 25 a b

Total gain. Subtract line 23 from line 20 . . . If section 1245 property: Depreciation allowed or allowable from line 22 . Enter the smaller of line 24 or 25a. . . . .

70,000

These columns relate to the properties on lines 19A through 19D.

13,500

. .

25a 25b

21,500 13,500

If section 1250 property: If straight line depreciation was used, enter -0- on line 26g, except for a corporation subject to section 291. a Additional depreciation after 1975. See instructions .

26a

b Applicable percentage multiplied by the smaller of line 24 or line 26a. See instructions. . . . . . . .

26b

c Subtract line 26a from line 24. If residential rental property or line 24 isn’t more than line 26a, skip lines 26d and 26e d Additional depreciation after 1969 and before 1976. . e Enter the smaller of line 26c or 26d . . . . . . f Section 291 amount (corporations only) . . . . . g Add lines 26b, 26e, and 26f . . . . . . . .

26c 26d 26e 26f 26g

If section 1252 property: Skip this section if you didn’t dispose of farmland or if this form is being completed for a partnership.

a b c 28

Soil, water, and land clearing expenses . . . . . Line 27a multiplied by applicable percentage. See instructions Enter the smaller of line 24 or 27b . . . . . . If section 1254 property:

a Intangible drilling and development costs, expenditures for development of mines and other natural deposits, mining exploration costs, and depletion. See instructions b Enter the smaller of line 24 or 28a. . . . . . . 29

(b) Date acquired (mo., day, yr.)

Property C

Property D

27a 27b 27c

28a 28b

If section 1255 property:

a Applicable percentage of payments excluded from income under section 126. See instructions . . . b Enter the smaller of line 24 or 29a. See instructions

. .

29a 29b

Summary of Part III Gains. Complete property columns A through D through line 29b before going to line 30. 30 31

Total gains for all properties. Add property columns A through D, line 24 . . . . . . . . Add property columns A through D, lines 25b, 26g, 27c, 28b, and 29b. Enter here and on line 13 .

. .

30 31

83,500 13,500

Subtract line 31 from line 30. Enter the portion from casualty or theft on Form 4684, line 33. Enter the portion from other than casualty or theft on Form 4797, line 6 . . . . . . . . . . . . . . . . . . . .

70,000

Part IV

. .

Recapture Amounts Under Sections 179 and 280F(b)(2) When Business Use Drops to 50% or Less (see instructions) (a) Section 179

Section 179 expense deduction or depreciation allowable in prior years.

34 35

Recomputed depreciation. See instructions . . . . . . . . . . . . . . Recapture amount. Subtract line 34 from line 33. See the instructions for where to report

. .

(b) Section 280F(b)(2)

33 34 35 Form 4797 (2022)

Solutions for Questions and Problems – Chapter 8

Group 2: Problem 19 Form

6252

Department of the Treasury Internal Revenue Service

Installment Sale Income

Name(s) shown on return

2022

Attachment Sequence No. 67

Identifying number

Steve Drake 1 2a 3

OMB No. 1545-0228

Attach to your tax return. Use a separate form for each sale or other disposition of property on the installment method. Go to www.irs.gov/Form6252 for the latest information.

Description of property Rental Property Date acquired (mm/dd/yyyy) b Date sold (mm/dd/yyyy) 01/01/2014 01/01/2022 Was the property sold to a related party? See instructions. If “Yes,” complete Part III for the year of sale and 2 years after the year of the sale unless you received the final payment during the tax year. If “No,” skip line 4 . Did you sell the property to an intermediary? If “Yes,” provide the name and address of the intermediary on line 27

DRAFT AS OF September 12, 2022 DO NOT FILE 4

Part I 5 6

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

180,000

13 14

175,000 5,000

15 16 17 18

0 5,000 0 150,000

19 20 21 22

.0333 0 100,000 100,000

24 25 26

3,330 0 3,330

Installment Sale Income. Complete this part for all years of the installment agreement.

Gross profit percentage (expressed as a decimal amount). Divide line 16 by line 18. (For years after the year of sale, see instructions.) . . . . . . . . . . . . . . . . . . . . . . . If this is the year of sale, enter the amount from line 17. Otherwise, enter -0- . . . . . . . . . Payments received during year (see instructions). Don’t include interest, whether stated or unstated . Add lines 20 and 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments received in prior years (see instructions). Don’t include interest, whether stated or unstated . . . . . . . . . . . . . . . . . 23 0 Installment sale income. Multiply line 22 by line 19 . . . . . . . . . . . . . . . . . Enter the part of line 24 that is ordinary income under the recapture rules. See instructions . . . . Subtract line 25 from line 24. Enter here and on Schedule D or Form 4797. See instructions . . .

Part III

x No x No

Gross Profit and Contract Price. Complete this part for all years of the installment agreement.

Selling price including mortgages and other debts. Don’t include interest, whether stated or unstated Mortgages, debts, and other liabilities the buyer assumed or took the property subject to (see instructions) . . . . . . . . . . . . . . . . . 6 30,000 Subtract line 6 from line 5 . . . . . . . . . . . . . . . . . 7 150,000 Cost or other basis of property sold . . . . . . . . . . . . . . 8 175,000 Depreciation allowed or allowable . . . . . . . . . . . . . . . 9 30,000 Adjusted basis. Subtract line 9 from line 8 . . . . . . . . . . . . 10 145,000 Commissions and other expenses of sale . . . . . . . . . . . . 11 0 Income recapture from Form 4797, Part III (see instructions) . . . . . . 12 30,000 Add lines 10, 11, and 12 . . . . . . . . . . . . . . . . . . . . . . . . . . Subtract line 13 from line 5. If zero or less, don’t complete the rest of this form. See instructions . . If the property described on line 1 above was your main home, enter the amount of your excluded gain. See instructions. Otherwise, enter -0- . . . . . . . . . . . . . . . . . . . . Gross profit. Subtract line 15 from line 14 . . . . . . . . . . . . . . . . . . . . Subtract line 13 from line 6. If zero or less, enter -0- . . . . . . . . . . . . . . . . . Contract price. Add line 7 and line 17 . . . . . . . . . . . . . . . . . . . . .

Part II

Yes Yes

Related Party Installment Sale Income. Don’t complete if you received the final payment this tax year.

Name, address, and taxpayer identifying number of related party

28 29

Did the related party resell or dispose of the property (“second disposition”) during this tax year? . . . . . Yes No If the answer to question 28 is “Yes,” complete lines 30 through 37 below unless one of the following conditions is met. Check the box that applies. The second disposition was more than 2 years after the first disposition (other than dispositions of marketable securities). If a this box is checked, enter the date of disposition (mm/dd/yyyy) . . . . . . . . . . . . . b The first disposition was a sale or exchange of stock to the issuing corporation. c The second disposition was an involuntary conversion and the threat of conversion occurred after the first disposition. d The second disposition occurred after the death of the original seller or buyer. e It can be established to the satisfaction of the IRS that tax avoidance wasn’t a principal purpose for either of the dispositions. If this box is checked, attach an explanation. See instructions. 30 Selling price of property sold by related party (see instructions) . . . . . . . . . . . . . 30 31 Enter contract price from line 18 for year of first sale . . . . . . . . . . . . . . . . 31 32 Enter the smaller of line 30 or line 31 . . . . . . . . . . . . . . . . . . . . . 32 33 Total payments received by the end of your 2022 tax year (see instructions) . . . . . . . . . 33 34 Subtract line 33 from line 32. If zero or less, enter -0- . . . . . . . . . . . . . . . . 34 35 Multiply line 34 by the gross profit percentage on line 19 for year of first sale . . . . . . . . 35 36 Enter the part of line 35 that is ordinary income under the recapture rules. See instructions . . . . 36 37 Subtract line 36 from line 35. Enter here and on Schedule D or Form 4797. See instructions . . . 37 For Paperwork Reduction Act Notice, see page 4.

Cat. No. 13601R

Form 6252 (2022)

8-13

8-14

Chapter 8 – Depreciation and Sale of Business Property

Comprehensive Problem 1 SCHEDULE C (Form 1040)

Profit or Loss From Business

Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

2022

(Sole Proprietorship) Go to www.irs.gov/ScheduleC for instructions and the latest information.

Attachment Sequence No. 09

Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.

Name of proprietor

Social security number (SSN)

Trish Himple

123-45-6789

Principal business or profession, including product or service (see instructions)

Business name. If no separate business name, leave blank.

Business address (including suite or room no.)

F G

x Yes

H I J

. . .

Yes Yes

B Enter code from instructions

4 4 8 1 4 0

Retail Clothing Store

DRAFT AS OF July 15, 2022 DO NOT FILE

Himple Retail

Part I 1

D Employer ID number (EIN) (see instr.)

9 5 1 2 3 4 3 2 1

4321 Heather Drive Henderson, NV 89002

. . .

x No No

Income

2 3 4

1 2 3 4

5 6 7

. . .

5 6 7

Office expense (see instructions) . Pension and profit-sharing plans .

18 19

Rent or lease (see instructions): Vehicles, machinery, and equipment Other business property . . .

20a 20b

29,000 5,000

Part II

Advertising .

Car and truck expenses (see instructions) . . . Commissions and fees . Contract labor (see instructions)

12 13

. . .

222,000

Expenses. Enter expenses for business use of your home only on line 30.

10 11

. . .

350,000 15,000 335,000 113,000 222,000

Depletion . . . . . Depreciation and section 179 expense deduction (not included in Part III) (see instructions) . . . .

6,000

18 19

9 10 11

21 22 23

Repairs and maintenance . . . Supplies (not included in Part III) . Taxes and licenses . . . . .

21 22 23

Travel and meals: Travel . . . .

24a

Deductible meals (see instructions) . . . . . . . Utilities . . . . . . . . Wages (less employment credits)

24b 25 26

a b

57,271

800

15 16 a

Employee benefit programs (other than on line 19) . Insurance (other than health) Interest (see instructions): Mortgage (paid to banks, etc.)

b 17 28

Other . . . . . . 16b 27a Other expenses (from line 48) . Legal and professional services 17 b Reserved for future use . . 5,000 Total expenses before expenses for business use of home. Add lines 8 through 27a . . . . . .

. . .

27a 27b 28

Tentative profit or (loss). Subtract line 28 from line 7 .

168,271 53,729

1,250

52,479

14 15

3,000 25 26

16a

250 and (b) the part of your home used for business: Method Worksheet in the instructions to figure the amount to enter on line 30

. Use the Simplified . . . . . . .

Net profit or (loss). Subtract line 30 from line 29.

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

}

32a 32b

2,200 60,000

All investment is at risk. Some investment is not at risk. Schedule C (Form 1040) 2022

(a) 250 sq. ft. of home office x $5 safe harbor exceeds (250 sq. ft. ÷ 2000 total sq. ft.) x actual costs. See Form 8829.

(a)

Solutions for Questions and Problems – Chapter 8

Comprehensive Problem 1, cont. Trish Himple

Schedule C (Form 1040) 2022

Part III

123-45-6789

Page 2

Cost of Goods Sold (see instructions)

Method(s) used to value closing inventory:

Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . .

x Cost

Lower of cost or market

Other (attach explanation) Yes

DRAFT AS OF July 15, 2022 DO NOT FILE

x No

Inventory at beginning of year. If different from last year’s closing inventory, attach explanation .

85,000

Purchases less cost of items withdrawn for personal use

100,000

Cost of labor. Do not include any amounts paid to yourself .

Materials and supplies

Other costs .

Add lines 35 through 39 .

185,000

Inventory at end of year .

72,000

Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 .

113,000

Part IV

When did you place your vehicle in service for business purposes? (month/day/year)

Of the total number of miles you drove your vehicle during 2022, enter the number of miles you used your vehicle for: a

Business

b Commuting (see instructions)

c Other

Was your vehicle available for personal use during off-duty hours?

Yes

Do you (or your spouse) have another vehicle available for personal use?.

Yes

47a

Do you have evidence to support your deduction?

Yes

If “Yes,” is the evidence written?

Yes

Part V

Other Expenses. List below business expenses not included on lines 8–26 or line 30.

Total other expenses. Enter here and on line 27a

48 Schedule C (Form 1040) 2022

8-15

8-16

Chapter 8 – Depreciation and Sale of Business Property

Comprehensive Problem 1, cont.

4562

(Including Information on Listed Property)

Department of the Treasury Internal Revenue Service

Attach to your tax return. Go to www.irs.gov/Form4562 for instructions and the latest information.

Form

Depreciation and Amortization

Name(s) shown on return

Business or activity to which this form relates

Trish Himple Part I 1 2 3 4 5

OMB No. 1545-0172

Identifying number

Himple Retail

123-45-6789

Election To Expense Certain Property Under Section 179 Note: If you have any listed property, complete Part V before you complete Part I.

DRAFT AS OF June 9, 2022 DO NOT FILE

2022

Attachment Sequence No. 179

(a) Description of property

(b) Cost (business use only)

1 2 3 4 5

7 Listed property. Enter the amount from line 29 . . . . . . . . . 7 8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 . . . . . . 8 9 Tentative deduction. Enter the smaller of line 5 or line 8 . . . . . . . . . . . . . . . . 9 10 Carryover of disallowed deduction from line 13 of your 2021 Form 4562 . . . . . . . . . . . 10 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5. See instructions 11 12 Section 179 expense deduction. Add lines 9 and 10, but don’t enter more than line 11 . . . . . . 12 13 13 Carryover of disallowed deduction to 2023. Add lines 9 and 10, less line 12 . Note: Don’t use Part II or Part III below for listed property. Instead, use Part V. Part II Special Depreciation Allowance and Other Depreciation (Don’t include listed property. See instructions.) 14 Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year. See instructions . . . . . . . . . . . . . . . . . . . . . . . 14 53,000 15 Property subject to section 168(f)(1) election . . . . . . . . . . . . . . . . . . . . 15 16 Other depreciation (including ACRS) . . . . . . . . . . . . . . . . . . . . . . 16 Part III MACRS Depreciation (Don’t include listed property. See instructions.) Section A 17 17 MACRS deductions for assets placed in service in tax years beginning before 2022 . . . . . . . 4,271 18 If you are electing to group any assets placed in service during the tax year into one or more general asset accounts, check here . . . . . . . . . . . . . . . . . . . . . . . Section B—Assets Placed in Service During 2022 Tax Year Using the General Depreciation System (a) Classification of property

(b) Month and year placed in service

(d) Recovery period

(e) Convention

(f) Method

(g) Depreciation deduction

19a 3-year property b 5-year property c 7-year property d 10-year property e 15-year property f 20-year property 25 yrs. S/L g 25-year property 27.5 yrs. MM S/L h Residential rental 27.5 yrs. MM S/L property 39 yrs. MM S/L i Nonresidential real MM S/L property Section C—Assets Placed in Service During 2022 Tax Year Using the Alternative Depreciation System S/L 20a Class life 12 yrs. S/L b 12-year 30 yrs. MM S/L c 30-year 40 yrs. MM S/L d 40-year

Part IV

Summary (See instructions.)

Cat. No. 12906N

21 22

57,271 Form 4562 (2022)

Solutions for Questions and Problems – Chapter 8

Comprehensive Problem 1, cont. Trish Himple 123-45-6789 Page 2 Listed Property (Include automobiles, certain other vehicles, certain aircraft, and property used for entertainment, recreation, or amusement.)

Form 4562 (2022)

Part V

Note: For any vehicle for which you are using the standard mileage rate or deducting lease expense, complete only 24a, 24b, columns (a) through (c) of Section A, all of Section B, and Section C if applicable. Section A—Depreciation and Other Information (Caution: See the instructions for limits for passenger automobiles.) 24a Do you have evidence to support the business/investment use claimed? 24b If “Yes,” is the evidence written? Yes No Yes No (c) (a) (b) Business/ (d) Type of property (list Date placed investment use Cost or other basis vehicles first) in service percentage

(e) Basis for depreciation (business/investment use only)

DRAFT AS OF June 9, 2022 DO NOT FILE (f) Recovery period

(g) Method/ Convention

(h) Depreciation deduction

(i) Elected section 179 cost

25 Special depreciation allowance for qualified listed property placed in service during the tax year and used more than 50% in a qualified business use. See instructions .

25 26 Property used more than 50% in a qualified business use: % % % 27 Property used 50% or less in a qualified business use: S/L – % S/L – % S/L – % 28 Add amounts in column (h), lines 25 through 27. Enter here and on line 21, page 1 . 28 29 Add amounts in column (i), line 26. Enter here and on line 7, page 1 . . . . . . . . . . . . 29 Section B—Information on Use of Vehicles Complete this section for vehicles used by a sole proprietor, partner, or other “more than 5% owner,” or related person. If you provided vehicles to your employees, first answer the questions in Section C to see if you meet an exception to completing this section for those vehicles. (a) Vehicle 1

30 Total business/investment miles driven during the year (don’t include commuting miles) .

(b) Vehicle 2

(d) Vehicle 4

(e) Vehicle 5

(f) Vehicle 6

Yes

Part VI

Amortization (a) Description of costs

(b) Date amortization begins

(e) Amortization period or percentage

(d) Code section

(f) Amortization for this year

42 Amortization of costs that begins during your 2022 tax year (see instructions):

43 Amortization of costs that began before your 2022 tax year . . . . . . 44 Total. Add amounts in column (f). See the instructions for where to report .

. .

43 44 Form 4562 (2022)

8-17

8-18

Chapter 8 – Depreciation and Sale of Business Property

Comprehensive Problem 1, cont. Form

8829

Department of the Treasury Internal Revenue Service

Expenses for Business Use of Your Home

OMB No. 1545-0074

Name(s) of proprietor(s)

1 2 3 4 5 6 7

Attachment Sequence No. 176

Your social security number

Trish Himple Part I

2022

File only with Schedule C (Form 1040). Use a separate Form 8829 for each home you used for business during the year. Go to www.irs.gov/Form8829 for instructions and the latest information.

123-45-6789

Part of Your Home Used for Business

DRAFT AS OF July 21, 2022 DO NOT FILE

1 2 3

250 2,000 12.5 %

12.5 %

Part II Figure Your Allowable Deduction 8

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

(a) Direct expenses

53,729

14 15

53,729

26 27 28

888 888 52,841

32 33 34 35

321 321 1,209

1,209

(b) Indirect expenses

Casualty losses (see instructions) . . . . . . 9 Deductible mortgage interest (see instructions) . 10 Real estate taxes (see instructions) . . . . . 11 Add lines 9, 10, and 11 . . . . . . . . . 12 Multiply line 12, column (b), by line 7 . . . . . . . . . . . . 13 Add line 12, column (a), and line 13 . . . . . . . . . . . . . . . . . . . . . Subtract line 14 from line 8. If zero or less, enter -0- . . . . . . . . . . . . . . . . Excess mortgage interest (see instructions) . . 16 Excess real estate taxes (see instructions) . . . 17 2,000 Insurance . . . . . . . . . . . . . . 18 1,100 Rent . . . . . . . . . . . . . . . 19 Repairs and maintenance . . . . . . . . 20 1,000 Utilities . . . . . . . . . . . . . . 21 3,000 Other expenses (see instructions) . . . . . . 22 Add lines 16 through 22 . . . . . . . . . 23 7,100 Multiply line 23, column (b), by line 7 . . . . . . . . . . . . 24 888 Carryover of prior year operating expenses (see instructions) . . . . 25 Add line 23, column (a), line 24, and line 25 . . . . . . . . . . . . . . . . . . . Allowable operating expenses. Enter the smaller of line 15 or line 26 . . . . . . . . . . Limit on excess casualty losses and depreciation. Subtract line 27 from line 15 . . . . . . . Excess casualty losses (see instructions) . . . . . . . . . . 29 Depreciation of your home from line 42 below . . . . . . . . . 30 321 Carryover of prior year excess casualty losses and depreciation (see instructions) 31 Add lines 29 through 31 . . . . . . . . . . . . . . . . . . . . . . . . . Allowable excess casualty losses and depreciation. Enter the smaller of line 28 or line 32 . . . Add lines 14, 27, and 33 . . . . . . . . . . . . . . . . . . . . . . . . . Casualty loss portion, if any, from lines 14 and 33. Carry amount to Form 4684. See instructions . Allowable expenses for business use of your home. Subtract line 35 from line 34. Enter here and on Schedule C, line 30. If your home was used for more than one business, see instructions .

(a)

Part III Depreciation of Your Home 37 38 39 40 41 42

37 38 39 40 41 42

100,000 0 100,000 12,500 2.5640 % (b) 321

Part IV Carryover of Unallowed Expenses to 2023 43 44

Operating expenses. Subtract line 27 from line 26. If less than zero, enter -0- . . . . . . . Excess casualty losses and depreciation. Subtract line 33 from line 32. If less than zero, enter -0- .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 13232M

43 44 Form 8829 (2022)

(a) The simplified method ($5 x 250 square feet) results in a higher deduction and thus, Form 8829 is not required to be filed. (b) Depreciation is based on non-residential use since used as a business office. Can also see Form 8829 instructions.

Solutions for Questions and Problems – Chapter 8

Form

Comprehensive Problem 2

1040-SR U.S. Tax Return for Seniors

2022

Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

OMB No. 1545-0074

IRS Use Only—Do not write or staple in this space.

X Single

Your first name and middle initial

Last name

Your social security number

DRAFT AS OF September 21, 2022 DO NOT FILE { Tsate

Kongai

If joint return, spouse’s first name and middle initial

467 98 9784

Last name

Spouse’s social security number

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

212 Quivera Road

City, town, or post office. If you have a foreign address, also complete spaces below.

Check here if you, or your spouse if filing jointly, want $3 to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

State

Overland Park

Foreign country name

Foreign province/state/county

Presidential Election Campaign

ZIP code

66210

You

At any time during 2022, did you: (a) receive (as a reward, award, or payment for Digital property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital Assets asset (or a financial interest in a digital asset)? (See instructions.) . . . . . . You as a dependent Your spouse as a dependent Standard Someone can claim: Spouse itemizes on a separate return or you were a dual-status alien Deduction Age/Blindness

X Were born before January 2, 1958

You: Spouse:

(2) Social security number (3) Relationship to (4) Check the box if qualifies for (see instructions): you Child tax credit Credit for other dependents

Last name

(a)

If more than four dependents, see instructions and check here

Income

1a Total amount from Form(s) W-2, box 1 (see instructions) . . . . . . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld. If you did not get a Form W-2, see instructions.

b Household employee wages not reported on Form(s) W-2 . . . . . .

c Tip income not reported on line 1a (see instructions) 4,120

. . . . . . . .

d Medicaid waiver payments not reported on Form(s) W-2 (see instructions)

e Taxable dependent care benefits from Form 2441, line 26

. . . . . .

f Employer-provided adoption benefits from Form 8839, line 29

. . . .

. . . . . . . . . . . . . . . . .

h Other earned income (see instructions) . . . . . . . . . . . . . .

g Wages from Form 8919, line 6 i

Attach Schedule B if required.

X No

Are blind Is blind

Was born before January 2, 1958

Dependents (see instructions): (1) First name

Yes

Spouse

Nontaxable combat pay election (see instructions)

z Add lines 1a through 1h . . . . . . . . . . . . . . . . . . . .

2a Tax-exempt interest

. .

b Ordinary dividends .

b Taxable interest

3a Qualified dividends . .

4a IRA distributions . . .

b Taxable amount

. .

5a Pensions and annuities

b Taxable amount

. .

6a Social security benefits .

b Taxable amount

. .

4,000

57,500

57,500 3,470 4,100

c If you elect to use the lump-sum election method, check here (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . 7

Capital gain or (loss). Attach Schedule D if required. If not required, check here . . . . . . . . . . . . . . . . . . . . . . . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

Cat. No. 71930F

(3,000)

Form 1040-SR (2022)

(a) Tsate’s father does not meet the gross income test and cannot be claimed as a dependent.

8-19

8-20

Chapter 8 – Depreciation and Sale of Business Property

Comprehensive Problem 2, cont. Tsate Kongai

Form 1040-SR (2022)

467-98-9784

Page 2

Other income from Schedule 1, line 10 . . . . . . . . . . . . . .

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . .

Adjustments to income from Schedule 1, line 26 . . . . . . . . . .

Subtract line 10 from line 9. This is your adjusted gross income

Standard Deduction 12

. . .

62,070 62,070 14,700

DRAFT AS OF September 21, 2022 DO NOT FILE See Standard Deduction Chart on the last page of this form.

Tax and Credits

. . .

Qualified business income deduction from Form 8995 or Form 8995-A .

Add lines 12 and 13

. . . . . . . . . . . . . . . . . . . . .

14,700

Subtract line 14 from line 11. If zero or less, enter -0-. This is your taxable income . . . . . . . . . . . . . . . . . . . . . . .

47,370 5,760

Tax (see instructions). Check if any from:

. . . . . . .

Amount from Schedule 2, line 3 . . . . . . . . . . . . . . . . .

Add lines 16 and 17

Child tax credit or credit for other dependents from Schedule 8812

. .

Amount from Schedule 3, line 8 . . . . . . . . . . . . . . . . .

Add lines 19 and 20 . . . . . . . . . . . . . . . . . . . . . .

Subtract line 21 from line 18. If zero or less, enter -0- . . . . . . . .

Other taxes, including self-employment tax, from Schedule 2, line 21 . .

Add lines 22 and 23. This is your total tax

5,760

d Add lines 25a through 25c . . . . . . . . . . . . . . . . . . .

25d

6,300

2022 estimated tax payments and amount applied from 2021 return . .

Earned income credit (EIC) . . . . . . . . . . .

Additional child tax credit from Schedule 8812 . . .

American opportunity credit from Form 8863, line 8 .

Reserved for future use . . . . . . . . . . . .

Amount from Schedule 3, line 15

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits . . . . . . . . . . . . . . . . . . . . . .

Add lines 25d, 26, and 32. These are your total payments . . . . . .

Payments 25

If you have a qualifying child, attach Sch. EIC.

Standard deduction or itemized deductions (from Schedule A)

Form(s) 8814

Form(s) 4972

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . .

5,760

Federal income tax withheld from: 25a

b Form(s) 1099

. . . . . . . . . . . . . . . .

25b

c Other forms (see instructions) . . . . . . . . . .

25c

a Form(s) W-2 . . . . . . . . . . . . . . . . .

. . . . . . . .

Go to www.irs.gov/Form1040SR for instructions and the latest information.

6,300

Form 1040-SR (2022)

Solutions for Questions and Problems – Chapter 8

Comprehensive Problem 2, cont. Tsate Kongai

Form 1040-SR (2022)

Refund 34

467-98-9784

Page 3

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid . . . . . . . . . . . . . . . . . . . . .

540

35a Amount of line 34 you want refunded to you. If Form 8888 is attached, check here . . . . . . . . . . . . . . . . . . . . . . . . 35a

540

b Routing number

Direct deposit? See instructions.

c Type:

Checking

Savings

DRAFT AS OF September 21, 2022 DO NOT FILE d Account number

Amount 37 You Owe 38

Third Party Designee

Sign Here

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

Amount of line 34 you want applied to your 2023 estimated tax . . . . . . . . . . . . . . . .

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions

Estimated tax penalty (see instructions) . . . . . .

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . .

Yes. Complete below.

High School Principal Spouse’s signature. If a joint return, both must sign.

Date

Phone no.

Email address

Preparer’s name

Preparer’s signature

Spouse’s occupation

Date

Protection PIN, enter it here (see inst.) If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

Check if:

PTIN

Self-employed Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040SR for instructions and the latest information.

Form 1040-SR (2022)

8-21

8-22

Chapter 8 – Depreciation and Sale of Business Property

Comprehensive Problem 2, cont. Form 1040-SR (2022)

Tsate Kongai

467-98-9784

Page 4

Standard Deduction Chart* Add the number of boxes checked in the “Age/Blindness” section of Standard Deduction on page 1 . . . . .

IF your filing status is. . .

AND the number of boxes checked is. . .

THEN your standard deduction is. . .

DRAFT AS OF September 21, 2022 DO NOT FILE 1

$14,700

16,450

$27,300

28,700

30,100

31,500

Qualifying surviving spouse

$27,300

28,700

Head of household

$21,150

22,900

$14,350

15,750

17,150

18,550

Single

Married filing jointly

Married filing separately**

* Don’t use this chart if someone can claim you (or your spouse if filing jointly) as a dependent, your spouse itemizes on a separate return, or you were a dual-status alien. Instead, see instructions. ** You can check the boxes for your spouse if your filing status is married filing separately and your spouse had no income, isn’t filing a return, and can’t be claimed as a dependent on another person’s return. Go to www.irs.gov/Form1040SR for instructions and the latest information.

Form 1040-SR (2022)

Solutions for Questions and Problems – Chapter 8

Comprehensive Problem 2, cont. Schedule A is not required. The standard deduction exceeds itemized deductions.

Itemized Deductions

SCHEDULE A (Form 1040)

OMB No. 1545-0074

2022

Your social security number

Tsate Kongai Medical and Dental Expenses Taxes You Paid

467-98-9784

Caution: Do not include expenses reimbursed or paid by others. Medical and dental expenses (see instructions) . . . . . . . Enter amount from Form 1040 or 1040-SR, line 11 2 62,070 Multiply line 2 by 7.5% (0.075) . . . . . . . . . . . . . Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- . . .

Caution: Your mortgage interest deduction may be limited. See instructions.

1,100

DRAFT AS OF July 21, 2022 DO NOT FILE 1 2 3 4

5 State and local taxes. 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. If you elect to include general sales taxes instead of income taxes, check this box . . . . . . . . . . . . . . . . . b State and local real estate taxes (see instructions) . . . . . . . c State and local personal property taxes . . . . . . . . . . d Add lines 5a 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: 7 Add lines 5e and 6 .

Interest You Paid

3 . .

Caution: If you made a gift and got a benefit for it, see instructions.

4,655

5a 5b 5c 5d

1,800 1,500

3,300

6 . .

3,300

9,600

750

3,300

9,600

Gifts to Charity

Attachment Sequence No. 07

9,600 .

750

For Paperwork Reduction Act Notice, see the Instructions for Form 1040.

Cat. No. 17145C

13,650 (a)

. Schedule A (Form 1040) 2022

(a) Because the $14,700 ($12,950 + $1,750) standard deduction amount exceeds itemized deductions, Schedule A is not required.

8-23

8-24

Chapter 8 – Depreciation and Sale of Business Property

Comprehensive Problem 2, cont. SCHEDULE B Department of the Treasury Internal Revenue Service

467-98-9784 Amount

DRAFT AS OF July 7, 2022 DO NOT FILE Olanthe National Bank Installment Interest

220 3,250

2 3

Part II Ordinary Dividends

Attachment Sequence No. 08 Your social security number

Tsate Kongai 1 Part I Interest

Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm’s name as the payer and enter the total interest shown on that form.

2022

Go to www.irs.gov/ScheduleB for instructions and the latest information. Attach to Form 1040 or 1040-SR.

Name(s) shown on return

(See instructions and the Instructions for Form 1040, line 2b.)

OMB No. 1545-0074

Interest and Ordinary Dividends

(Form 1040)

3,470

2 3 4

3,470 Amount

Johnson Corporation

4,100

(See instructions and the Instructions for Form 1040, line 3b.)

4,100

b If you are required to file FinCEN Form 114, list the name(s) of the foreign country(-ies) where the financial account(s) are located: 8

During 2022, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If “Yes,” you may have to file Form 3520. See instructions . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 17146N

Schedule B (Form 1040) 2022

Solutions for Questions and Problems – Chapter 8

Comprehensive Problem 2, cont. SCHEDULE D

OMB No. 1545-0074

Capital Gains and Losses

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/ScheduleD for instructions and the latest information. Use Form 8949 to list your transactions for lines 1b, 2, 3, 8b, 9, and 10.

Name(s) shown on return

Attachment Sequence No. 12 Your social security number

Tsate Kongai

Part I

467-98-9784

DRAFT AS OF July 15, 2022 DO NOT FILE

Short-Term Capital Gains and Losses—Generally Assets Held One Year or Less (see instructions)

(d) Proceeds (sales price)

14,000

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part I, line 2, column (g)

35,000

Part II

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

(21,000)

4 5 6

(

)

(21,000)

Long-Term Capital Gains and Losses—Generally Assets Held More Than One Year (see instructions)

See instructions for how to figure the amounts to enter on the lines below. This form may be easier to complete if you round off cents to whole dollars.

(d) Proceeds (sales price)

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part II, line 2, column (g)

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

8a Totals for all long-term transactions reported on Form 1099-B for which basis was reported to the IRS and for which you have no adjustments (see instructions). However, if you choose to report all these transactions on Form 8949, leave this line blank and go to line 8b . 8b Totals for all transactions reported on Form(s) 8949 with Box D checked . . . . . . . . . . . . . 9 Totals for all transactions reported on Form(s) 8949 with Box E checked . . . . . . . . . . . . . 10 Totals for all transactions reported on Form(s) 8949 with Box F checked . . . . . . . . . . . . . . 11 Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and long-term gain or (loss) from Forms 4684, 6781, and 8824 . . . . . . . . . . . . . . . . . . . . . . . 12 Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts from Schedule(s) K-1 13 Capital gain distributions. See the instructions . . . . . . . . . . . . . . . . . . . 14 Long-term capital loss carryover. Enter the amount, if any, from line 13 of your Capital Loss Carryover Worksheet in the instructions . . . . . . . . . . . . . . . . . . . . . . . . 15 Net long-term capital gain or (loss). Combine lines 8a through 14 in column (h). Then, go to Part III on the back . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 11338H

11 12 13

14,589

14 ( 15

)

14,589

Schedule D (Form 1040) 2022

8-25

8-26

Chapter 8 – Depreciation and Sale of Business Property

Comprehensive Problem 2, cont. Schedule D (Form 1040) 2022

Part III 16

Tsate Kongai

467-98-9784

Page 2

Summary

Combine lines 7 and 15 and enter the result

(6,411)

DRAFT AS OF July 15, 2022 DO NOT FILE

Are lines 15 and 16 both gains? Yes. Go to line 18. No. Skip lines 18 through 21, and go to line 22.

If you are required to complete the 28% Rate Gain Worksheet (see instructions), enter the amount, if any, from line 7 of that worksheet . . . . . . . . . . . . . . . . . .

If you are required to complete the Unrecaptured Section 1250 Gain Worksheet (see instructions), enter the amount, if any, from line 18 of that worksheet . . . . . . . . . .

If line 16 is a loss, enter here and on Form 1040, 1040-SR, or 1040-NR, line 7, the smaller of: • The loss on line 16; or • ($3,000), or if married filing separately, ($1,500)

}

21 (

3,000

)

Note: When figuring which amount is smaller, treat both amounts as positive numbers. 22

Do you have qualified dividends on Form 1040, 1040-SR, or 1040-NR, line 3a?

X Yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 16. No. Complete the rest of Form 1040, 1040-SR, or 1040-NR. Schedule D (Form 1040) 2022

Solutions for Questions and Problems – Chapter 8

Comprehensive Problem 2, cont. Form

6252

Department of the Treasury Internal Revenue Service

Installment Sale Income

Name(s) shown on return

2022

Attachment Sequence No. 67

Identifying number

Tsate Kongai 1 2a 3

OMB No. 1545-0228

Attach to your tax return. Use a separate form for each sale or other disposition of property on the installment method. Go to www.irs.gov/Form6252 for the latest information.

467-98-9784

Description of property Land Date acquired (mm/dd/yyyy) b Date sold (mm/dd/yyyy) 01/28/2016 01/28/2022 Was the property sold to a related party? See instructions. If “Yes,” complete Part III for the year of sale and 2 years after the year of the sale unless you received the final payment during the tax year. If “No,” skip line 4 . Did you sell the property to an intermediary? If “Yes,” provide the name and address of the intermediary on line 27

DRAFT AS OF September 12, 2022 DO NOT FILE 4

Part I 5 6

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

170,000

13 14

130,000 40,000

15 16 17 18

0 40,000 0 170,000

19 20 21 22

.2353 0 62,000 62,000

24 25 26

14,589 0 14,589

Installment Sale Income. Complete this part for all years of the installment agreement.

Part III

x No x No

Gross Profit and Contract Price. Complete this part for all years of the installment agreement.

Selling price including mortgages and other debts. Don’t include interest, whether stated or unstated Mortgages, debts, and other liabilities the buyer assumed or took the property subject to (see instructions) . . . . . . . . . . . . . . . . . 6 Subtract line 6 from line 5 . . . . . . . . . . . . . . . . . 7 170,000 Cost or other basis of property sold . . . . . . . . . . . . . . 8 130,000 Depreciation allowed or allowable . . . . . . . . . . . . . . . 9 0 Adjusted basis. Subtract line 9 from line 8 . . . . . . . . . . . . 10 130,000 Commissions and other expenses of sale . . . . . . . . . . . . 11 0 Income recapture from Form 4797, Part III (see instructions) . . . . . . 12 0 Add lines 10, 11, and 12 . . . . . . . . . . . . . . . . . . . . . . . . . . Subtract line 13 from line 5. If zero or less, don’t complete the rest of this form. See instructions . . If the property described on line 1 above was your main home, enter the amount of your excluded gain. See instructions. Otherwise, enter -0- . . . . . . . . . . . . . . . . . . . . Gross profit. Subtract line 15 from line 14 . . . . . . . . . . . . . . . . . . . . Subtract line 13 from line 6. If zero or less, enter -0- . . . . . . . . . . . . . . . . . Contract price. Add line 7 and line 17 . . . . . . . . . . . . . . . . . . . . .

Part II

Yes Yes

Related Party Installment Sale Income. Don’t complete if you received the final payment this tax year.

Name, address, and taxpayer identifying number of related party

28 29

Cat. No. 13601R

Form 6252 (2022)

8-27

8-28

Chapter 8 – Depreciation and Sale of Business Property

Comprehensive Problem 2, cont.

47,370 4,000 X 0 4,000 43,370 $41,675 $83,350 $55,800

$459,750 $258,600 $517,200 $488,500

41,675 41,675 41,675 0 4,000 0 4,000

459,750 47,370 43,370 4,000 4,000 600 4,000 0 0 5,160 5,760 6,040 5,760

This worksheet adapted from the 2021 worksheet.

Solutions for Questions and Problems – Chapter 8

8-29

Key Number Tax Return Summary Chapter 8 Comprehensive Problem 1 Form 4562, Special Depreciation Allowance (Line 14)

53,000

Form 4562, MACRS Deduction for Assets Placed in Service Before 2022 (Line 17)

4,271

Schedule C, Depreciation (Line 13)

57,271

Schedule C, Total Expenses (Line 28)

168,271

Schedule C, Net Profit or (Loss) (Line 31)

52,479

Comprehensive Problem 2 Capital Gain or (Loss) (Line 7)

(3,000)

Adjusted Gross Income (Line 11)

62,070

Standard Deduction or Itemized Deductions (Line 12)

14,700

Total Tax (Line 24)

5,760

Amount Overpaid (Line 34)

540

8-30

Chapter 8 – Depreciation and Sale of Business Property

CHAPTER 9 EMPLOYMENT TAXES, ESTIMATED PAYMENTS, AND RETIREMENT PLANS

Group 1 – Multiple Choice Questions 17. A The COVID deferral provisions require repayment by December 31, 2022. (LO 9.4) 18. C Wages, tips and other compensation are reported on Form W-2 (LO 9.5) 19. C A Form W-2 and W-3 is required even if only one household employee (LO 9.5) 20. D Most non-employee compensation should be reported on Form 1099-NEC (LO 9.5) 21. D Reimbursements made through an accountable plan are not generally compensation and are not subject to withholding (LO 9.5) 22. E Casino winnings are generally reported on Form W-2G (LO 9.5) 23. A Employees are subject to withholding requirements (LO 9.5) 24. C FUTA tax is 6% with a 5.4% state unemployment credit which reduces the rate to 0.6% (LO 9.6) 25. C FUTA taxable wages are capped at $7,000 per employee, thus FUTA taxable wages are $7,000 + $5,000 + $7,000 + $3,000 (LO 9.6) 26. C Contributions to a qualified retirement plan are not generally taxable currently (LO 9.7) 27. B The earnings of a qualified plan are not generally taxed until distributed. (LO 9.7) 28. B The contribution is defined making this a defined contribution plan (LO 9.7) 29. C Up to 60 days is permitted to make the rollover (LO 9.8) 30. A $120,000 ($150,000 x 80%). Because this is not a direct rollover, 20% withholding will apply (LO 9.8) 31. A Only one distribution rollover is permitted in a year. Direct rollovers are unlimited (LO 9.8) 32. E Direct rollovers are unlimited. Only one distribution rollover is permitted in a year. (LO 9.8)

1. C Employees use Form W-4 to provide the information necessary for withholding (LO 9.1) 2. C New employees must complete a new Form W-4 (LO 9.1) 3. C The new W-4 does not use allowances to determine withholding (LO 9.1) 4. C Tips are taxable whether received in cash or credit card payments (LO 9.1) 5. B The new Form W-4 has a box that can be checked in Step 2 when both spouses have a similar amount of wages (LO 9.1) 6. D Any excess Social Security withheld can be claimed as a credit against income taxes not Medicare taxes (LO 9.2) 7. A One half of FICA taxes is withheld from the employee and the other half is paid by the employer (LO 9.2) 8. D Social Security taxes are 6.2% each for the employee and the employer up to the FICA cap amount for that year (LO 9.2) 9. C The tax rate for Medicare is 1.45% each for the employee and the employer (LO 9.2) 10. D Excess Social Security withheld can be reclaimed by the employee as a credit against income tax. The employer does not treat the amount paid as excess. (LO 9.2) 11. E Except for the repayment of the employer’s share of payroll taxes deferred, the COVIDrelated provisions have expired. (LO 9.2) 12. B These are the estimated payment deadlines for an individual taxpayer (LO 9.3) 13. C Lesser of 90% of current year liability or 100% of prior year liability (LO 9.3) 14. B For high-income taxpayers, the required annual payment is the lesser of 90% of current year liability or 110% of prior year liability (LO 9.3) 15. D Form 941 is used to report quarterly withholding (LO 9.4) 16. A Form 944 is used to file annual employment taxes (LO 9.4) 9-1

9-2

Chapter 9 – Employment Taxes, Estimated Payments, and Retirement Plans

Group 2 – Problems 1. See Form W-4 on Page 9-5. (LO 9.1) 2. See Form W-4 on Pages 9-6 and 9-7. (LO 9.1) 3. a. Allowance amount (semimonthly) Number of allowances claimed Total

$ 179.00 x1 $ 179.00

Gross wages Less: Amount from above Withholding base

$ 1,100.00 – 179.00 $ 921.00

Withholding from Percentage Method Tables for pre-2020 Form W-4 in Appendix C = [($921.00 – $609.00) x 12%] + $42.80 = $80.24. b. $82.00 (Withholding from Wage Bracket Method Tables (pre-2020) in Appendix C). c. $58.64. $42.80 + [($1,100 – $968) x 12%] using Percentage Method Tables for post-2019 Form W-4 from Appendix C. d. $59.00 (Withholding from Wage Bracket Method Tables (post-2019 Form W-4) in Appendix C). (LO 9.1) 4. a. $215.80 under the percentage method. Adjusted Wage Amount is $3,108.33 [$3,000 + $233.33 ($5,600/24) – $125 ($3,000/24)]. Tentative Withholding Amount is $382.47 [$200.84 + (($3,108.33 – $2,280) x 22%)] Credit adjustment is $166.67 ($4,000/24) Withholding is $215.80 ($382.47 – $166.67) b. $217.33 under the wage bracket method Adjusted Wage Amount is $3,108.33 (see part a.) Tentative Withholding Amount is $384.00 (from tables with Step 2 Checkbox) Credit adjustment is $166.67 (see part a.) Withholding is $217.33 ($384.00 – $166.67) (LO 9.1) 5. 1. 2. 3. 4.

The taxpayer does not provide his or her taxpayer identification number (e.g., Social Security number), The taxpayer fails to certify that he or she is not subject to backup withholding, The IRS informs the bank that the taxpayer gave an incorrect identification number, or The IRS informs the bank to start withholding because the taxpayer has not reported the income on his or her tax return. (LO 9.1)

6. Trudy: Lamden Company:

Social Security Medicare

$3,906.00 = $63,000 x 6.2%. $913.50 = $63,000 x 1.45%.

Social Security Medicare

$3,906.00 = $63,000 x 6.2%. $913.50 = $63,000 x 1.45%.

Total FICA Tax 7. Chuck: Lamden Company: Total FICA Tax

$9,639.00 (LO 9.2) Social Security Medicare Social Security Medicare

$9,114.00 = $147,000 (FICA cap) x 6.2%. $2,363.50 = $163,000 x 1.45%. $9,114.00 = $147,000 x 6.2%. $2,363.50 = $163,000 x 1.45%. $22,955.00 (LO 9.2)

Solutions for Questions and Problems – Chapter 9

8. William: Lamden:

Social Security Medicare Social Security Medicare

Total FICA Tax

9-3

$9,114.00 = $147,000 x 6.2%. $4,380.50 = ($263,000 x 1.45%) + ($63,000 x 0.9%). $9,114.00 = $147,000 x 6.2%. $3,813.50 = $263,000 x 1.45%. $26,422.00 (LO 9.2)

9. $620.00 excess Social Security tax = ($81,000 + $76,000 – $147,000, maximum) x 6.2%. There is no maximum base for Medicare. All wages are subject to Medicare tax. (LO 9.2) Group 2: Problem 10. 2022 Estimated Tax Worksheet

Keep for Your Records Adjusted gross income you expect in 2022 (see instructions) . . . . . . . . . . . . . . 1 46,468 Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2a 19,400 • If you plan to itemize deductions, enter the estimated total of your itemized deductions. • If you don’t plan to itemize deductions, enter your standard deduction. b If you can take the qualified business income deduction, enter the estimated amount of the deduction 2b 5,414 c Add lines 2a and 2b . . . . . . . . . . . . . . . . . . . . . . . . . . a 2c 24,814 3 Subtract line 2c from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . 3 21,654 4 Tax. Figure your tax on the amount on line 3 by using the 2022 Tax Rate Schedules. Caution: If you will have qualified dividends or a net capital gain, or expect to exclude or deduct foreign earned income or housing, see Worksheets 2-5 and 2-6 in Pub. 505 to figure the tax . . . . . . . 4 2,305 1 2a

}

5 6

Alternative minimum tax from Form 6251 . . . . . . . . . . . . . . . . . . . . Add lines 4 and 5. Add to this amount any other taxes you expect to include in the total on Form 1040 or 1040-SR, line 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7 8 9 10 11a b

Credits (see instructions). Do not include any income tax withholding on this line . . . . . . . Subtract line 7 from line 6. If zero or less, enter -0- . . . . . . . . . . . . . . . . . Self-employment tax (see instructions) . . . . . . . . . . . . . . . . . . . . . Other taxes (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . Add lines 8 through 10 . . . . . . . . . . . . . . . . . . . . . . . . . . Earned income credit, refundable child tax credit* or additional child tax credit, fuel tax credit, net premium tax credit, refundable American opportunity credit, section 1341 credit, and refundable credit from Form 8885* . . . . . . . . . . . . . . . . . . . . . . . . . .

Total 2022 estimated tax. Subtract line 11b from line 11a. If zero or less, enter -0-

12a Multiply line 11c by 90% (662/3% for farmers and fishermen) . . . . . . 12a b Required annual payment based on prior year’s tax (see instructions) . . . 12b c Required annual payment to avoid a penalty. Enter the smaller of line 12a or 12b .

. a

6 7 8 9 10 11a

2,305 2,000 305 7,064

11b 11c

7,369

6,632 . a

12c

Caution: Generally, if you do not prepay (through income tax withholding and estimated tax payments) at least the amount on line 12c, you may owe a penalty for not paying enough estimated tax. To avoid a penalty, make sure your estimate on line 11c is as accurate as possible. Even if you pay the required annual payment, you may still owe tax when you file your return. If you prefer, you can pay the amount shown on line 11c. For details, see chapter 2 of Pub. 505. Income tax withheld and estimated to be withheld during 2022 (including income tax withholding on pensions, annuities, certain deferred income, etc.) . . . . . . . . . . . . . . . . .

14a

Subtract line 13 from line 12c . . . . . . . . . . . . . . . . 14a Is the result zero or less? Yes. Stop here. You are not required to make estimated tax payments. No. Go to line 14b. b Subtract line 13 from line 11c . . . . . . . . . . . . . . . . 14b Is the result less than $1,000? Yes. Stop here. You are not required to make estimated tax payments. No. Go to line 15 to figure your required payment. 15 If the first payment you are required to make is due April 18, 2022, enter ¼ of line 14a (minus any 2021 overpayment that you are applying to this installment) here, and on your estimated tax payment voucher(s) if you are paying by check or money order . . . . . . . . . . . . . . . . * If applicable.

(LO 9.3) (a) $50,000 – $3,532 (half of self-employment tax) (b) QBI deduction limited by overall net income limitation: ($50,000 – $3,532 – $19,400) x 20% = $5,414 (c) Use tax tables for head of household: $1,465 + [($21,654 – $14,650) x 12%]

(a)

(b)

(c)

9-4

Chapter 9 – Employment Taxes, Estimated Payments, and Retirement Plans

11. $34,323.50. Kana’s tax liability is [($168,700 – $89,075) x 24%] + $15,213.50. $30,891.15. Kana’s minimum annual payment amount is the lesser of 90% of the current year’s tax liability ($30,891.15 = $34,323.50 x 90%) or 110% of the prior year tax liability , since over $150,000 ($33,550 = $30,500.00 x 110%). (LO 9.3) 12. See Form 941 on Pages 9-8 and 9-9. (LO 9.4) 13. a. Deposits during the lookback period of Q3 2020 to Q2 2021 total $45,655, which is less than $50,000 and thus Pequeno Negocio is a monthly depositor and will file Form 941. b. Deposits during the lookback period of Q3 2020 to Q2 2021 total $48,358, which is less than $50,000 and thus Meniscus is a monthly depositor and files a Form 941. c. Deposits during the lookback period are less than $50,000 and deposits required during the calendar year are less than $2,500 and thus Xochitl can pay income tax withheld and FICA annually when filing. In addition, because the deposit liability is less than $1,000, Xochitl may file only an annual Form 944. (LO 9.4) 14. a. March 14, 2022. Because Hugo has accumulated income tax withholding and FICA taxes of $100,000 or more, the one-day deposit rule applies and Hugo must make a deposit on the next business day or Monday, March 14th. b. September 28, 2022. Semiweekly depositors that have payroll on Wednesday, Thursday, or Friday must make a deposit by the following Wednesday; thus Springs deposit is due no later than Wednesday, September 28th. c. April 15, 2022. Semiweekly depositors that make payroll payments on Sunday, Monday, or Tuesday are required to make a deposit by the following Friday and thus the deposit is due by Friday, April 15, 2022. d. September 15, 2022. New employers are treated as monthly depositors for the first year unless they trigger the $100,000 or more next day requirement. Thus, Encinitas Inc. must make a deposit no later than September 15, which is the fifteenth of the following month. (LO 9.4) 15. a. Form 1099-INT b. Form 1099-DIV

c. Form 1099-R d. Form W-2

e. Form W-2G f. Form 1099-NEC (LO 9.5)

Solutions for Questions and Problems – Chapter 9

Group 2: Problem 1

W-4

Employee’s Withholding Certificate

OMB No. 1545-0074

a Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay.

Department of the Treasury Internal Revenue Service

a Your withholding is subject to review by the IRS.

2022

Form

Step 1: Enter Personal Information

a Give Form W-4 to your employer.

(a) First name and middle initial

Last name

Phan

(b) Social security number

Mai

Address

a Does your name match the name on your social security card? If not, to ensure you get credit for your earnings, contact SSA at 800-772-1213 or go to www.ssa.gov.

City or town, state, and ZIP code

(c)

Single or Married filing separately Married filing jointly or Qualifying widow(er)

x Head of household (Check only if you’re unmarried and pay more than half the costs of keeping up a home for yourself and a qualifying individual.) Complete Steps 2–4 ONLY if they apply to you; otherwise, skip to Step 5. See page 2 for more information on each step, who can claim exemption from withholding, when to use the estimator at www.irs.gov/W4App, and privacy.

Step 2: Multiple Jobs or Spouse Works

Complete this step if you (1) hold more than one job at a time, or (2) are married filing jointly and your spouse also works. The correct amount of withholding depends on income earned from all of these jobs. Do only one of the following. (a) Use the estimator at www.irs.gov/W4App for most accurate withholding for this step (and Steps 3–4); or (b) Use the Multiple Jobs Worksheet on page 3 and enter the result in Step 4(c) below for roughly accurate withholding; or (c) If there are only two jobs total, you may check this box. Do the same on Form W-4 for the other job. This option is accurate for jobs with similar pay; otherwise, more tax than necessary may be withheld . . a TIP: To be accurate, submit a 2022 Form W-4 for all other jobs. If you (or your spouse) have self-employment income, including as an independent contractor, use the estimator.

Complete Steps 3–4(b) on Form W-4 for only ONE of these jobs. Leave those steps blank for the other jobs. (Your withholding will be most accurate if you complete Steps 3–4(b) on the Form W-4 for the highest paying job.)

Step 3: Claim Dependents

If your total income will be $200,000 or less ($400,000 or less if married filing jointly):

4,000

Step 4 (optional):

(a) Other income (not from jobs). If you want tax withheld for other income you expect this year that won’t have withholding, enter the amount of other income here. This may include interest, dividends, and retirement income . . . . . . . .

4(a) $

(b) Deductions. If you expect to claim deductions other than the standard deduction and want to reduce your withholding, use the Deductions Worksheet on page 3 and enter the result here . . . . . . . . . . . . . . . . . . . . . . .

4(b) $

0 *

4(c) $

Multiply the number of other dependents by $500 Add the amounts above and enter the total here

Other Adjustments

. a $

Employers Only

Under penalties of perjury, I declare that this certificate, to the best of my knowledge and belief, is true, correct, and complete. F

Step 5: Sign Here

4,000

Multiply the number of qualifying children under age 17 by $2,000 a $

Employee’s signature (This form is not valid unless you sign it.)

Employer’s name and address

For Privacy Act and Paperwork Reduction Act Notice, see page 3.

First date of employment

Cat. No. 10220Q

Date Employer identification number (EIN)

Form W-4 (2022)

* $14,000 of itemized deductions is less than the standard deduction for a head of household ($19,400).

9-5

9-6

Chapter 9 – Employment Taxes, Estimated Payments, and Retirement Plans

Group 2: Problem 2

W-4

Employee’s Withholding Certificate

OMB No. 1545-0074

a Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay.

Department of the Treasury Internal Revenue Service

a Your withholding is subject to review by the IRS.

2022

Form

Step 1: Enter Personal Information

a Give Form W-4 to your employer.

(a) First name and middle initial

Ralph

Last name

(b) Social security number

Gump

Address

a Does your name match the name on your social security card? If not, to ensure you get credit for your earnings, contact SSA at 800-772-1213 or go to www.ssa.gov.

City or town, state, and ZIP code

(c)

Single or Married filing separately

x Married filing jointly or Qualifying widow(er) Head of household (Check only if you’re unmarried and pay more than half the costs of keeping up a home for yourself and a qualifying individual.)

Complete Steps 2–4 ONLY if they apply to you; otherwise, skip to Step 5. See page 2 for more information on each step, who can claim exemption from withholding, when to use the estimator at www.irs.gov/W4App, and privacy.

Step 2: Multiple Jobs or Spouse Works

Step 3: Claim Dependents

If your total income will be $200,000 or less ($400,000 or less if married filing jointly):

500

Step 4 (optional):

4(a) $

4(b) $

8,100

4(c) $

676.67

Multiply the number of other dependents by $500 Add the amounts above and enter the total here

Other Adjustments

Step 5:

. a $

Employers Only

Under penalties of perjury, I declare that this certificate, to the best of my knowledge and belief, is true, correct, and complete. F

Sign Here

0 500

Multiply the number of qualifying children under age 17 by $2,000 a $

Employee’s signature (This form is not valid unless you sign it.)

Employer’s name and address

For Privacy Act and Paperwork Reduction Act Notice, see page 3.

First date of employment

Cat. No. 10220Q

Date Employer identification number (EIN)

Form W-4 (2022)

Solutions for Questions and Problems – Chapter 9

Group 2: Problem 2, cont. Page 3

Form W-4 (2022)

Step 2(b)—Multiple Jobs Worksheet (Keep for your records.) If you choose the option in Step 2(b) on Form W-4, complete this worksheet (which calculates the total extra tax for all jobs) on only ONE Form W-4. Withholding will be most accurate if you complete the worksheet and enter the result on the Form W-4 for the highest paying job. Note: If more than one job has annual wages of more than $120,000 or there are more than three jobs, see Pub. 505 for additional tables; or, you can use the online withholding estimator at www.irs.gov/W4App. 1

Two jobs. If you have two jobs or you’re married filing jointly and you and your spouse each have one job, find the amount from the appropriate table on page 4. Using the “Higher Paying Job” row and the “Lower Paying Job” column, find the value at the intersection of the two household salaries and enter that value on line 1. Then, skip to line 3 . . . . . . . . . . . . . . . . . . . . .

8,120

Three jobs. If you and/or your spouse have three jobs at the same time, complete lines 2a, 2b, and 2c below. Otherwise, skip to line 3. a

Find the amount from the appropriate table on page 4 using the annual wages from the highest paying job in the “Higher Paying Job” row and the annual wages for your next highest paying job in the “Lower Paying Job” column. Find the value at the intersection of the two household salaries and enter that value on line 2a . . . . . . . . . . . . . . . . . . . . . . .

2a $

b Add the annual wages of the two highest paying jobs from line 2a together and use the total as the wages in the “Higher Paying Job” row and use the annual wages for your third job in the “Lower Paying Job” column to find the amount from the appropriate table on page 4 and enter this amount on line 2b . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2b $

2c $

Add the amounts from lines 2a and 2b and enter the result on line 2c .

Enter the number of pay periods per year for the highest paying job. For example, if that job pays weekly, enter 52; if it pays every other week, enter 26; if it pays monthly, enter 12, etc. . . . . .

Divide the annual amount on line 1 or line 2c by the number of pay periods on line 3. Enter this amount here and in Step 4(c) of Form W-4 for the highest paying job (along with any other additional amount you want withheld) . . . . . . . . . . . . . . . . . . . . . . . . .

676.67

30,000

Step 4(b)—Deductions Worksheet (Keep for your records.) 1

Enter an estimate of your 2022 itemized deductions (from Schedule A (Form 1040)). Such deductions may include qualifying home mortgage interest, charitable contributions, state and local taxes (up to $10,000), and medical expenses in excess of 7.5% of your income . . . . . . . . . . . .

{

}

• $25,900 if you’re married filing jointly or qualifying widow(er) • $19,400 if you’re head of household • $12,950 if you’re single or married filing separately

Enter:

25,900

If line 1 is greater than line 2, subtract line 2 from line 1 and enter the result here. If line 2 is greater than line 1, enter “-0-” . . . . . . . . . . . . . . . . . . . . . . . . . .

4,100

Enter an estimate of your student loan interest, deductible IRA contributions, and certain other adjustments (from Part II of Schedule 1 (Form 1040)). See Pub. 505 for more information . . . .

4,000

Add lines 3 and 4. Enter the result here and in Step 4(b) of Form W-4 .

8,100

Privacy Act and Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. Internal Revenue Code sections 3402(f)(2) and 6109 and their regulations require you to provide this information; your employer uses it to determine your federal income tax withholding. Failure to provide a properly completed form will result in your being treated as a single person with no other entries on the form; providing fraudulent information may subject you to penalties. Routine uses of this information include giving it to the Department of Justice for civil and criminal litigation; to cities, states, the District of Columbia, and U.S. commonwealths and possessions for use in administering their tax laws; and to the Department of Health and Human Services for use in the National Directory of New Hires. We may also disclose this information to other countries under a tax treaty, to federal and state agencies to enforce federal nontax criminal laws, or to federal law enforcement and intelligence agencies to combat terrorism.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by Code section 6103. The average time and expenses required to complete and file this form will vary depending on individual circumstances. For estimated averages, see the instructions for your income tax return. If you have suggestions for making this form simpler, we would be happy to hear from you. See the instructions for your income tax return.

9-7

9-8

Chapter 9 – Employment Taxes, Estimated Payments, and Retirement Plans

Group 2: Problem 12

941 for 2022: Employer’s QUARTERLY Federal Tax Return

Form (Rev. June 2022)

Employer identification number (EIN) Name (not your trade name)

950122 OMB No. 1545-0029

Department of the Treasury — Internal Revenue Service

—

Report for this Quarter of 2022 (Check one.)

Drew Fogelman

1: January, February, March

x 2: April, May, June

Trade name (if any)

3: July, August, September Address

732 Nob Hill Blvd. Number

4: October, November, December

Street

Suite or room number

Yakima

98902

City

State

ZIP code

Foreign country name

Go to www.irs.gov/Form941 for instructions and the latest information.

Foreign postal code

Foreign province/county

Read the separate instructions before you complete Form 941. Type or print within the boxes.

Part 1:

Answer these questions for this quarter.

Number of employees who received wages, tips, or other compensation for the pay period including: June 12 (Quarter 2), Sept. 12 (Quarter 3), or Dec. 12 (Quarter 4) . . . . . .

Wages, tips, and other compensation

10,400 . 00

Federal income tax withheld from wages, tips, and other compensation .

279 . 00

If no wages, tips, and other compensation are subject to social security or Medicare tax

Column 1

Check and go to line 6.

Column 2

10,400 . 00

× 0.124 =

1,289 . 60

. × 0.062 = . × 0.062 = . × 0.124 = 10,400 . 00 × 0.029 = . × 0.009 =

. . . 301 . 60 .

Taxable social security wages* .

(i) Qualified sick leave wages*

(ii) Qualified family leave wages* .

Taxable social security tips .

Taxable Medicare wages & tips.

Taxable wages & tips subject to Additional Medicare Tax withholding

Total social security and Medicare taxes. Add Column 2 from lines 5a, 5a(i), 5a(ii), 5b, 5c, and 5d

Section 3121(q) Notice and Demand—Tax due on unreported tips (see instructions)

Total taxes before adjustments. Add lines 3, 5e, and 5f .

Current quarter’s adjustment for fractions of cents .

Current quarter’s adjustment for sick pay .

Current quarter’s adjustments for tips and group-term life insurance .

Total taxes after adjustments. Combine lines 6 through 9

* Include taxable qualified sick and family leave wages paid in this quarter of 2022 for leave taken after March 31, 2021, and before October 1, 2021, on line 5a. Use lines 5a(i) and 5a(ii) only for taxable qualified sick and family leave wages paid in this quarter of 2022 for leave taken after March 31, 2020, and before April 1, 2021.

1,591 . 20

. 1,870 . 20 . . . 1,870 . 20 .

11a

Qualified small business payroll tax credit for increasing research activities. Attach Form 8974

11a

11b

Nonrefundable portion of credit for qualified sick and family leave wages for leave taken before April 1, 2021 . . . . . . . . . . . . . . . . . . . . . . . 11b

11c

Reserved for future use .

11c

Next Na

a You MUST complete all three pages of Form 941 and SIGN it.

For Privacy Act and Paperwork Reduction Act Notice, see the back of the Payment Voucher.

Cat. No. 17001Z

Form 941 (Rev. 6-2022)

Solutions for Questions and Problems – Chapter 9

Group 2: Problem 12, cont. 951222 Name (not your trade name)

Employer identification number (EIN)

Drew Fogelman Part 1:

34 – 4321321

Answer these questions for this quarter. (continued)

11d

Nonrefundable portion of credit for qualified sick and family leave wages for leave taken after March 31, 2021, and before October 1, 2021 . . . . . . . . . . . . . 11d

11e

Reserved for future use .

11f

Reserved for future use .

11g

Total nonrefundable credits. Add lines 11a, 11b, and 11d

11e

11g

Total taxes after adjustments and nonrefundable credits. Subtract line 11g from line 10

13a

Total deposits for this quarter, including overpayment applied from a prior quarter and overpayments applied from Form 941-X, 941-X (PR), 944-X, or 944-X (SP) filed in the current quarter 13a

13b

Reserved for future use .

13c

Refundable portion of credit for qualified sick and family leave wages for leave taken before April 1, 2021 . . . . . . . . . . . . . . . . . . . . . . . 13c

13d

Reserved for future use .

13d

. .

13e

Refundable portion of credit for qualified sick and family leave wages for leave taken after March 31, 2021, and before October 1, 2021 . . . . . . . . . . . . . . 13e

13f

Reserved for future use .

13f

13g

Total deposits and refundable credits. Add lines 13a, 13c, and 13e

13g

13h

Reserved for future use .

13h

13i

Reserved for future use .

13i

Balance due. If line 12 is more than line 13g, enter the difference and see instructions .

Overpayment. If line 13g is more than line 12, enter the difference

Part 2:

. 1,870 . 20 . .

13b

Check one:

. . . . 1,870 . 20 Apply to next return.

Send a refund.

Tell us about your deposit schedule and tax liability for this quarter.

If you’re unsure about whether you’re a monthly schedule depositor or a semiweekly schedule depositor, see section 11 of Pub. 15. 16 Check one:

Line 12 on this return is less than $2,500 or line 12 on the return for the prior quarter was less than $2,500, and you didn’t incur a $100,000 next-day deposit obligation during the current quarter. If line 12 for the prior quarter was less than $2,500 but line 12 on this return is $100,000 or more, you must provide a record of your federal tax liability. If you’re a monthly schedule depositor, complete the deposit schedule below; if you’re a semiweekly schedule depositor, attach Schedule B (Form 941). Go to Part 3. You were a monthly schedule depositor for the entire quarter. Enter your tax liability for each month and total liability for the quarter, then go to Part 3. Tax liability:

Month 1 Month 2 Month 3

Total liability for quarter

. . . .

Total must equal line 12.

You were a semiweekly schedule depositor for any part of this quarter. Complete Schedule B (Form 941), Report of Tax Liability for Semiweekly Schedule Depositors, and attach it to Form 941. Go to Part 3. a You MUST complete all three pages of Form 941 and SIGN it. Page 2

Next Na Form 941 (Rev. 6-2022)

9-9

9-10

Chapter 9 – Employment Taxes, Estimated Payments, and Retirement Plans

Group 2: Problem 16. a. Safe, accurate, FAST! Use

a Employee’s social security number

545-64-7745

OMB No. 1545-0008

Visit the IRS website at www.irs.gov/efile

b Employer identification number (EIN)

1 Wages, tips, other compensation

2 Federal income tax withheld

c Employer’s name, address, and ZIP code

3 Social security wages

4 Social security tax withheld

5 Medicare wages and tips

6 Medicare tax withheld

7 Social security tips

8 Allocated tips

10 Dependent care benefits

11 Nonqualified plans

12a See instructions for box 12

12-3456789

146,656.00

25,797.76

147,000.00 *

Philcon Corporation P.O. Box 4563 Anchorage, AK 99508

9,114.00

152,500.00 *

d Control number e Employee’s first name and initial

Last name

Louise Alianait 5471 East Tudor Road Anchorage, AK 99508

Suff.

Statutory employee

Retirement plan

2,211.25

C o d e

Third-party sick pay

14 Other

5,844.00

12b C o d e

12c C o d e

12d C o d e

f Employee’s address and ZIP code 15 State

Form

Employer’s state ID number

16 State wages, tips, etc. 17 State income tax

W-2 Wage and Tax Statement

18 Local wages, tips, etc. 19 Local income tax

2022

Copy B—To Be Filed With Employee’s FEDERAL Tax Return. This information is being furnished to the Internal Revenue Service.

20 Locality name

Department of the Treasury—Internal Revenue Service

* Employee contributions to a 401(k) plan are generally subject to FICA taxes but are not subject to federal income taxes. b. CORRECTED (if checked) PAYER’S name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no.

OMB No. 1545-0116 Form 1099-NEC

Philcon Corporation P.O. Box 4563 Anchorage, AK 99508 PAYER’S TIN

12-3456789

(Rev. January 2022) For calendar year

20 22

RECIPIENT’S TIN

475-45-3226

RECIPIENT’S name

1 Nonemployee compensation

2 Payer made direct sales totaling $5,000 or more of consumer products to recipient for resale

Ralph Imiq

1455 Raspberry Road

4 Federal income tax withheld

City or town, state or province, country, and ZIP or foreign postal code

Anchorage, AK 99508

5 State tax withheld

(keep for your records)

0.00

6 State/Payer’s state no.

$ $

Account number (see instructions)

www.irs.gov/Form1099NEC

Copy B

1,200.00

Street address (including apt. no.)

Form 1099-NEC (Rev. 1-2022)

Nonemployee Compensation

For Recipient

This is important tax information and is being furnished to the IRS. If you are required to file a return, a negligence penalty or other sanction may be imposed on you if this income is taxable and the IRS determines that it has not been reported. 7 State income

$ $ Department of the Treasury - Internal Revenue Service

(LO 9.5) 17. a. $1,110. FUTA wages are $18,500 (maximum wages of $7,000 for Theodore and Roy and $4,500 for Nathan) x 6.0% b. $999. $18,500 x 5.4% c. $111. $1,110 – $999. (LO 9.6)

Solutions for Questions and Problems – Chapter 9

Group 2: Problem 18 Form

940 for 2022: Employer’s Annual Federal Unemployment (FUTA) Tax Return

850113

Department of the Treasury — Internal Revenue Service

Employer identification number (EIN)

—

OMB No. 1545-0028

Type of Return (Check all that apply.)

Name (not your trade name)

Premium Court Corporation

a. Amended

DRAFT AS OF June 29, 2022 DO NOT FILE

b. Successor employer

Trade name (if any)

Address

c. No payments to employees in 2022 d. Final: Business closed or stopped paying wages

1 First Street NE Number

Street

Suite or room number

Washington City

Foreign country name

20543

State

ZIP code

Go to www.irs.gov/Form940 for instructions and the latest information.

Foreign postal code

Foreign province/county

Read the separate instructions before you complete this form. Please type or print within the boxes.

Part 1:

Tell us about your return. If any line does NOT apply, leave it blank. See instructions before completing Part 1.

If you had to pay state unemployment tax in one state only, enter the state abbreviation .

If you had to pay state unemployment tax in more than one state, you are a multi-state employer . . . . . . . . . . . . . . . . . . . . . . . . . . . 1b

Check here. Complete Schedule A (Form 940).

If you paid wages in a state that is subject to CREDIT REDUCTION .

Check here. Complete Schedule A (Form 940).

Part 2:

Determine your FUTA tax before adjustments. If any line does NOT apply, leave it blank.

Total payments to all employees .

Payments exempt from FUTA tax .

Other

199,200 . 00

4 4c 4d

Retirement/Pension Dependent care

Total of payments made to each employee in excess of $7,000 . . . . . . . . . . . . . . . .

138,300

. 00

Subtotal (line 4 + line 5 = line 6) .

138,300 . 00

Total taxable FUTA wages (line 3 – line 6 = line 7). See instructions .

60,900 . 00

FUTA tax before adjustments (line 7 x 0.006 = line 8) .

365 . 40

Check all that apply: 4a 4b 5

Part 3: 9 10

Fringe benefits Group-term life insurance

Determine your adjustments. If any line does NOT apply, leave it blank.

If ALL of the taxable FUTA wages you paid were excluded from state unemployment tax, multiply line 7 by 0.054 (line 7 × 0.054 = line 9). Go to line 12 . . . . . . . . . . 9 If SOME of the taxable FUTA wages you paid were excluded from state unemployment tax, OR you paid ANY state unemployment tax late (after the due date for filing Form 940), complete the worksheet in the instructions. Enter the amount from line 7 of the worksheet . . 10 If credit reduction applies, enter the total from Schedule A (Form 940)

Part 4:

. . .

Determine your FUTA tax and balance due or overpayment. If any line does NOT apply, leave it blank.

Total FUTA tax after adjustments (lines 8 + 9 + 10 + 11 = line 12) .

365 . 40

FUTA tax deposited for the year, including any overpayment applied from a prior year

Balance due. If line 12 is more than line 13, enter the excess on line 14. • If line 14 is more than $500, you must deposit your tax. • If line 14 is $500 or less, you may pay with this return. See instructions .

365 . 40

Overpayment. If line 13 is more than line 12, enter the excess on line 15 and check a box below 15 You MUST complete both pages of this form and SIGN it.

Check one:

Apply to next return.

For Privacy Act and Paperwork Reduction Act Notice, see the back of the Payment Voucher.

Cat. No. 11234O

. Send a refund. Form 940 (2022)

9-11

9-12

Chapter 9 – Employment Taxes, Estimated Payments, and Retirement Plans

Group 2: Problem 18, cont. 850212 Name (not your trade name)

Employer identification number (EIN)

Premium Court Corporation Part 5:

44 – 1112223

Report your FUTA tax liability by quarter only if line 12 is more than $500. If not, go to Part 6.

16 Report the amount of your FUTA tax liability for each quarter; do NOT enter the amount you deposited. If you had no liability for a quarter, leave the line blank.

DRAFT AS OF June 29, 2022 DO NOT FILE

16a 1st quarter (January 1 – March 31) .

16a

16b 2nd quarter (April 1 – June 30) .

16b

16c 3rd quarter (July 1 – September 30)

16c

16d 4th quarter (October 1 – December 31)

16d

. . . . .

Total tax liability for the year (lines 16a + 16b + 16c + 16d = line 17) 17

Part 6:

Total must equal line 12.

May we speak with your third-party designee?

Do you want to allow an employee, a paid tax preparer, or another person to discuss this return with the IRS? See the instructions for details. Yes.

Designee’s name and phone number

Select a 5-digit personal identification number (PIN) to use when talking to the IRS.

No.

Part 7:

Sign here. You MUST complete both pages of this form and SIGN it.

Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete, and that no part of any payment made to a state unemployment fund claimed as a credit was, or is to be, deducted from the payments made to employees. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. Print your name here

Sign your name here

Date

Print your title here

Best daytime phone

Paid Preparer Use Only

Check if you are self-employed

Preparer’s name

PTIN

Preparer’s signature

Date

Firm’s name (or yours if self-employed)

EIN

Address

Phone

City

Page 2

(LO 9.6)

State

ZIP code

Form 940 (2022)

Solutions for Questions and Problems – Chapter 9

9-13

19. a. Kwon will contribute $3,000 ($50,000 x 6%) to a qualified plan and thus will not pay tax on that amount currently. b. Kwon will not be taxed currently on the employer match of $1,500 ($50,000 x 3%). Note that total employee and employer contributions do not exceed the 2022 maximum of $20,500 for 401(k) plan contributions as discussed in Chapter 5. c. (i) $47,000. $50,000 gross wages less 401(k) elective deferrals of $3,000. The employer match is also not currently subject to income tax. (ii) $50,000. 401(k) employee contributions are subject to FICA taxes. Employer contributions are not subject to FICA taxes. d. Distributions from the 401(k) plan to Kwon at age 59 and one-half or later will be taxed as ordinary income when distributed whether from employee or employer contributions or from the earnings of the plan. (LO 9.7) 20. a. $37,500. If Vlad elects to contribute the 20% maximum permitted under the plan, his contribution will be $30,000. His employer will match 5% adding an additional contribution of $7,500 for a total of $37,500. The 2022 limit is the lesser of $37,500 or $61,000. b. $61,000. The maximum contribution is $61,000. c. $3,000. Oksana’s eligible contribution under the plan is $3,000 ($30,000 x 10%) which is well below the limit of $61,000. (LO 9.7) 21. a. b. c. d.

$140,000 $140,000 June 30, 2022 $112,000. $140,000 x 80%. (LO 9.8)

22. Allen must report the full $20,000 of income on his tax return and pay tax on it. In addition, he must pay a 10% penalty of $2,000 due the failed rollover since he is not yet 59 1/2 years old. (LO 9.8)

Group 3 – Writing Assignment To: Eric.Hayes@IvyTech.com From: Great Student Eric, Thank you for sending me a copy of your Form W-2 and the additional information. I believe that I can explain the amounts on your Form W-2. The tax rules can be confusing but asking a friend and brilliant student of tax like myself is a great way to get the answers you need. I have prepared a table that explains how to reconcile your $160,000 salary to each amount. I have provided some details below. Box 1 Box 3 Box 5 Salary $160,000 $160,000 $160,000 401(k) deferrals (8,000) Dependent Care FSA deferrals (5,000) (5,000) (5,000) Life insurance above $50,000 104 104 104 Health Care FSA deferrals (2,850) (2,850) (2,850) $152,254 $152,254 Amount in Box $144,254 Limit for Social Security tax $147,000 Starting with Box 1. Box 1 of the Form W-2 represents your taxable wages for income tax purposes. Of course, your salary is taxable income, so we begin with that. Contributions to a qualified retirement plan like a 401(k) plan are excluded from income taxes (that is part of the incentive to contribute). You told me you contributed 5 percent or $8,000 ($160,000 x 5%), which is also reflected in Box 12 of your Form W-2

9-14

Chapter 9 – Employment Taxes, Estimated Payments, and Retirement Plans

under Code D. Box 10 shows that you contributed $5,000 to a dependent care flexible spending account. These contributions also decrease your taxable income. As long as you and your spouse spend all $5,000 on qualified child and dependent care, you will not pay tax on that amount. You will need to complete a Form 2441 with your tax return to report the tax treatment of your child and dependent care expenses. The tax law permits an employer to pay life insurance premiums for their employees as a tax-free benefit but only up to a policy benefit of $50,000. Premiums paid for policy benefit amounts above $50,000 are taxable as income to you. Since your life insurance policy benefit is $150,000, your employer must include income for the amount in excess of $50,000, which in your case is $104 of income and is reported in Box 12 under Code C. You also indicated you paid the 2022 maximum ($2,850) into a health care flexible spending account. Similar to the dependent care account, as long as you use the funds for qualified medical expenses, your contributions decrease your taxable income. Lastly, the $12,432 reported in Box 12 under Code DD is the amount your employer paid on your behalf for health insurance premiums during the year. This does not affect your taxes and is merely provided for your information. Now we can turn our attention to Boxes 3 and 5. Of all the adjustments we made to Box 1, only the 401(k) contribution is not excludable from your taxable Social Security and Medicare wages. You pay employment taxes on those amounts currently. Recall that the Social Security tax is only applicable to wages up to a certain threshold (often called the “FICA cap”). The 2022 FICA cap is $147,000; thus, Box 3 reflects that amount. I hope you found this helpful! Please let me know if you have any questions. Your friend, Great Student

Group 4 – Comprehensive Problem 1. a. See Form W-4 on Pages 9-15 and 9-16. b. $191.07. See Worksheet 4 on Page 9-17. c. $4,826 is the required annual payment and $1,207 is the first quarter estimated payment. See 2022 Estimated Tax Worksheet on Page 9-18. d. See Form 941 on Pages 9-19 and 9-20. e. See Form 940 on Page 9-21. f. See Forms W-2 and W-3 on Page 9-22. g. Wages $55,000 Self-employment (SE) income 32,000 Total income 87,000 One-half SE tax (2,261) AGI 84,739 Standard deduction (25,900) Qualified business income deduction (5,948) Taxable income 52,891 Tax liability 5,936 Child tax credit (2,000) 4,521 Self-employment tax Total tax 8,457 Withholding 4,586 4,824 Estimated payments Total payments (9,410) Overpayment $ 953

Solutions for Questions and Problems – Chapter 9

Comprehensive Problem 1. a.

W-4

Employee’s Withholding Certificate

OMB No. 1545-0074

a Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay.

Department of the Treasury Internal Revenue Service

a Your withholding is subject to review by the IRS.

2022

Form

Step 1: Enter Personal Information

a Give Form W-4 to your employer.

(a) First name and middle initial

Last name

Ben

(b) Social security number

Kenofee

613-27-7730

Address

a Does your name match the

2000 Berrywood Bend Drive, Apt 3K

name on your social security card? If not, to ensure you get credit for your earnings, contact SSA at 800-772-1213 or go to www.ssa.gov.

City or town, state, and ZIP code

Tomball, TX 77375 (c)

Single or Married filing separately

x Married filing jointly or Qualifying widow(er) Head of household (Check only if you’re unmarried and pay more than half the costs of keeping up a home for yourself and a qualifying individual.)

Step 2: Multiple Jobs or Spouse Works

Step 3: Claim Dependents

If your total income will be $200,000 or less ($400,000 or less if married filing jointly):

2,000

Step 4 (optional):

4(a) $

1,200

4(b) $

4(c) $

140

Multiply the number of other dependents by $500 Add the amounts above and enter the total here

Other Adjustments

Step 5:

. a $

Employers Only

Under penalties of perjury, I declare that this certificate, to the best of my knowledge and belief, is true, correct, and complete. F

Sign Here

2,000

Multiply the number of qualifying children under age 17 by $2,000 a $

Employee’s signature (This form is not valid unless you sign it.)

Employer’s name and address

For Privacy Act and Paperwork Reduction Act Notice, see page 3.

First date of employment

Cat. No. 10220Q

Date Employer identification number (EIN)

Form W-4 (2022)

9-15

9-16

Chapter 9 – Employment Taxes, Estimated Payments, and Retirement Plans

Comprehensive Problem 1. a. cont. Page 3

Form W-4 (2022)

3,360

Three jobs. If you and/or your spouse have three jobs at the same time, complete lines 2a, 2b, and 2c below. Otherwise, skip to line 3. a

2a $

2b $

2c $

Add the amounts from lines 2a and 2b and enter the result on line 2c .

140

Step 4(b)—Deductions Worksheet (Keep for your records.) 1

{

}

• $25,900 if you’re married filing jointly or qualifying widow(er) • $19,400 if you’re head of household • $12,950 if you’re single or married filing separately

Enter:

If line 1 is greater than line 2, subtract line 2 from line 1 and enter the result here. If line 2 is greater than line 1, enter “-0-” . . . . . . . . . . . . . . . . . . . . . . . . . .

Enter an estimate of your student loan interest, deductible IRA contributions, and certain other adjustments (from Part II of Schedule 1 (Form 1040)). See Pub. 505 for more information . . . .

Add lines 3 and 4. Enter the result here and in Step 4(b) of Form W-4 .

Solutions for Questions and Problems – Chapter 9

Comprehensive Problem 1. b. cont. Ê¾» »È¹»ÄÊ·½» »Ê¾Åº ÅÈ ÏÅË ¹·ÄͱÊ ËÉ» Ê¾» ·½» È·¹Á»Ê »Ê¾Åº Ê·¸Â»É ¸»¹·ËÉ» Ê¾» »ÃÆÂÅÏ»»ͱÉ ·ÄÄË·Â Í·½»É »Î¹»»º Ê¾» ·ÃÅËÄÊ ¼ÈÅÃ Ê¾» Â·ÉÊ ¸È·¹Á»Ê Å¼ Ê¾» Ê·Ɩ ¸Â» ƺ¸·É»º ÅÄ Ã·È¿Ê·Â ÉÊ·ÊËÉ ·Äº Æ·Ï Æ»È¿ÅºƻƑ ËÉ» Ê¾» ÍÅÈÁÉ¾»»Ê ¸»ÂÅÍ ·Äº Ê¾» »È¹»ÄÊ·½» »Ê¾Åº Ê·¸Â»É Ê¾·Ê ¼ÅÂÂÅÍ ÊÅ ¼¿½ËÈ» ¼»º»È·Â ¿Ä¹ÅÃ» Ê·Î Í¿Ê¾¾ÅÂº¿Ä½Ɣ ¾¿É Ã»Ê¾Åº ÍÅÈÁÉ ¼ÅÈ ·ÄÏ ·ÃÅËÄÊ Å¼ Í·½»ÉƔ

ʻƔ »È¹»ÄÊ·½» »Ê¾Åº ·¸Â»É ¼ÅÈ ·ÄË·Â ·ÏÈÅÂÂ ÏÉÊ»ÃÉ ¿Ê¾ ÅÈÃÉ Ɩʻ ÈÅÃ ʹʷʹʷ ÅÈ ·Ê»È ¼ ÏÅË ¹ÅÃÆËÊ» Æ·ÏÈÅÂÂ Ã·ÄË·ÂÂÏƑ ÏÅËÈ »ÃÆÂÅÏ»» ¾·É ÉË¸Ɩ Ã¿ÊÊ»º · ÅÈÃ Ɩʻ ¼ÅÈ ʹʷʹʷ ÅÈ Â·Ê»ÈƑ ·Äº ÏÅË ÆÈ»¼»È ÊÅ ËÉ»

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»Ã¿ÃÅÄÊ¾ÂÏ

¿Í»»ÁÂÏ

»»ÁÂÏ

·¿ÂÏ

ʸʹ

ʹʻ

ʹʽ

ʼʹ

ʹʽʷ

ƔƔƔƔƔƔƔƔƔƔƔƔƔƔƔƔƔƔƔƔƔƔƔƔƔƔƔƔ

ʸ·

ʸ¸

ʸ¹

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ʸ¹

ʸº

¿Ì¿º» Â¿Ä» ʸ¹ ¸Ï Ê¾» ÄËÃ¸»È ÅÄ Â¿Ä» ʸ¸ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

ʸº

ʸ»

ºº Â¿Ä»É ʸ· ·Äº ʸº Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

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ʸ¼

ÄÊ»È Ê¾» ·ÃÅËÄÊ ¼ÈÅÃ Ê»Æ ʻƺ¸ƻ Å¼ Ê¾» »ÃÆÂÅÏ»»ͱÉ ÅÈÃ Ɩʻ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

ʸ¼

ʸ½

¿Ì¿º» Â¿Ä» ʸ¼ ¸Ï Ê¾» ÄËÃ¸»È ÅÄ Â¿Ä» ʸ¸ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

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ʸ¾

Ë¸ÊÈ·¹Ê Â¿Ä» ʸ½ ¼ÈÅÃ Â¿Ä» ʸ»Ɣ ¼ Ð»ÈÅ ÅÈ Â»ÉÉƑ »ÄÊ»È ƖʷƖƔ ¾¿É ¿É Ê¾» ºÀËÉÊ»º ·½» ÃÅËÄÊ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

ʸ¾

2,291.66 24 1,200.00 50 2,341.66 0 0 2,341.66

¿½ËÈ» Ê¾» »ÄÊ·Ê¿Ì» ¿Ê¾¾ÅÂº¿Ä½ ÃÅËÄÊ ¸·É»º ÅÄ ÏÅËÈ Æ·Ï ¼È»ÇË»Ä¹ÏƑ Ê¾» »ÃÆÂÅÏ»»ͱÉ ºÀËÉÊ»º ·½» ÃÅËÄÊƑ ¼¿Â¿Ä½ ÉÊ·ÊËÉ ƺ Ê»Æ ʸƺ¹ƻ Å¼ ÅÈÃ ƖʻƻƑ ·Äº Í¾»Ê¾»È Ê¾» ¸ÅÎ ¿Ä Ê»Æ ʹ Å¼ ÅÈÃ Ɩʻ ¿É ¹¾»¹Á»ºƔ

ʹ¹

¿Äº Ê¾» ÈÅÍ ¿Ä Ê¾» ¿Ê¾¾ÅÂº¿Ä½ ·Ê» ¹¾»ºËÂ»É ƺ¿¼ Ê¾» ¸ÅÎ ¿Ä Ê»Æ ʹ Å¼ ÅÈÃ Ɩʻ ¿É ¹¾»¹Á»ºƻ ÅÈ Ê¾» ÅÈÃ ƖʻƑ Ê»Æ ʹƑ ¾»¹Á¸ÅÎƑ ¿Ê¾¾ÅÂº¿Ä½ ·Ê» ¹¾»ºËÂ»É ƺ¿¼ ¿Ê ¸»»Ä ¹¾»¹Á»ºƻ Å¼ Ê¾» »È¹»ÄÊ·½» »Ê¾Åº Ê·¸Â»É ¿Ä Ê¾¿É É»¹Ê¿ÅÄ ¿Ä Í¾¿¹¾ Ê¾» ·ÃÅËÄÊ ÅÄ Â¿Ä» ʸ¾ ¿É ·Ê Â»·ÉÊ Ê¾» ·ÃÅËÄÊ ¿Ä ¹ÅÂËÃÄ ¸ËÊ Â»ÉÉ Ê¾·Ä Ê¾» ·ÃÅËÄÊ ¿Ä ¹ÅÂËÃÄ Ƒ ·Äº Ê¾»Ä »ÄÊ»È ¾»È» Ê¾» ·ÃÅËÄÊ ¼ÈÅÃ ¹ÅÂËÃÄ Å¼ Ê¾·Ê ÈÅÍ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ ʹ· ÄÊ»È Ê¾» ·ÃÅËÄÊ ¼ÈÅÃ ¹ÅÂËÃÄ Å¼ Ê¾·Ê ÈÅÍ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ ʹ¸ ÄÊ»È Ê¾» Æ»È¹»ÄÊ·½» ¼ÈÅÃ ¹ÅÂËÃÄ Å¼ Ê¾·Ê ÈÅÍ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ ʹ¹

ʹº

Ë¸ÊÈ·¹Ê Â¿Ä» ʹ· ¼ÈÅÃ Â¿Ä» ʸ¾ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

ʹº

ʹ»

ËÂÊ¿ÆÂÏ Ê¾» ·ÃÅËÄÊ ÅÄ Â¿Ä» ʹº ¸Ï Ê¾» Æ»È¹»ÄÊ·½» ÅÄ Â¿Ä» ʹ¹ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

ʹ»

ʹ¼

ºº Â¿Ä»É ʹ¸ ·Äº ʹ»Ɣ ¾¿É ¿É Ê¾» »ÄÊ·Ê¿Ì» ¿Ê¾¾ÅÂº¿Ä½ ÃÅËÄÊ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

ʹ¼

¹¹ÅËÄÊ ¼ÅÈ Ê·Î ¹È»º¿ÊÉ ʺ· ÄÊ»È Ê¾» ·ÃÅËÄÊ ¼ÈÅÃ Ê»Æ ʺ Å¼ Ê¾» »ÃÆÂÅÏ»»ƠÉ ÅÈÃ Ɩʻ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

ʺ·

ʺ¸

¿Ì¿º» Ê¾» ·ÃÅËÄÊ ÅÄ Â¿Ä» ʺ· ¸Ï Ê¾» ÄËÃ¸»È Å¼ Æ·Ï Æ»È¿ÅºÉ ÅÄ Â¿Ä» ʸ¸ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

ʺ¸

ʺ¹

Ë¸ÊÈ·¹Ê Â¿Ä» ʺ¸ ¼ÈÅÃ Â¿Ä» ʹ¼Ɣ ¼ Ð»ÈÅ ÅÈ Â»ÉÉƑ »ÄÊ»È ƖʷƖ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

ʺ¹

2,000.00 83.33 51.07

¿½ËÈ» Ê¾» ¼¿Ä·Â ·ÃÅËÄÊ ÊÅ Í¿Ê¾¾ÅÂº ʻ· ÄÊ»È Ê¾» ·ºº¿Ê¿ÅÄ·Â ·ÃÅËÄÊ ÊÅ Í¿Ê¾¾ÅÂº ¼ÈÅÃ Ê»Æ ʻƺ¹ƻ Å¼ Ê¾» »ÃÆÂÅÏ»»ƠÉ ÅÈÃ Ɩʻ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

ʻ·

140.00

ʻ¸

191.07

ʹ¸

Ê»Æ ʻƔ

ÄÊ»È Ê¾» ÄËÃ¸»È Å¼ Æ·Ï Æ»È¿ÅºÉ ÏÅË ¾·Ì» Æ»È Ï»·È ƺÉ»» ·¸Â» ʽƻ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

ʹ·

Ê»Æ ʺƔ

ºÀËÉÊ Ê¾» »ÃÆÂÅÏ»»ƠÉ Í·½» ·ÃÅËÄÊ ʸ· ÄÊ»È Ê¾» »ÃÆÂÅÏ»»ƠÉ ÊÅÊ·Â Ê·Î·¸Â» Í·½»É Ê¾¿É Æ·ÏÈÅÂÂ Æ»È¿Åº ʸ¸

Ê»Æ ʹƔ

»»Æ ¼ÅÈ ÅËÈ »¹ÅÈºÉ

ʻ¸

ºº Â¿Ä»É ʺ¹ ·Äº ʻ·Ɣ ¾¿É ¿É Ê¾» ·ÃÅËÄÊ ÊÅ Í¿Ê¾¾ÅÂº ¼ÈÅÃ Ê¾» »ÃÆÂÅÏ»»ƠÉ Í·½»É Ê¾¿É Æ·Ï Æ»È¿Åº Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

ʪ ʪ

1,935.00 85.60 12 ̈ 406.66 48.80 134.40

9-17

9-18

Chapter 9 – Employment Taxes, Estimated Payments, and Retirement Plans

Comprehensive Problem 1. c. cont. 2022 Estimated Tax Worksheet

Keep for Your Records Adjusted gross income you expect in 2022 (see instructions) . . . . . . . . . . . . . . 1 84,739 Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2a 25,900 • If you plan to itemize deductions, enter the estimated total of your itemized deductions. • If you don’t plan to itemize deductions, enter your standard deduction. b If you can take the qualified business income deduction, enter the estimated amount of the deduction 2b 5,948 c Add lines 2a and 2b . . . . . . . . . . . . . . . . . . . . . . . . . . a 2c 31,848 3 Subtract line 2c from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . 3 52,891 4 Tax. Figure your tax on the amount on line 3 by using the 2022 Tax Rate Schedules. Caution: If you will have qualified dividends or a net capital gain, or expect to exclude or deduct foreign earned income or housing, see Worksheets 2-5 and 2-6 in Pub. 505 to figure the tax . . . . . . . 4 5,936 1 2a

}

5 6

7 8 9 10 11a b

5,936

6 7 8 9 10 11a

10,457

11b 11c

10,457

. a

12c

9,411

4,586

1,206

Total 2022 estimated tax. Subtract line 11b from line 11a. If zero or less, enter -0-

(a)

. a

9,411 10,000 .

Subtract line 13 from line 12c . . . . . . . . . . . . . . . . 14a 4,825 Is the result zero or less? Yes. Stop here. You are not required to make estimated tax payments. x No. Go to line 14b. b Subtract line 13 from line 11c . . . . . . . . . . . . . . . . 14b 5,871 Is the result less than $1,000? Yes. Stop here. You are not required to make estimated tax payments. x No. Go to line 15 to figure your required payment. 15 If the first payment you are required to make is due April 18, 2022, enter ¼ of line 14a (minus any 2021 overpayment that you are applying to this installment) here, and on your estimated tax payment voucher(s) if you are paying by check or money order . . . . . . . . . . . . . . . . * If applicable.

5,936 4,521

14a

(a) $55,000 (Ben’s wages) + $32,000 (Tala’s self-employment income) – $2,261 (Tala’s one-half of self-employment taxes deduction). (b) $2,055 + [($52,891 – $20,550) x 12%].

(b)

Solutions for Questions and Problems – Chapter 9

Comprehensive Problem 1. d. cont.

941 for 2022: Employer’s QUARTERLY Federal Tax Return

Form (Rev. June 2022)

Employer identification number (EIN)

950122 OMB No. 1545-0029

Department of the Treasury — Internal Revenue Service

—

Report for this Quarter of 2022 (Check one.)

Name (not your trade name) Richmond Industries

1: January, February, March 2: April, May, June

Trade name (if any)

3: July, August, September Address

4000 Research Forest Drive Number

x 4: October, November, December

Street

Suite or room number

The Woodlands

77381

City

State

ZIP code

Foreign country name

Go to www.irs.gov/Form941 for instructions and the latest information.

Foreign postal code

Foreign province/county

Read the separate instructions before you complete Form 941. Type or print within the boxes.

Part 1:

Answer these questions for this quarter.

Number of employees who received wages, tips, or other compensation for the pay period including: June 12 (Quarter 2), Sept. 12 (Quarter 3), or Dec. 12 (Quarter 4) . . . . . .

Wages, tips, and other compensation

67,750 . 00

Federal income tax withheld from wages, tips, and other compensation .

11,574 . 42

If no wages, tips, and other compensation are subject to social security or Medicare tax

Column 1

Check and go to line 6.

Column 2

54,750 . 00

× 0.124 =

6,789 . 00

. × 0.062 = . × 0.062 = . × 0.124 = 67,750 . 00 × 0.029 = . × 0.009 =

. . . 1,964 . 75 .

Taxable social security wages* .

(i) Qualified sick leave wages*

(ii) Qualified family leave wages* .

Taxable social security tips .

Taxable Medicare wages & tips.

Taxable wages & tips subject to Additional Medicare Tax withholding

Total social security and Medicare taxes. Add Column 2 from lines 5a, 5a(i), 5a(ii), 5b, 5c, and 5d

Section 3121(q) Notice and Demand—Tax due on unreported tips (see instructions)

Total taxes before adjustments. Add lines 3, 5e, and 5f .

Current quarter’s adjustment for fractions of cents .

Current quarter’s adjustment for sick pay .

Current quarter’s adjustments for tips and group-term life insurance .

Total taxes after adjustments. Combine lines 6 through 9

8,753 . 75

. 20,328 . 17 . . . 20,328 . 17 .

11a

Qualified small business payroll tax credit for increasing research activities. Attach Form 8974

11a

11b

Nonrefundable portion of credit for qualified sick and family leave wages for leave taken before April 1, 2021 . . . . . . . . . . . . . . . . . . . . . . . 11b

11c

Reserved for future use .

11c

Next Na

a You MUST complete all three pages of Form 941 and SIGN it.

For Privacy Act and Paperwork Reduction Act Notice, see the back of the Payment Voucher.

Cat. No. 17001Z

Form 941 (Rev. 6-2022)

9-19

9-20

Chapter 9 – Employment Taxes, Estimated Payments, and Retirement Plans

Comprehensive Problem 1. d. cont. 951222 Name (not your trade name)

Employer identification number (EIN)

Richmond Industries Part 1:

56 – 8188324

Answer these questions for this quarter. (continued)

11d

Nonrefundable portion of credit for qualified sick and family leave wages for leave taken after March 31, 2021, and before October 1, 2021 . . . . . . . . . . . . . 11d

11e

Reserved for future use .

11f

Reserved for future use .

11g

Total nonrefundable credits. Add lines 11a, 11b, and 11d

11e

11g

Total taxes after adjustments and nonrefundable credits. Subtract line 11g from line 10

. 20,328 . 17

13a

Total deposits for this quarter, including overpayment applied from a prior quarter and overpayments applied from Form 941-X, 941-X (PR), 944-X, or 944-X (SP) filed in the current quarter 13a

11,738 . 16

13b

Reserved for future use .

13c

Refundable portion of credit for qualified sick and family leave wages for leave taken before April 1, 2021 . . . . . . . . . . . . . . . . . . . . . . . 13c

13d

Reserved for future use .

13d

. .

13e

Refundable portion of credit for qualified sick and family leave wages for leave taken after March 31, 2021, and before October 1, 2021 . . . . . . . . . . . . . . 13e

13f

Reserved for future use .

13f

13g

Total deposits and refundable credits. Add lines 13a, 13c, and 13e

13g

13h

Reserved for future use .

13h

13i

Reserved for future use .

13i

Balance due. If line 12 is more than line 13g, enter the difference and see instructions .

Overpayment. If line 13g is more than line 12, enter the difference

Part 2:

13b

Check one:

. 11,738 . 16 . . 8,590 . 01 Apply to next return.

Send a refund.

Tell us about your deposit schedule and tax liability for this quarter.

If you’re unsure about whether you’re a monthly schedule depositor or a semiweekly schedule depositor, see section 11 of Pub. 15. 16 Check one:

Month 1 Month 2 Month 3

Total liability for quarter

. . . .

Total must equal line 12.

Next Na Form 941 (Rev. 6-2022)

Solutions for Questions and Problems – Chapter 9

Comprehensive Problem 1. e. cont. Form

940 for 2022: Employer’s Annual Federal Unemployment (FUTA) Tax Return

850113

Department of the Treasury — Internal Revenue Service

Employer identification number (EIN)

—

OMB No. 1545-0028

Type of Return (Check all that apply.)

Name (not your trade name)

Richmond Industries

a. Amended

DRAFT AS OF June 29, 2022 DO NOT FILE

b. Successor employer

Trade name (if any)

Address

c. No payments to employees in 2022 d. Final: Business closed or stopped paying wages

4000 Research Forest Drive Number

Street

Suite or room number

The Woodlands City

Foreign country name

77381

State

ZIP code

Go to www.irs.gov/Form940 for instructions and the latest information.

Foreign postal code

Foreign province/county

Read the separate instructions before you complete this form. Please type or print within the boxes.

Part 1:

Tell us about your return. If any line does NOT apply, leave it blank. See instructions before completing Part 1.

If you had to pay state unemployment tax in one state only, enter the state abbreviation .

If you had to pay state unemployment tax in more than one state, you are a multi-state employer . . . . . . . . . . . . . . . . . . . . . . . . . . . 1b

Check here. Complete Schedule A (Form 940).

If you paid wages in a state that is subject to CREDIT REDUCTION .

Check here. Complete Schedule A (Form 940).

Part 2:

Determine your FUTA tax before adjustments. If any line does NOT apply, leave it blank.

Total payments to all employees .

Payments exempt from FUTA tax .

Other

279,330 . 00

4 4c 4d

Retirement/Pension Dependent care

Total of payments made to each employee in excess of $7,000 . . . . . . . . . . . . . . . .

237,900

. 00

Subtotal (line 4 + line 5 = line 6) .

237,900 . 00

Total taxable FUTA wages (line 3 – line 6 = line 7). See instructions .

41,430 . 00

FUTA tax before adjustments (line 7 x 0.006 = line 8) .

248 . 58

Check all that apply: 4a 4b 5

Part 3: 9 10

Fringe benefits Group-term life insurance

Determine your adjustments. If any line does NOT apply, leave it blank.

Part 4:

. . .

Determine your FUTA tax and balance due or overpayment. If any line does NOT apply, leave it blank.

Total FUTA tax after adjustments (lines 8 + 9 + 10 + 11 = line 12) .

248 . 58

FUTA tax deposited for the year, including any overpayment applied from a prior year

0 . 00

248 . 58

Overpayment. If line 13 is more than line 12, enter the excess on line 15 and check a box below 15 You MUST complete both pages of this form and SIGN it.

Check one:

Apply to next return.

For Privacy Act and Paperwork Reduction Act Notice, see the back of the Payment Voucher.

Cat. No. 11234O

. Send a refund. Form 940 (2022)

9-21

9-22

Chapter 9 – Employment Taxes, Estimated Payments, and Retirement Plans

Comprehensive Problem 1. f. cont. Safe, accurate, FAST! Use

a Employee’s social security number

613-27-7730

OMB No. 1545-0008

b Employer identification number (EIN)

Visit the IRS website at www.irs.gov/efile

1 Wages, tips, other compensation

56-8188324

2 Federal income tax withheld

55,000.00

c Employer’s name, address, and ZIP code

4 Social security tax withheld

5 Medicare wages and tips

6 Medicare tax withheld

7 Social security tips

8 Allocated tips

10 Dependent care benefits

11 Nonqualified plans

12a See instructions for box 12

55,000.00

Richmond Industries 4000 Research Forest Drive The Woodlands, TX 77381

3,410.00

55,000.00

d Control number

e Employee’s first name and initial

4,585.68

3 Social security wages

Last name

Suff.

Ben Kenofee 2000 Berrywood Bend Drive, Apt 3K Tomball, TX 77375

Statutory employee

Retirement plan

797.50

C o d e

Third-party sick pay

14 Other

12b C o d e

12c C o d e

12d C o d e

f Employee’s address and ZIP code 15 State

Employer’s state ID number

16 State wages, tips, etc. 17 State income tax

18 Local wages, tips, etc. 19 Local income tax

Form

W-2 Wage and Tax Statement

2022

Copy B—To Be Filed With Employee’s FEDERAL Tax Return. This information is being furnished to the Internal Revenue Service.

a Control number

33333

(Check one)

For Official Use Only a

941

Military

X CT-1

c Total number of Forms W-2

Hshld. emp.

943

944

Medicare govt. emp.

Kind of Employer (Check one)

d Establishment number

Kind of Payer

Department of the Treasury—Internal Revenue Service

OMB No. 1545-0008

20 Locality name

None apply

501c non-govt.

State/local non-501c

State/local 501c

1 Wages, tips, other compensation

48,485.68

3 Social security wages

56-8188324

4 Social security tax withheld

266,330.00

f Employer’s name

16,512.46

5 Medicare wages and tips

Richmond Industries

6 Medicare tax withheld

279,330.00

4,050.29 8 Allocated tips

7 Social security tips

4000 Research Forest Drive The Woodlands, TX 77381

(Check if applicable)

Federal govt.

2 Federal income tax withheld

279,330.00

e Employer identification number (EIN)

Third-party sick pay

10 Dependent care benefits

9 11 Nonqualified plans

12a Deferred compensation

13 For third-party sick pay use only

12b

g Employer’s address and ZIP code h Other EIN used this year

15 State

Employer’s state ID number

16 State wages, tips, etc.

17 State income tax

14 Income tax withheld by payer of third-party sick pay

18 Local wages, tips, etc.

Employer’s contact person

Employer’s telephone number

Employer’s fax number

Employer’s email address

19 Local income tax

For Official Use Only

Under penalties of perjury, I declare that I have examined this return and accompanying documents, and, to the best of my knowledge and belief, they are true, correct, and complete. Signature a Form

Date a

Title a

W-3 Transmittal of Wage and Tax Statements

2022

Department of the Treasury Internal Revenue Service

CHAPTER 10 PARTNERSHIP TAXATION Group 1 – Multiple Choice Questions 1. D Corporations cannot be treated as partnerships (LO 10.1) 2. C Two unrelated persons operating a trade or business as owners are a partnership unless organized as a corporation (LO 10.1) 3. C Income allocation of $4,000. Partnership distributions are not generally taxable (LO 10.1) 4. B Limited partners have no liability beyond their investment in the partnership (LO 10.1) 5. C Shareholders recognize income when distributed and partner’s income is the allocated amount and does not generally include distributions (LO 10.1) 6. B Tax-exempt income, though not taxable, increases a partner’s basis (LO 10.2) 7. B Debt-relief decreases a partner’s basis (LO 10.2) 8. C Generally, the adjusted basis carries over (LO 10.2) 9. C Generally, the adjusted basis carries over (LO 10.2) 10. A Generally, no gain or loss is recognized on the contribution of property to a partnership (LO 10.2) 11. A Generally, no gain or loss is recognized on the contribution of property to a partnership (LO 10.2) 12. A $3,000 liability assumed by Blake (contributed by Ryan) exceeds Ryan’s $1,000 basis of property (LO 10.2) 13. C Typical depreciation is reported as part of ordinary business income (LO 10.3) 14. D Net rental income must be reported as a separately stated item (LO 10.3) 15. B The qualified business income deduction is permitted for individual owners not the partnership (LO 10.3 and 10.7) 16. C Schedule K-1 is used to report each partner’s income and separately stated items (LO 10.3) 17. D $13,000 of income plus $7,000 of guaranteed payments are subject to self-employment tax (LO 10.3)

18. E Guaranteed payments are part of ordinary business income but are also reported separately to the partner that receives the guaranteed payment (LO 10.3) 19. C Income is the $5,000 distribution in excess of basis ($11,000 – $6,000); basis is reduced to zero (LO 10.4) 20. A Income is $10,000 + $80,000 x 25%; basis is $40,000 + $20,000 – $16,000 (LO 10.4) 21. D Basis must be reduced by $4,000 distribution prior to loss, leaving a deductible loss of $6,000 and $0 basis (LO 10.4) 22. D The entry of a new partner will not cause a new tax year for the partnership (LO 10.5) 23. D The partnership must use the same year-end as its partners in most instances (LO 10.5) 24. A Because Kendra and the partnership are related (>50% owner), the loss is disallowed (LO 10.6) 25. C The greater than 50% common ownership of the two partnerships makes the transaction a related party transaction (LO 10.6) 26. B $30,000 x 20%; the other items are not considered qualified business income (LO 10.7) 27. C Greater of 50% of allocated wages $3,600 ($24,000 x 30% x 50%) or 25% of allocated wages and 2.5% of allocated qualified property $6,300 ($24,000 x 30% x 25%) + ($600,000 x 30% x 2.5%) (LO 10.7) 28. B Statement A to Schedule K-1 is used to report QBI info (LO 10.7) 29. B The loan represents qualified nonrecourse financing and thus is included the at-risk amount (LO 10.8) 30. A $30,000 net increase in recourse debt x 30% (LO 10.8) 31. B The LLC form generally shields owners from liability (LO 10.9) 32. C LLC members that are actively engaged generally treat LLC income as self-employment income (LO 10.9)

10-1

10-2

Chapter 10 – Partnership Taxation

Group 2 – Problems 1. Unlike corporations, limited partnerships, LLCs, and LLPs, general partnerships may be formed by a simple verbal agreement or “handshake” between the partners. Alan and Debbie are carrying on a business and have formed a partnership and must file a partnership tax return. (LO 10.1) 2. As a flowthrough entity, partnerships allocate income to partners as the income is earned by the partnership. As such, a partner reports their distributive share of income for the tax year whether or not any cash is distributed to that partner. Generally, distributions are not treated as income. (LO 10.1) 3. Limited partners have no obligation for partnership liabilities beyond their initial contribution. General partners have unlimited liability for the liabilities of the partnership. (LO 10.1) 4. $50,000. The partnership’s basis in the property is equal to the adjusted basis of the property to the partner at the date of the contribution, $50,000, plus any gain recognized, $0. (LO 10.2) 5. $31,000 = $40,000 + $70,000 – $80,000 + $1,000. (LO 10.2, 10.4) 6. a. $0. b. $16,000. The basis of the property contributed by the partner to the partnership. (LO 10.2) 7. a. Income or gain recognized ((2/3 x $75,000) – $45,000) Mitchell’s basis in the partnership interest ($45,000 – (2/3 x $75,000) + $5,000) b. Income or gain recognized Max’s basis in the partnership interest ($25,000 carryover basis of property + $25,000 of liability allocated) c. Income or gain recognized Romeo’s basis in the partnership interest ($105,000 of services provided + $25,000 of liability allocated) (LO 10.2)

$ 5,000 $ 0 $ 0 $ 50,000

$105,000 $130,000

8. a. $0. The liability assumed through the partnership by the other partner, $48,000 ($80,000 x 60%), does not exceed the basis of the property transferred to the partnership, $70,000; therefore, no gain is recognized. b. $22,000 = $70,000 basis of property contributed – $48,000 liability assumed by the other partners through the partnership. c. $70,000, the basis of the property to the partner immediately prior to the transfer to the partnership. d. $228,000 = $170,000 of cash + $10,000 for services provided + $48,000 of liabilities allocated to Nova. e. $10,000. Income recognized for services performed in exchange for partnership interest. (LO 10.2) 9. a. $18,000 loss, her share of the partnership loss. b. $34,000 = $60,000 – $18,000 – $8,000. (LO 10.2, 10.4) 10. Common separately stated items include net rental income, guaranteed payments, interest income, ordinary and qualified dividends, royalties, capital gains and losses, unrecaptured Section 1250 gains, Section 1231 gains and losses, Section 179 immediate expensing deduction, tax-exempt income, non-deductible expenses, distributions, foreign taxes paid, self-employment income, and charitable contributions. Less common items include Subpart F income, items subject to hobby loss limitations, tax preference items for alternative minimum tax, recovered bad debts, nonbusiness expenses, intangible drilling and development costs, and any item of partnership income, loss, gain, or deduction subject to a special allocation. (LO 10.3) 11. Kai should report income of $42,500 = $25,000 + 50% x ($60,000 – $25,000). Taonga should report income of $17,500 = 50% x ($60,000 – $25,000). (LO 10.4) 12. $5,000. Ordinary business income of $4,000 plus guaranteed payments of $1,000. Separately stated items and distributions are not generally subject to self-employment tax. (LO 10.3)

Solutions for Questions and Problems – Chapter 10

10-3

13. Rona’s beginning basis of $7,000 is first increased by $500 of partnership income but then reduced by the $5,000 distribution resulting in an ending basis of $2,500. Rona’s current year income is $500. Elijah’s beginning basis of $3,000 is also increased by $500 but the $5,000 distribution cannot decrease his basis below $0 and thus his ending basis is $0 but he must treat $1,500 ($5,000 – $3,500) of the distribution as income. Elijah’s current year income is $2,000. (LO 10.4) 14. a. $2,000 = $18,000 – $16,000. Only the cash received that exceeds Walter’s basis results in a taxable gain. The property will have a basis of zero to Walter and gain or loss on the property will be calculated at its disposal. b. $0. A partnership generally does not recognize any gain or loss on the distribution of property to the partners. c. $0. The $18,000 distribution exceeds Walter’s $16,000 basis by $2,000 and thus generates a $2,000 gain. $16,000 + $2,000 – $18,000. (LO 10.4) 15. Partnerships generally must adopt the same taxable year-end as the majority of its partners. If the majority of partners do not have the same tax year, the the tax year that provides the least aggregate deferral is selected. (LO 10.5) 16. $38,000 = $14,000 + (12 months x $2,000 per month). The $3,000 monthly payment for October through December, 2022, would be reported on Kereru’s 2023 individual income tax return (the year within which the partnership’s next tax year ends). (LO 10.5) 17. $40,000 ordinary income = $160,000 – $120,000. The gain is ordinary income since Louise (1) owns more than 50 percent of the partnership, 45 percent directly and 55 percent indirectly, and (2) the asset transferred is not a capital asset to the partnership. (LO 10.6) 18. Because Rhianna owns more than 50% each of both ANTI and LOUD, ANTI is not permitted to recognize any of the $10,000 loss on the sale of the property to LOUD. Later, when LOUD sells the property to an unrelated party, LOUD may offset their $2,000 gain with the disallowed loss but only up the the amount of the gain and thus LOUD recognizes no gain or loss on the sale. The remaining disallowed loss of $8,000 is never recognized by either partnership. (LO 10.6) 19. The IRS rules indicate that a failure to report QBI information is equivalent to reporting zero for all QBI amounts. The consequences of the failure to report this information is that the partner would be ineligible to take a QBI deduction associated with that partnership activity. (LO 10.7) 20. a. $6,000 = $20,000 x 30%. b. $270,000 = $900,000 x 30%. (LO 10.7) 21. a. $80,000 = $30,000 + $70,000 – $20,000. b. $80,000, the amount at risk. c. The remaining loss of $20,000 may be carried forward indefinitely to be deducted in succeeding years when Van has additional amounts at risk. (LO 10.8) 22. Basis is $29,000. $23,000 + $8,000 ($20,000 x 40%) + $3,000 - $5,000. Amount at-risk is $21,000. $23,000 + $3,000 – $5,000. Nonrecourse debt is not included in the at-risk amount unless qualified nonrecourse debt. (LO 10.8) 23. $80,000 = $30,000 + $70,000 – $20,000. (LO 10.8 and 10.9) 24. LLCs have limited liability for owners; whereas, general partners are generally liable for partnership debts. Many professional service firms cannot be organized as an LLC. LLCs are not required to have a general partner. LLC members can participate in business management. LLCs can have a single owner whereas partnerships must have 2 or more. (LO 10.9)

Group 3 – Problems 1. See Form 1065 and Schedules K-1 on Pages 10-4 through 10-12.

10-4

Chapter 10 – Partnership Taxation

Comprehensive Problem Form

1065

U.S. Return of Partnership Income For calendar year 2022, or tax year beginning

Department of the Treasury Internal Revenue Service

D Employer identification number

J&S Barbers Type or Print

95-6767676

Number, street, and room or suite no. If a P.O. box, see instructions.

E Date business started

1023 Lexington Ave.

1/01/22

DRAFT AS OF July 20, 2022 DO NOT FILE

C Business code number

812111

2022

Name of partnership

Barber Service Barber Service

, 20

Go to www.irs.gov/Form1065 for instructions and the latest information.

A Principal business activity

B Principal product or service

, 2022, ending

OMB No. 1545-0123

City or town, state or province, country, and ZIP or foreign postal code

F Total assets (see instructions)

New York, NY 10128

(1) x Initial return (1) x Cash

(3) Final return Name change (4) Address change (3) Accrual Other (specify): H Check accounting method: I Number of Schedules K-1. Attach one for each person who was a partner at any time during the tax year: 2

G Check applicable boxes:

(2) (2)

J Check if Schedules C and M-3 are attached . . . . . . . . . . . K Check if partnership: (1) Aggregated activities for section 465 at-risk purposes

. . (2)

95,000

(5)

Amended return

. . . . . . . . . . . . . . . . Grouped activities for section 469 passive activity purposes

INTERNAL USE ONLY

Tax and Payment

Deductions (see instructions for limitations)

Income

Caution: Include only trade or business income and expenses on lines 1a through 22 below. See instructions for more information. 1a Gross receipts or sales . . . . . . . . . . . . . . . . . 1a 349,000 b Returns and allowances . . . . . . . . . . . . . . . . 1b c Balance. Subtract line 1b from line 1a . . . . . . . . . . . . . . . . . . . . 1c 349,000 2 Cost of goods sold (attach Form 1125-A) . . . . . . . . . . . . . . . . . . 2 3 Gross profit. Subtract line 2 from line 1c . . . . . . . . . . . . . . . . . . . 3 349,000 4 Ordinary income (loss) from other partnerships, estates, and trusts (attach statement) . . . . 4 5 Net farm profit (loss) (attach Schedule F (Form 1040)) . . . . . . . . . . . . . . 5 6 Net gain (loss) from Form 4797, Part II, line 17 (attach Form 4797) . . . . . . . . . . 6 7 Other income (loss) (attach statement) . . . . . . . . . . . . . . . . . . . 7 8 Total income (loss). Combine lines 3 through 7 . . . . . . . . . . . . . . . . 8 349,000 9 Salaries and wages (other than to partners) (less employment credits) . . . . . . . . . 9 90,000 10 Guaranteed payments to partners . . . . . . . . . . . . . . . . . . . . . 10 10,000 11 Repairs and maintenance . . . . . . . . . . . . . . . . . . . . . . . . 11 12 Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 13 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 90,000 14 Taxes and licenses . . . . . . . . . . . . . . . . . . . . . . . . . . 14 11,000 15 Interest (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . 15 16a Depreciation (if required, attach Form 4562) . . . . . . . . . . 16a 32,100 b Less depreciation reported on Form 1125-A and elsewhere on return . 16b 16c 32,100 17 Depletion (Do not deduct oil and gas depletion.) . . . . . . . . . . . . . . . 17 18 Retirement plans, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 18 19 Employee benefit programs . . . . . . . . . . . . . . . . . . . . . . . 19 20 Other deductions (attach statement) . . . . . . . . . . . . . . . . Supplies . . . . 20 7,900 21 Total deductions. Add the amounts shown in the far right column for lines 9 through 20 . . . 21 241,000 22 Ordinary business income (loss). Subtract line 21 from line 8 . . . . . . . . . . . 22 108,000 23 Interest due under the look-back method—completed long-term contracts (attach Form 8697) . 23 24 Interest due under the look-back method—income forecast method (attach Form 8866) . . . 24 25 BBA AAR imputed underpayment (see instructions) . . . . . . . . . . . . . . . 25 26 Other taxes (see instructions) . . . . . . . . . . . . . . . . . . . . . . 26 27 Total balance due. Add lines 23 through 26 . . . . . . . . . . . . . . . . . 27 28 Payment (see instructions) . . . . . . . . . . . . . . . . . . . . . . . 28 29 Amount owed. If line 28 is smaller than line 27, enter amount owed . . . . . . . . . . 29 30 Overpayment. If line 28 is larger than line 27, enter overpayment . . . . . . . . . . 30

Sign Here

Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than partner or limited liability company member) is based on all information of which preparer has any knowledge.

Signature of partner or limited liability company member

Paid Preparer Use Only

Print/Type preparer’s name

Preparer’s signature

May the IRS discuss this return with the preparer shown below? See instructions. Yes No

Date Date

Firm’s name

PTIN

Firm’s EIN

Firm’s address

For Paperwork Reduction Act Notice, see separate instructions.

Check if self-employed

Phone no. Cat. No. 11390Z

Form 1065 (2022)

Solutions for Questions and Problems – Chapter 10

Comprehensive Problem, cont. Page 2

Form 1065 (2022)

Schedule B 1 a c e 2 a

Other Information

What type of entity is filing this return? Check the applicable box: b Domestic limited partnership x Domestic general partnership Domestic limited liability company d Domestic limited liability partnership Foreign partnership f Other: At the end of the tax year: Did any foreign or domestic corporation, partnership (including any entity treated as a partnership), trust, or taxexempt organization, or any foreign government own, directly or indirectly, an interest of 50% or more in the profit, loss, or capital of the partnership? For rules of constructive ownership, see instructions. If “Yes,” attach Schedule B-1, Information on Partners Owning 50% or More of the Partnership . . . . . . . . . . . . . . . b Did any individual or estate own, directly or indirectly, an interest of 50% or more in the profit, loss, or capital of the partnership? For rules of constructive ownership, see instructions. If “Yes,” attach Schedule B-1, Information on Partners Owning 50% or More of the Partnership . . . . . . . . . . . . . . . . . . . . 3 At the end of the tax year, did the partnership: a Own directly 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all classes of stock entitled to vote of any foreign or domestic corporation? For rules of constructive ownership, see instructions. If “Yes,” complete (i) through (iv) below . . . . . . . . . . . . . . . . . . . . . . . . .

DRAFT AS OF July 20, 2022 DO NOT FILE (i) Name of Corporation

(ii) Employer Identification Number (if any)

(iii) Country of Incorporation

Yes

x x

(iv) Percentage Owned in Voting Stock

b Own directly an interest of 20% or more, or own, directly or indirectly, an interest of 50% or more in the profit, loss, or capital in any foreign or domestic partnership (including an entity treated as a partnership) or in the beneficial interest of a trust? For rules of constructive ownership, see instructions. If “Yes,” complete (i) through (v) below . . (i) Name of Entity

(ii) Employer Identification Number (if any)

(iii) Type of Entity

(iv) Country of Organization

(v) Maximum Percentage Owned in Profit, Loss, or Capital

4 a b c

Does the partnership satisfy all four of the following conditions? The partnership’s total receipts for the tax year were less than $250,000. The partnership’s total assets at the end of the tax year were less than $1 million. Schedules K-1 are filed with the return and furnished to the partners on or before the due date (including extensions) for the partnership return. d The partnership is not filing and is not required to file Schedule M-3 . . . . . . . . . . . . . . . If “Yes,” the partnership is not required to complete Schedules L, M-1, and M-2; item F on page 1 of Form 1065; or item L on Schedule K-1. 5 Is this partnership a publicly traded partnership, as defined in section 469(k)(2)? . . . . . . . . . . . 6 During the tax year, did the partnership have any debt that was canceled, was forgiven, or had the terms modified so as to reduce the principal amount of the debt? . . . . . . . . . . . . . . . . . . . . . 7 Has this partnership filed, or is it required to file, Form 8918, Material Advisor Disclosure Statement, to provide information on any reportable transaction? . . . . . . . . . . . . . . . . . . . . . . . . At any time during calendar year 2022, did the partnership have an interest in or a signature or other authority over 8 a financial account in a foreign country (such as a bank account, securities account, or other financial account)? See instructions for exceptions and filing requirements for FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). If “Yes,” enter the name of the foreign country At any time during the tax year, did the partnership receive a distribution from, or was it the grantor of, or transferor to, a foreign trust? If “Yes,” the partnership may have to file Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. See instructions . . . . . . . . . . . . . . . 10a Is the partnership making, or had it previously made (and not revoked), a section 754 election? . . . . . . See instructions for details regarding a section 754 election. b Did the partnership make for this tax year an optional basis adjustment under section 743(b) or 734(b)? If “Yes,” attach a statement showing the computation and allocation of the basis adjustment. See instructions . . . .

Yes

x x x x x

Is the partnership required to adjust the basis of partnership assets under section 743(b) or 734(b) because of a substantial built-in loss (as defined under section 743(d)) or substantial basis reduction (as defined under section 734(d))? If “Yes,” attach a statement showing the computation and allocation of the basis adjustment. See instructions

x x x x

Form 1065 (2022)

10-5

10-6

Chapter 10 – Partnership Taxation

Comprehensive Problem, cont. Page 3

Form 1065 (2022)

Schedule B 11

Other Information (continued)

Check this box if, during the current or prior tax year, the partnership distributed any property received in a likekind exchange or contributed such property to another entity (other than disregarded entities wholly owned by the partnership throughout the tax year) . . . . . . . . . . . . . . . . . . . . . . . . . At any time during the tax year, did the partnership distribute to any partner a tenancy-in-common or other undivided interest in partnership property? . . . . . . . . . . . . . . . . . . . . . . . .

DRAFT AS OF July 20, 2022 DO NOT FILE

If the partnership is required to file Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs), enter the number of Forms 8858 attached. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Does the partnership have any foreign partners? If “Yes,” enter the number of Forms 8805, Foreign Partner’s Information Statement of Section 1446 Withholding Tax, filed for this partnership . . . . . . 15 Enter the number of Forms 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, attached to this return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16a Did you make any payments in 2022 that would require you to file Form(s) 1099? See instructions . . . . . b If “Yes,” did you or will you file required Form(s) 1099? . . . . . . . . . . . . . . . . . . . . 17 Enter the number of Forms 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, attached to this return . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Enter the number of partners that are foreign governments under section 892 . . . . . . . 19 During the partnership’s tax year, did the partnership make any payments that would require it to file Forms 1042 and 1042-S under chapter 3 (sections 1441 through 1464) or chapter 4 (sections 1471 through 1474)? . . . . 20 Was the partnership a specified domestic entity required to file Form 8938 for the tax year? See the Instructions for Form 8938 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Is the partnership a section 721(c) partnership, as defined in Regulations section 1.721(c)-1(b)(14)? . . . . . 22 During the tax year, did the partnership pay or accrue any interest or royalty for which one or more partners are not allowed a deduction under section 267A? See instructions . . . . . . . . . . . . . . . . . If “Yes,” enter the total amount of the disallowed deductions . . . . . . . . . . . . $ 23 Did the partnership have an election under section 163(j) for any real property trade or business or any farming business in effect during the tax year? See instructions . . . . . . . . . . . . . . . . . . . . 24 Does the partnership satisfy one or more of the following? See instructions . . . . . . . . . . . . . a The partnership owns a pass-through entity with current, or prior year carryover, excess business interest expense. b The partnership’s aggregate average annual gross receipts (determined under section 448(c)) for the 3 tax years preceding the current tax year are more than $27 million and the partnership has business interest. c The partnership is a tax shelter (see instructions) and the partnership has business interest expense. If “Yes” to any, complete and attach Form 8990. 25 Is the partnership attaching Form 8996 to certify as a Qualified Opportunity Fund? . . . . . . . . . . If “Yes,” enter the amount from Form 8996, line 15 . . . . . . . . . . . . . . . $ 26

27 28

29 30

Enter the number of foreign partners subject to section 864(c)(8) as a result of transferring all or a portion of an interest in the partnership or of receiving a distribution from the partnership . . . . . . . . Complete Schedule K-3 (Form 1065), Part XIII, for each foreign partner subject to section 864(c)(8) on a transfer or distribution. At any time during the tax year, were there any transfers between the partnership and its partners subject to the disclosure requirements of Regulations section 1.707-8? . . . . . . . . . . . . . . . . . . . Since December 22, 2017, did a foreign corporation directly or indirectly acquire substantially all of the properties constituting a trade or business of your partnership, and was the ownership percentage (by vote or value) for purposes of section 7874 greater than 50% (for example, the partners held more than 50% of the stock of the foreign corporation)? If “Yes,” list the ownership percentage by vote and by value. See instructions. Percentage: By vote: By value: How many Schedules K-1 and Schedules K-3 were not furnished or will not be furnished timely? Is the partnership electing out of the centralized partnership audit regime under section 6221(b)? See instructions. If “Yes,” the partnership must complete Schedule B-2 (Form 1065). Enter the total from Schedule B-2, Part III, line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . If “No,” complete Designation of Partnership Representative below.

Yes

x x

x x x x x x

x x

Designation of Partnership Representative (see instructions) Enter below the information for the partnership representative (PR) for the tax year covered by this return. Name of PR U.S. address of PR

U.S. phone number of PR

If the PR is an entity, name of the designated individual for the PR U.S. address of designated individual

U.S. phone number of designated individual Form 1065 (2022)

Solutions for Questions and Problems – Chapter 10

Comprehensive Problem, cont. Page 4

Form 1065 (2022)

Other Information

Alternative InterMinimum Tax (AMT) Items national

Credits

SelfEmploy- Deductions ment

Income (Loss)

Schedule K 1 2 3a b c 4 5 6 7 8 9a b c 10 11 12 13a b c d 14a b c 15a b c d e f

Partners’ Distributive Share Items

Total amount

Ordinary business income (loss) (page 1, line 22) . . . . . . . . . . . . . . . 1 Net rental real estate income (loss) (attach Form 8825) . . . . . . . . . . . . . 2 3a Other gross rental income (loss) . . . . . . . . . . . . . Expenses from other rental activities (attach statement) . . . . . 3b Other net rental income (loss). Subtract line 3b from line 3a . . . . . . . . . . . . 3c Guaranteed payments: a Services 4a b Capital 4b 10,000 c Total. Add lines 4a and 4b . . . . . . . . . . . . . . . . . . . . . . 4c Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Dividends and dividend equivalents: a Ordinary dividends . . . . . . . . . . . . 6a b Qualified dividends 6b c Dividend equivalents 6c Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Net short-term capital gain (loss) (attach Schedule D (Form 1065)) . . . . . . . . . . 8 Net long-term capital gain (loss) (attach Schedule D (Form 1065)) . . . . . . . . . . 9a Collectibles (28%) gain (loss) . . . . . . . . . . . . . . 9b Unrecaptured section 1250 gain (attach statement) . . . . . . 9c Net section 1231 gain (loss) (attach Form 4797) . . . . . . . . . . . . . . . . 10 Other income (loss) (see instructions) Type: 11 Section 179 deduction (attach Form 4562) . . . . . . . . . . . . . . . . . 12 Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 13a Investment interest expense . . . . . . . . . . . . . . . . . . . . . . 13b Section 59(e)(2) expenditures: (1) Type: (2) Amount: 13c(2) Other deductions (see instructions) Type: 13d Net earnings (loss) from self-employment . . . . . . . . . . . . . . . . . . 14a Gross farming or fishing income . . . . . . . . . . . . . . . . . . . . . 14b Gross nonfarm income . . . . . . . . . . . . . . . . . . . . . . . . 14c Low-income housing credit (section 42(j)(5)) . . . . . . . . . . . . . . . . . 15a Low-income housing credit (other) . . . . . . . . . . . . . . . . . . . . 15b Qualified rehabilitation expenditures (rental real estate) (attach Form 3468, if applicable) . . 15c Other rental real estate credits (see instructions) Type: 15d Other rental credits (see instructions) Type: 15e Other credits (see instructions) Type: 15f

DRAFT AS OF July 20, 2022 DO NOT FILE

Attach Schedule K-2 (Form 1065), Partners’ Distributive Share Items—International, and check this box to indicate that you are reporting items of international tax relevance . . . . .

17a b c d e f 18a b c 19a b 20a b c 21

Post-1986 depreciation adjustment . . . . . . Adjusted gain or loss . . . . . . . . . . Depletion (other than oil and gas) . . . . . . Oil, gas, and geothermal properties—gross income Oil, gas, and geothermal properties—deductions . Other AMT items (attach statement) . . . . . . Tax-exempt interest income . . . . . . . . Other tax-exempt income . . . . . . . . . Nondeductible expenses . . . . . . . . . Distributions of cash and marketable securities . . Distributions of other property . . . . . . . Investment income . . . . . . . . . . . Investment expenses . . . . . . . . . . Other items and amounts (attach statement) Total foreign taxes paid or accrued . . . . . .

. . . . . . . . . . . . .

17a 17b 17c 17d 17e 17f 18a 18b 18c 19a 19b 20a 20b

108,000

10,000 1,000

(2,000)

1,000

118,000 (a)

3,000 100,000 1,000

Form 1065 (2022)

(a) Ordinary business income $108,000 plus guaranteed payment $10,000.

10-7

10-8

Chapter 10 – Partnership Taxation

Comprehensive Problem, cont. Page 5

Form 1065 (2022)

Analysis of Net Income (Loss) per Return 1

Net income (loss). Combine Schedule K, lines 1 through 11. From the result, subtract the sum of 1 Schedule K, lines 12 through 13d, and 21 . . . . . . . . . . . . . . . . . . . . (i) Corporate (ii) Individual (iii) Individual (iv) Partnership (v) Exempt 2 Analysis by (active) (passive) Organization partner type: a General partners 116,000 b Limited partners

Schedule L 1 2a b 3 4 5 6 7a b 8 9a b 10a b 11 12a b 13 14 15 16 17 18 19a b 20 21 22

DRAFT AS OF July 20, 2022 DO NOT FILE Balance Sheets per Books

Beginning of tax year (a) (b)

Assets Cash . . . . . . . . . . . . . . . . Trade notes and accounts receivable . . . . . . Less allowance for bad debts . . . . . . . . Inventories . . . . . . . . . . . . . . U.S. Government obligations . . . . . . . . Tax-exempt securities . . . . . . . . . . Other current assets (attach statement) . . . . . Loans to partners (or persons related to partners) . Mortgage and real estate loans . . . . . . . Other investments (attach statement) . . . . . . Buildings and other depreciable assets . . . . . Less accumulated depreciation . . . . . . . Depletable assets . . . . . . . . . . . . Less accumulated depletion . . . . . . . . Land (net of any amortization) . . . . . . . . Intangible assets (amortizable only) . . . . . . Less accumulated amortization . . . . . . . Other assets (attach statement) . . . . . . . Total assets . . . . . . . . . . . . . . Liabilities and Capital Accounts payable . . . . . . . . . . . . Mortgages, notes, bonds payable in less than 1 year Other current liabilities (attach statement) . . . . All nonrecourse loans . . . . . . . . . . . Loans from partners (or persons related to partners) . Mortgages, notes, bonds payable in 1 year or more . Other liabilities (attach statement) . . . . . . . Partners’ capital accounts . . . . . . . . . Total liabilities and capital . . . . . . . . .

Schedule M-1

116,000 (vi) Nominee/Other

End of tax year

(c)

Initial Return

(d)

92,000

35,100 32,100

3,000

95,000

52,000 43,000 95,000

Reconciliation of Income (Loss) per Books With Analysis of Net Income (Loss) per Return

Note: The partnership may be required to file Schedule M-3. See instructions. Net income (loss) per books . . . . 6 Income recorded on books this year not included 103,000 on Schedule K, lines 1 through 11 (itemize): 2 Income included on Schedule K, lines 1, 2, 3c, a Tax-exempt interest $ 5, 6a, 7, 8, 9a, 10, and 11, not recorded on books this year (itemize): 3 Guaranteed payments (other than health 7 Deductions included on Schedule K, insurance) . . . . . . . . . . 10,000 lines 1 through 13d, and 21, not charged against book income this year (itemize): 4 Expenses recorded on books this year a Depreciation $ not included on Schedule K, lines 1 through 13d, and 21 (itemize): a Depreciation $ 8 Add lines 6 and 7 . . . . . . . . b Travel and entertainment $ 3,000 9 Income (loss) (Analysis of Net Income 3,000 5 Add lines 1 through 4 . . . . . . (Loss), line 1). Subtract line 8 from line 5 116,000

Schedule M-2 1 2 3 4 5

0 116,000

Analysis of Partners’ Capital Accounts

Balance at beginning of year . . Capital contributed: a Cash . . b Property . Net income (loss) (see instructions) Other increases (itemize): Add lines 1 through 4 . . . . .

. . . . .

0 40,000

6 7

116,000 156,000

Distributions: a Cash . . . . . . b Property . . . . . Other decreases (itemize): Guar payment

Non-deductible expenses

8 9

Add lines 6 and 7 .

Balance at end of year. Subtract line 8 from line 5

100,000 13,000 113,000 43,000 Form 1065 (2022)

Solutions for Questions and Problems – Chapter 10

10-9

Comprehensive Problem, cont. 651121 Final K-1

2022

Schedule K-1 (Form 1065) Department of the Treasury Internal Revenue Service

Part III Partner’s Share of Current Year Income, Deductions, Credits, and Other Items 1

2022

ending

Part I

64,000

DRAFT AS OF July 21, 2022 DO NOT FILE

Information About the Partnership

Other net rental income (loss)

Guaranteed payments for services

Credits

Guaranteed payments for capital

Schedule K-3 is attached if checked . . . . .

Total guaranteed payments

Alternative minimum tax (AMT) items

Tax-exempt income and nondeductible expenses

10,000

95-6767676

Partnership’s name, address, city, state, and ZIP code

J&S Barbers 1023 Lexington Ave. New York, NY 10128 C

Self-employment earnings (loss)

Net rental real estate income (loss)

Partnership’s employer identification number

10,000

Interest income

Ordinary dividends

Qualified dividends

Dividend equivalents

Royalties

Net short-term capital gain (loss)

Limited partner or other LLC member

Net long-term capital gain (loss)

Foreign partner

Collectibles (28%) gain (loss)

Unrecaptured section 1250 gain

Net section 1231 gain (loss)

Other income (loss)

500

Kansas City, MO

IRS center where partnership filed return:

Check if this is a publicly traded partnership (PTP)

Part II

Information About the Partner

Partner’s SSN or TIN (Do not use TIN of a disregarded entity. See instructions.)

Name, address, city, state, and ZIP code for partner entered in E. See instructions.

Emily Jackson 456 E. 70th Street New York, NY 10006 x General partner or LLC

765-12-4326

(1,000)

member-manager H1

x Domestic partner

Name

Individual

What type of entity is this partner?

If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here

Partner’s share of profit, loss, and capital (see instructions): Beginning Ending

0 % 0 % 0 %

Profit Loss Capital

50 % 50 % 50 %

Check if decrease is due to sale or exchange of partnership interest

50,000 Other information

500

Z**

54,000

Z**

45,000

Z**

Section 179 deduction

Other deductions

1,500

Distributions

A 20

If the partner is a disregarded entity (DE), enter the partner’s: TIN

54,000 2

Partner’s Share of Income, Deductions, See separate instructions. Credits, etc. A

Ordinary business income (loss)

For calendar year 2022, or tax year

beginning

OMB No. 1545-0123

Amended K-1

17,550 Foreign taxes paid or accrued

Partner’s share of liabilities: Beginning Nonrecourse

Ending

Qualified nonrecourse financing . . .

Recourse

500

More than one activity for at-risk purposes*

More than one activity for passive activity purposes*

26,000

Check this box if item K includes liability amounts from lower-tier partnerships Partner’s Capital Account Analysis Beginning capital account

Capital contributed during the year .

Current year net income (loss) .

Other increase (decrease) (attach explanation) $

Withdrawals and distributions .

Ending capital account

Did the partner contribute property with a built-in gain (loss)?

x No

Yes N

0 20,000 53,000 (1,500) 50,000 21,500

If “Yes,” attach statement. See instructions.

Partner’s Share of Net Unrecognized Section 704(c) Gain or (Loss) Beginning

Ending .

For Paperwork Reduction Act Notice, see the Instructions for Form 1065.

*See attached statement for additional information.

)

For IRS Use Only

www.irs.gov/Form1065

Cat. No. 11394R

Schedule K-1 (Form 1065) 2022

** The IRS uses code Z for QBI deduction reporting and recommends Statement A from the Form 1065 instructions. Use of Intuit ProConnect software will create Statement A. A version of Statement A is presented on the next page.

10-10 Chapter 10 – Partnership Taxation

Comprehensive Problem, cont. Ê·Ê»Ã»ÄÊ Ƴ ·ÉÉƖ ¾ÈÅË½¾ ÄÊ¿ÊÏ »ÆÅÈÊ¿Ä½ ·ÈÊÄ»ÈÉ¾¿ÆƠÉ Ä·Ã»Ɠ ·ÈÊÄ»ÈƠÉ Ä·Ã»Ɠ

J&S Barbers Emily Jackson

È·º» ÅÈ ËÉ¿Ä»ÉÉ ʸ

·ÈÊÄ»ÈƠÉ É¾·È» Å¼Ɠ

Èº¿Ä·ÈÏ ¸ËÉ¿Ä»ÉÉ ¿Ä¹ÅÃ» ƺÂÅÉÉƻ

Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

Ê¾»È ¿Ä¹ÅÃ» ƺÂÅÉÉƻ

½½È»½·Ê»º

54,000

Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

»¹Ê¿ÅÄ ʸʾˀ º»ºË¹Ê¿ÅÄ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ê¾»È º»ºË¹Ê¿ÅÄÉ

Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

Ɩʹ Í·½»É Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Å¼ ÇË·Â¿¼¿»º ÆÈÅÆ»ÈÊÏ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ »¹Ê¿ÅÄ ʸˀˀ º¿Ì¿º»ÄºÉƔ Ɣ Ɣ Ɣ Ɣ Ɣ

È·º» ÅÈ ËÉ¿Ä»ÉÉ ʺ

½½È»½·Ê»º

»ÄÊ·Â ¿Ä¹ÅÃ» ƺÂÅÉÉƻ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

»¹Ê¿ÅÄ ʸʹʺʸ ½·¿Ä ƺÂÅÉÉƻ

È·º» ÅÈ ËÉ¿Ä»ÉÉ ʹ

ÅÈ ÇË·Â¿¼¿»º ¿Ê»ÃÉ ÉË¸À»¹Ê ÊÅ Æ·ÈÊÄ»ÈƖÉÆ»¹¿¼¿¹ º»Ê»ÈÃ¿Ä·Ê¿ÅÄÉƓ

ÅÏ·ÂÊÏ ¿Ä¹ÅÃ» ƺÂÅÉÉƻ

95-6767676 765-12-4326

·ÈÊÄ»ÈÉ¾¿ÆƠÉ Ɠ ·ÈÊÄ»ÈƠÉ ¿º»ÄÊ¿¼Ï¿Ä½ ÄËÃ¸»ÈƓ

45,000 17,550

Solutions for Questions and Problems – Chapter 10 10-11

Comprehensive Problem, cont.

651121 Final K-1

2022

Schedule K-1 (Form 1065) Department of the Treasury Internal Revenue Service

Part III Partner’s Share of Current Year Income, Deductions, Credits, and Other Items 1

2022

ending

Self-employment earnings (loss)

54,000

Net rental real estate income (loss)

DRAFT AS OF July 21, 2022 DO NOT FILE 3

Other net rental income (loss)

Guaranteed payments for services

Credits

Guaranteed payments for capital

Schedule K-3 is attached if checked . . . . .

Total guaranteed payments

Alternative minimum tax (AMT) items

Interest income

Ordinary dividends

Qualified dividends

Tax-exempt income and nondeductible expenses

Dividend equivalents

Royalties

Net short-term capital gain (loss)

Limited partner or other LLC member

Net long-term capital gain (loss)

Foreign partner

Collectibles (28%) gain (loss)

Unrecaptured section 1250 gain

Net section 1231 gain (loss)

Other income (loss)

Information About the Partnership

Partnership’s employer identification number

Partnership’s name, address, city, state, and ZIP code

95-6767676

J&S Barbers 1023 Lexington Ave. New York, NY 10128

500

Kansas City, MO

IRS center where partnership filed return:

Check if this is a publicly traded partnership (PTP)

Part II

Information About the Partner

Partner’s SSN or TIN (Do not use TIN of a disregarded entity. See instructions.)

Name, address, city, state, and ZIP code for partner entered in E. See instructions.

James Stewart 436 E. 63rd Street New York, NY 10012 x General partner or LLC

466-74-9932

(1,000)

member-manager H1

x Domestic partner

Name

Individual

What type of entity is this partner?

If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here

Partner’s share of profit, loss, and capital (see instructions): Beginning Ending

0 0 0

Profit Loss Capital

50 % 50 % 50 %

% % %

Check if decrease is due to sale or exchange of partnership interest

50,000 Other information

500

Z**

54,000

Z**

45,000

Z**

Section 179 deduction

Other deductions

1,500

Distributions

A 20

If the partner is a disregarded entity (DE), enter the partner’s: TIN

54,000 2

Partner’s Share of Income, Deductions, See separate instructions. Credits, etc. Part I

Ordinary business income (loss)

For calendar year 2022, or tax year

beginning

OMB No. 1545-0123

Amended K-1

17,550 Foreign taxes paid or accrued

Partner’s share of liabilities: Beginning Nonrecourse

Ending

Qualified nonrecourse financing . . .

Recourse

500

More than one activity for at-risk purposes*

More than one activity for passive activity purposes*

26,000

Check this box if item K includes liability amounts from lower-tier partnerships Partner’s Capital Account Analysis Beginning capital account

Capital contributed during the year .

Current year net income (loss) .

Other increase (decrease) (attach explanation) $

Withdrawals and distributions .

Ending capital account

Did the partner contribute property with a built-in gain (loss)?

x No

Yes N

0 20,000 53,000 (1,500) 50,000 21,500

If “Yes,” attach statement. See instructions.

Partner’s Share of Net Unrecognized Section 704(c) Gain or (Loss) Beginning

Ending .

For Paperwork Reduction Act Notice, see the Instructions for Form 1065.

*See attached statement for additional information.

)

For IRS Use Only

www.irs.gov/Form1065

Cat. No. 11394R

Schedule K-1 (Form 1065) 2022

10-12 Chapter 10 – Partnership Taxation

Comprehensive Problem, cont. Ê·Ê»Ã»ÄÊ Ƴ ·ÉÉƖ ¾ÈÅË½¾ ÄÊ¿ÊÏ »ÆÅÈÊ¿Ä½ ·ÈÊÄ»ÈÉ¾¿ÆƠÉ Ä·Ã»Ɠ ·ÈÊÄ»ÈƠÉ Ä·Ã»Ɠ

J&S Barbers James Stewart

È·º» ÅÈ ËÉ¿Ä»ÉÉ ʸ

·ÈÊÄ»ÈƠÉ É¾·È» Å¼Ɠ

Èº¿Ä·ÈÏ ¸ËÉ¿Ä»ÉÉ ¿Ä¹ÅÃ» ƺÂÅÉÉƻ

Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

Ê¾»È ¿Ä¹ÅÃ» ƺÂÅÉÉƻ

½½È»½·Ê»º

54,000

Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

»¹Ê¿ÅÄ ʸʾˀ º»ºË¹Ê¿ÅÄ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ê¾»È º»ºË¹Ê¿ÅÄÉ

Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

È·º» ÅÈ ËÉ¿Ä»ÉÉ ʺ

½½È»½·Ê»º

»ÄÊ·Â ¿Ä¹ÅÃ» ƺÂÅÉÉƻ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

»¹Ê¿ÅÄ ʸʹʺʸ ½·¿Ä ƺÂÅÉÉƻ

È·º» ÅÈ ËÉ¿Ä»ÉÉ ʹ

ÅÈ ÇË·Â¿¼¿»º ¿Ê»ÃÉ ÉË¸À»¹Ê ÊÅ Æ·ÈÊÄ»ÈƖÉÆ»¹¿¼¿¹ º»Ê»ÈÃ¿Ä·Ê¿ÅÄÉƓ

ÅÏ·ÂÊÏ ¿Ä¹ÅÃ» ƺÂÅÉÉƻ

95-6767676 466-74-9932

·ÈÊÄ»ÈÉ¾¿ÆƠÉ Ɠ ·ÈÊÄ»ÈƠÉ ¿º»ÄÊ¿¼Ï¿Ä½ ÄËÃ¸»ÈƓ

45,000 17,550

Solutions for Questions and Problems – Chapter 10 10-13

Key Number Tax Return Summary Chapter 10 Comprehensive Problem Ordinary Business Income (Loss) (Page 1, Line 22)

108,000

Net Income (Loss) (Page 5, Line 1)

116,000

Net Short-Term Capital Gain (Loss) (Page 4, Line 8)

(2,000)

Contributions (Page 4, Line 13a)

1,000

Nondeductible Expenses (Page 4, Line 18c)

3,000

Net Income (Loss) Per Books (Schedule M-1, Line 1)

103,000

10-14 Chapter 10 – Partnership Taxation

CHAPTER 11 THE CORPORATE INCOME TAX Group 1 – Multiple Choice Questions 1. B 2. B 3. A

4. C

5. A

6. D

7. B 8. E 9. D

10. C 11. A 12. D

13. C

Corporations cannot deduct net capital losses. $25,000 x 21% = $5,250 (LO 11.1) $400,000 x 21% (LO 11.1) Corporations cannot deduct net capital losses. Capital losses may only be offset against capital gains. (LO 11.2) 2020 net capital loss can offset $2,000 of the $4,000 2021 net capital gain leaving $2,000 of remaining net capital gain. The 2022 capital loss can be carried back to offset the $2,000 capital gain in 2021 and then the remaining $12,000 must be carried forward. (LO 11.2) $10,000 x 80%. NOLs generated in 2022 may only offset up to 80% of a future year’s income (LO 11.2) The 2022 NOL may not be carried back and may only offset 80% of 2023 income. (LO 11.2) $20,000 x 65%. DRD percentage for a 26%-owned corporation is 65% (LO 11.3) All of these costs qualify as organizational expenditures (LO 11.3) Corporate charitable contributions are limited to 10% of taxable income in 2022 (LO 11.3) The DRD for a 100% owned corporation is 100% (LO 11.3) Schedule M-1 is used to reconcile book income to taxable income (LO 11.4) The Schedule M-1 reconciles book income to taxable income before NOLs and special deductions such as the DRD (LO 11.4) Corporations must make estimated payments during the year, the final one being due on the 15th day of the 12th month (LO 11.5)

14. D Corporations must make estimated payments during the year, the final one being due on the 15th day of the 12th month (LO 11.5) 15. B A large corporation may only use the prior year liability for the first quarter’s estimated payment (LO 11.5) 16. C S corporations may only have one class of stock. The remaining items are all required for S corporation status (LO 11.6) 17. C Long-term capital gains are separately stated. The remaining items are part of ordinary business income (LO 11.6) 18. D S corporation status is an election made by the corporations’ shareholders (LO 11.6) 19. C Deducted losses may not exceed the shareholder’s basis (LO 11.6) 20. C Wages paid to a S corporation shareholder are not QBI (LO 11.6) 21. A Generally no gain or loss is recognized on the exchange of property for stock in a corporation (LO 11.7) 22. B $45,000 – $30,000. When liabilities exceed the basis of property transferred to a corporation in exchange for stock, the excess must be recognized as gain (LO 11.7) 23. C Basis is generally measured as carryover basis less liabilities assumed plus any gain recognized (LO 11.7) 24. C Personal service corporations are not operated as a hobby (LO 11.8) 25. A ($325,000 – $250,000) x 20%. The first $250,000 is exempt from the accumulated earnings tax. (LO 11.8)

11-1

11-2

Chapter 11 – The Corporate Income Tax

Group 2 – Problems 1. $63,000 = $300,000 x 21% (LO 11.1) 2. $267,750 = $1,275,000 x 21%. Ulmus is a personal service corporation. (LO 11.1) 3. $42,000 = $200,000 x 21%. The net capital loss of $20,000 is not deductible. (LO 11.1, 11.2) 4. $11,000. The $15,000 loss in 2021 may not be carried back to 2020; it may only be carried forward into 2022. Only $4,000 (80% x $5,000) of 2022 income may be offset by the NOL leaving $11,000 ($15,000 – $4,000) of NOL to carry forward into 2023. (LO 11.2) 5. a. $19,500 = lesser of (65% x $30,000) or 65% of $90,000 ($210,000 + $30,000 – $150,000). The deduction is not limited by the taxable income limitation since 65% of taxable income equals $58,500, which is greater than 65% of the dividends received. b. $19,500 = 65% x $30,000. The taxable income limitation does not apply because the corporation has a net operating loss after reducing taxable income by the dividends received deduction. The corporation has a net taxable income of $15,000 ($135,000 + $30,000 – $150,000) before the dividends received deduction. Because the dividends received deduction creates a net operating loss, the taxable income limitation does not apply. c. $18,200 = lesser of $19,500 (65% x $30,000) or $18,200 [65% x ($148,000 + $30,000 – $150,000)]. The deduction is limited by taxable income and the dividends received deduction will not create or increase a net loss. (LO 11.3) 6. $5,102.22 = [($800 + $5,500 + $1,000)/180 x 8 months. The expenses for the sale of stock are not organizational expenses. (LO 11.3) 7. $5,994.44. Total start-up costs are $52,000 ($17,000 + $25,000 + $10,000) which exceeds the $50,000 threshold for expensing start-up costs by $2,000. The maximum amount to expense of $5,000 must be reduced by the $2,000 excess and only $3,000 may be expensed immediately. The remaining $49,000 of start-up costs are amortized for $2,994.44 ($49,000/180 months x 11 months). (LO 11.3) 8. Expenses incurred as part of an expansion or investigation into an already existing business are deducted if the costs are ordinary and necessary business expenses. If the line of business is new, then the expenses are treated as start-up costs if the business is actually started. If the expansion into a new business line fails, corporate taxpayers may take a loss at the time of failure while non-corporate taxpayers may not deduct these costs. (LO 11.3) 9. a. $11,600 = 10% x ($91,000 + $25,000). b. $25,000 = 10% x $250,000. Unused charitable contributions of $23,400 ($35,000 – $11,600) are carried forward from 2022, subject to the 10% of taxable income limitation, but only after all current year contributions have been deducted. The 2022 charitable contributions ($4,000) are utilized first against the $25,000 limit leaving $21,000 of income limit to absorb the $23,400 of 2022 contributions carried forward. $2,400 of the 2022 contributions remain and are carried forward into 2024. c. Because the 2022 deduction can be carried forward for 5 years, the remaining $2,400 would expire at the end of 2027 if not used. (LO 11.3) 10. $70,800 = $50,000 + $7,500 + $10,000 + $5,500 + $2,000 – $4,200 (LO 11.4) 11. a. $40,000 b. $46,000 = $40,000 – $3,000 + $7,000 + $2,000

c. $46,000 d. $10,000 and $6,500

e. $6,500 f. $6,500

g. $39,500 = $46,000 – $6,500. (LO 11.4)

Solutions for Questions and Problems – Chapter 11

11-3

12. a. April 18, 2023 (note that in 2023, April 15th falls on a Saturday and Emancipation Day in DC falls on Sunday the 16th and thus is celebrated on Monday April 17th along with Patriot’s Day in Maine and Massachusetts). b. October 16, 2023 (October 15 falls on a Sunday) c. April 18, 2023 (LO 11.5) 13. a. February 15, April 15, July 15, and October 15 (the fifteenth day of the 4th, 6th, 9th, and 12th months). b. $42,000. A corporation with a tax liability of $500 or more that is not a large corporation can avoid penalties by paying 100% of the prior year tax liability. c. $44,000. A large corporation must pay the current tax liability or may use the annualized income method to calculate required tax payments. d. $10,500. A large corporation may use the prior year liability to calculate the first quarter’s required payment. Prior year liability of $42,000 x 25% = $10,500 which is less than the estimated payment using the annualized income method. (LO 11.5) 14. $200,000, the taxable income of the S corporation. S corporations are treated like partnerships in that income earned by S corporations is passed through to the shareholders in the same way partnership income is passed to the partners, communicated through a Schedule K-1 to the Form 1120S. In general, dividends paid to shareholders of an S corporation are not taxable. (LO 11.6) 15. a. $20,800 = $104,000 x 50% x 146/365. (Leap year: $20,885.25 = $104,000 x 50% x 147/366.) b. $21,000, the deduction of the S corporation loss is limited to Guilda’s basis in her stock. c. $31,200 = $104,000 x 50% x 219/365. (Leap year: $31,114.75 = $104,000 x 50% x 219/366.) (LO 11.6) 16. a. $52,000. Operating income of $51,500 and add back the separately stated charitable contributions of $500. b. The separately stated items are: Interest income $300 Short-term capital gain $2,000 Section 1231 loss $3,000 Charitable contributions $500 c. Quill will need to report wages of $8,000 on Line 1a of Form 1040; interest income of $300 on either Schedule B or directly on Line 2b of Form 1040; short-term capital gains of $2,000 on Line 5 of Schedule D; $3,000 loss on column g of Line 2 of Form 4797; $500 of charitable contribution deductions on Line 11 of Schedule A. The distributions are not income. (LO 11.6) 17. a. For wages of $1,000, employment taxes are $153 and for wages of $20,000, employment taxes are $3,060 (wage amount x 15.3% in both cases). b. For wages of $1,000, income taxes are $250 and for wages of $20,000, income taxes are $5,000. c. For wages of $1,000, the allocated income is $19,000 and income taxes are $4,750. For wages of $20,000, the income allocated is $0 and income taxes are $0. d. Income taxes in total are the same across both alternatives ($5,000); however, employment taxes differ considerably. This is due to wages being subject to employment taxes; while the S corporation income allocation is not subject to employment taxes. The employment tax savings of $2,907 ($3,060 – $153) is equivalent to $19,000 x 15.3%. (LO 11.6) 18. a. Dylan has no realized gain or loss on the contribution of cash. Devon realizes a gain of $35,000 ($50,000 amount realized less $15,000 basis). Ricken has no realized gain per se, since he provides only services. b. This exchange does not meet the requirements of a deferred exchange as the shareholders qualifying for nonrecognition control only 70% of the stock after the transfer. Ricken does not provide property and owns 30% after the transfer. Dylan has no recognized gain on the contribution of cash. Devon recognizes the entire gain of $35,000. Ricken recognizes compensation income of $30,000.

11-4

Chapter 11 – The Corporate Income Tax

c. Dylan’s basis in Lemon stock is $30,000. Devon’s basis in the stock is $40,000 ($15,000 basis + $35,000 gain – $10,000 boot received). Ricken’s basis in the stock is $30,000. d. Lemon’s basis in the land is $50,000 (carryover basis of $15,000 plus gain recognized of $35,000). LO 11.7 19. a. Dylan has no realized gain or loss on the contribution of cash. Devon realizes a gain of $35,000 ($50,000 amount realized less $15,000 basis). Ricken has no realized gain since he provides only services. b. This exchange meets the requirements of a deferred exchange as the shareholders qualifying for nonrecognition control 90% of the stock after the transfer. Ricken does not provide property and owns only 10% after the transfer. Dylan has no recognized gain on the contribution of cash. Devon recognizes $10,000 of her realized gain of $35,000 due to the receipt of boot of $10,000. Ricken recognizes compensation income of $10,000. c. Dylan’s basis in Lemon stock is $50,000. Devon’s basis in the stock is $15,000 (carryover basis of $15,000 + $10,000 gain recognized – $10,000 boot received). Ricken’s basis in the stock is $10,000. d. Lemon’s basis in the land is $25,000 (carryover basis of $15,000 plus gain recognized of $10,000). LO 11.7 20. a. $20,000 = $300,000 (liability transferred) – $280,000 (basis of property contributed). b. $0 = $280,000 (adjusted basis) + $20,000 (recognized gain) – $300,000 (liability transferred). c. $300,000 = $280,000 (basis to the shareholder) + $20,000 (recognized gain to the shareholder). (LO 11.7) 21. Amount subject to accumulated earnings tax = $550,000 ($950,000 – $400,000). The tax is equal to $110,000 = $550,000 x 20%. (LO 11.8)

Group 3 – Comprehensive Problems 1. See Form 1120 on Page 11-5 through 11-10. 2. See Form 1120S and Schedule K-1 on Pages 11-11 through 11-17.

Solutions for Questions and Problems – Chapter 11

Comprehensive Problem 1

1120

U.S. Corporation Income Tax Return

Form Department of the Treasury Internal Revenue Service A Check if: 1a Consolidated return (attach Form 851)

b Life/nonlife consolidated return . . 2 Personal holding co. (attach Sch. PH) .

For calendar year 2022 or tax year beginning

Go to www.irs.gov/Form1120 for instructions and the latest information.

B Employer identification number

The Floyd Corporation

TYPE OR PRINT

Income

91-1111111 C Date incorporated

Number, street, and room or suite no. If a P.O. box, see instructions.

210 N. Main Street

01/01/22

DRAFT AS OF October 3, 2022 DO NOT FILE City or town, state or province, country, and ZIP or foreign postal code

(see instructions) .

4 Schedule M-3 attached

Deductions (See instructions for limitations on deductions.)

2022

, 20

Name

3 Personal service corp.

Tax, Refundable Credits, and Payments

OMB No. 1545-0123

, 2022, ending

E Check if: (1)

(4)

Address change

320,000

Gross receipts or sales .

Returns and allowances . . . . . . Balance. Subtract line 1b from line 1a . Cost of goods sold (attach Form 1125-A) .

. . .

. .

1b . . . .

. .

1c 2

3 4 5

Gross profit. Subtract line 2 from line 1c . . Dividends and inclusions (Schedule C, line 23) Interest . . . . . . . . . . .

. . .

3 4 5

6 7 8

Gross rents . . . . . . . . . . . . . . Gross royalties . . . . . . . . . . . . . Capital gain net income (attach Schedule D (Form 1120)) .

. . .

6 7 8

9 10 11 12

Net gain or (loss) from Form 4797, Part II, line 17 (attach Form 4797) Other income (see instructions—attach statement) . . . . . . Total income. Add lines 3 through 10 . . . . . . . . . Compensation of officers (see instructions—attach Form 1125-E) .

. . . .

9 10 11

13 14

Salaries and wages (less employment credits)

Repairs and maintenance

12 13 14

15 16 17

Bad debts . . . Rents . . . . Taxes and licenses

. . .

15 16 17

18 19 20

Interest (see instructions) . . . . . . . . . . . . . . . . . . . . . . . Charitable contributions . . . . . . . . . . . . . . . . . . . . . . . . Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562) .

. . .

18 19 20

21 22 23

Depletion . . . . . . . . Advertising . . . . . . . Pension, profit-sharing, etc., plans

. . .

21 22 23

24 25 26

Employee benefit programs . . Reserved for future use . . . . Other deductions (attach statement)

. . .

24 25 26

27 28 29a

Total deductions. Add lines 12 through 26 . . . . . . . . . . . . . . . . . . . Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11. Net operating loss deduction (see instructions) . . . . . . . . . . . 29a

. .

27 28

b c 30

Special deductions (Schedule C, line 24) . . . . . . . . Add lines 29a and 29b . . . . . . . . . . . . . Taxable income. Subtract line 29c from line 28. See instructions

. . .

. .

29b . . . .

. .

29c 30

31 32 33

Total tax (Schedule J, Part I, line 11) . . . . . . Reserved for future use . . . . . . . . . . Total payments and credits (Schedule J, Part III, line 23)

. . .

31 32 33

34 35 36

Estimated tax penalty. See instructions. Check if Form 2220 is attached . . . . . Amount owed. If line 33 is smaller than the total of lines 31 and 34, enter amount owed Overpayment. If line 33 is larger than the total of lines 31 and 34, enter amount overpaid

. . .

. .

34 35 36

Enter amount from line 36 you want: Credited to 2023 estimated tax

Sign Here

Name change

b c 2

. . .

310,600

(3)

. . .

Pearisburg, VA 24134 (2) Final return x Initial return

D Total assets (see instructions)

Refunded

270,000 80,000 20,000 3,000 9,000 15,000 90,000 3,000

220,000 50,000

10,000

600

320,000 70,000 250,000 20,000

10,000 40,000 8,400 9,000 600 0

Signature of officer Print/Type preparer’s name

Paid Preparer Use Only Firm’s name

Date Preparer’s signature

May the IRS discuss this return with the preparer shown below? See instructions. Yes No

Title Date

Firm’s EIN

Firm’s address

For Paperwork Reduction Act Notice, see separate instructions.

PTIN Check if self-employed

Phone no. Cat. No. 11450Q

Form 1120 (2022)

11-5

11-6

Chapter 11 – The Corporate Income Tax

Comprehensive Problem 1, cont. The Floyd Corporation

Form 1120 (2022)

Schedule C

Page 2

Dividends, Inclusions, and Special Deductions (see instructions)

Dividends from less-than-20%-owned domestic corporations (other than debt-financed stock) . . . . . . . . . . . . . . . . . . . . . . . .

Dividends from 20%-or-more-owned domestic corporations (other than debt-financed stock) . . . . . . . . . . . . . . . . . . . . . . . .

Dividends on certain debt-financed stock of domestic and foreign corporations

Dividends on certain preferred stock of less-than-20%-owned public utilities

(a) Dividends and inclusions

(b) %

20,000

10,000

DRAFT AS OF October 3, 2022 DO NOT FILE .

See instructions

23.3

Dividends on certain preferred stock of 20%-or-more-owned public utilities .

26.7

Dividends from less-than-20%-owned foreign corporations and certain FSCs

Dividends from 20%-or-more-owned foreign corporations and certain FSCs

Dividends from wholly owned foreign subsidiaries

100

Subtotal. Add lines 1 through 8. See instructions for limitations .

Dividends from domestic corporations received by a small business investment company operating under the Small Business Investment Act of 1958 . . . . .

100

Dividends from affiliated group members .

100

Dividends from certain FSCs

100

Foreign-source portion of dividends received from a specified 10%-owned foreign corporation (excluding hybrid dividends) (see instructions) . . . . . . . . .

Dividends from foreign corporations not included on line 3, 6, 7, 8, 11, 12, or 13 (including any hybrid dividends) . . . . . . . . . . . . . . . . .

Reserved for future use .

16a

Subpart F inclusions derived from the sale by a controlled foreign corporation (CFC) of the stock of a lower-tier foreign corporation treated as a dividend (attach Form(s) 5471) (see instructions) . . . . . . . . . . . . . . . . . . . . .

Subpart F inclusions derived from hybrid dividends of tiered corporations (attach Form(s) 5471) (see instructions) . . . . . . . . . . . . . . . . . . .

Other inclusions from CFCs under subpart F not included on line 16a, 16b, or 17 (attach Form(s) 5471) (see instructions) . . . . . . . . . . . . . . . . .

20,000

Global Intangible Low-Taxed Income (GILTI) (attach Form(s) 5471 and Form 8992) .

Gross-up for foreign taxes deemed paid

IC-DISC and former DISC dividends not included on line 1, 2, or 3

Other dividends

Deduction for dividends paid on certain preferred stock of public utilities

Section 250 deduction (attach Form 8993)

Total dividends and inclusions. Add column (a), lines 9 through 20. Enter here and on 20,000 page 1, line 4 . . . . . . . . . . . . . . . . . . . . . . Total special deductions. Add column (c), lines 9 through 22. Enter here and on page 1, line 29b . . . .

See instructions

10,000

100

10,000 Form 1120 (2022)

Solutions for Questions and Problems – Chapter 11

Comprehensive Problem 1, cont. The Floyd Corporation

Form 1120 (2022)

Schedule J

Page 3

Tax Computation and Payment (see instructions)

Part I—Tax Computation 1 2

Check if the corporation is a member of a controlled group (attach Schedule O (Form 1120)). See instructions Income tax. See instructions . . . . . . . . . . . . . . . . . . . . . . .

3 4 5a

Base erosion minimum tax amount (attach Form 8991) . Add lines 2 and 3 . . . . . . . . . . . . Foreign tax credit (attach Form 1118) . . . . . .

. . .

b c d

Credit from Form 8834 (see instructions) . . . . General business credit (attach Form 3800) . . . Credit for prior year minimum tax (attach Form 8827)

. . .

e 6 7

Bond credits from Form 8912 . . . Total credits. Add lines 5a through 5e Subtract line 6 from line 4 . . . .

. . .

8 9a b

Personal holding company tax (attach Schedule PH (Form 1120)) . Recapture of investment credit (attach Form 4255) . . . . . Recapture of low-income housing credit (attach Form 8611) . .

. . .

c d

Interest due under the look-back method—completed long-term contracts (attach Form 8697) . . . . . . . . . . . . . . . . . . . . . . . Interest due under the look-back method—income forecast method (attach Form 8866)

9c 9d

e f g

Alternative tax on qualifying shipping activities (attach Form 8902) Interest/tax due under section 453A(c) and/or section 453(l) . . Other (see instructions—attach statement) . . . . . . .

9e 9f 9g

10 11

. .

. . . . 5a

. .

8,400

. .

3 4

8,400

DRAFT AS OF October 3, 2022 DO NOT FILE . . .

. . .

5b 5c 5d

. . .

5e . . . .

. . 9a 9b

. .

6 7

. . .

Total. Add lines 9a through 9g . . . . . . . . . . . . Total tax. Add lines 7, 8, and 10. Enter here and on page 1, line 31 .

. .

10 11

8,400

Part II—Reserved For Future Use 12

Reserved for future use .

Part III—Payments and Refundable Credits 13

2021 overpayment credited to 2022

14 15 16

2022 estimated tax payments . . . 2022 refund applied for on Form 4466 . Combine lines 13, 14, and 15 . . .

. . .

14 15 ( 16

17 18 19

Tax deposited with Form 7004 . . . . Withholding (see instructions) . . . . Total payments. Add lines 16, 17, and 18

. . .

17 18 19

20 a b

Refundable credits from: Form 2439 . . . . . Form 4136 . . . . .

. .

20a 20b

c d 21

Reserved for future use . . . . . . Other (attach statement—see instructions) Total credits. Add lines 20a through 20d .

. . .

20c 20d . . .

22 23

Reserved for future use . . . . . . . . . . . . . . . . . . . Total payments and credits. Add lines 19 and 21. Enter here and on page 1, line 33 .

. .

22 23

. .

9,000 )

9,000 9,000

9,000 Form 1120 (2022)

11-7

11-8

Chapter 11 – The Corporate Income Tax

Comprehensive Problem 1, cont. The Floyd Corporation

Form 1120 (2022)

Schedule K 1 2 a

Check accounting method: a Cash See the instructions and enter the: Business activity code no.

Business activity Product or service

c 3

Page 4

Other Information (see instructions) b

x Accrual

Yes

Other (specify)

DRAFT AS OF October 3, 2022 DO NOT FILE

Is the corporation a subsidiary in an affiliated group or a parent–subsidiary controlled group? If “Yes,” enter name and EIN of the parent corporation

At the end of the tax year:

Did any foreign or domestic corporation, partnership (including any entity treated as a partnership), trust, or tax-exempt organization own directly 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all classes of the corporation’s stock entitled to vote? If “Yes,” complete Part I of Schedule G (Form 1120) (attach Schedule G) . . . . . .

Did any individual or estate own directly 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all classes of the corporation’s stock entitled to vote? If “Yes,” complete Part II of Schedule G (Form 1120) (attach Schedule G) .

At the end of the tax year, did the corporation:

Own directly 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all classes of stock entitled to vote of any foreign or domestic corporation not included on Form 851, Affiliations Schedule? For rules of constructive ownership, see instructions. If “Yes,” complete (i) through (iv) below. (i) Name of Corporation

(ii) Employer Identification Number (if any)

(iv) Percentage Owned in Voting Stock

(iii) Country of Incorporation

b Own directly an interest of 20% or more, or own, directly or indirectly, an interest of 50% or more in any foreign or domestic partnership (including an entity treated as a partnership) or in the beneficial interest of a trust? For rules of constructive ownership, see instructions. If “Yes,” complete (i) through (iv) below. (i) Name of Entity

(ii) Employer Identification Number (if any)

(iii) Country of Organization

(iv) Maximum Percentage Owned in Profit, Loss, or Capital

During this tax year, did the corporation pay dividends (other than stock dividends and distributions in exchange for stock) in excess of the corporation’s current and accumulated earnings and profits? See sections 301 and 316 . . . . . . . . If “Yes,” file Form 5452, Corporate Report of Nondividend Distributions. See the instructions for Form 5452. If this is a consolidated return, answer here for the parent corporation and on Form 851 for each subsidiary.

At any time during the tax year, did one foreign person own, directly or indirectly, at least 25% of the total voting power of all classes of the corporation’s stock entitled to vote or at least 25% of the total value of all classes of the corporation’s stock? . For rules of attribution, see section 318. If “Yes,” enter: (a) Percentage owned and (b) Owner’s country

(c) The corporation may have to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Enter the number of Forms 5472 attached 8

Check this box if the corporation issued publicly offered debt instruments with original issue discount . . . . . . . If checked, the corporation may have to file Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments. Enter the amount of tax-exempt interest received or accrued during the tax year $ Enter the number of shareholders at the end of the tax year (if 100 or fewer)

If the corporation has an NOL for the tax year and is electing to forego the carryback period, check here (see instructions)

If the corporation is filing a consolidated return, the statement required by Regulations section 1.1502-21(b)(3) must be attached or the election will not be valid. 12

Enter the available NOL carryover from prior tax years (do not reduce it by any deduction reported on page 1, line 29a.) . . . . . . . . . . . . . . . . . . . . . . . . . $ Form 1120 (2022)

Solutions for Questions and Problems – Chapter 11

Comprehensive Problem 1, cont. Form 1120 (2022)

Schedule K 13

The Floyd Corporation

Page 5

Other Information (continued from page 4)

Are the corporation’s total receipts (page 1, line 1a, plus lines 4 through 10) for the tax year and its total assets at the end of the tax year less than $250,000? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Yes

If “Yes,” the corporation is not required to complete Schedules L, M-1, and M-2. Instead, enter the total amount of cash distributions and the book value of property distributions (other than cash) made during the tax year $ Is the corporation required to file Schedule UTP (Form 1120), Uncertain Tax Position Statement? See instructions If “Yes,” complete and attach Schedule UTP.

15a b

Did the corporation make any payments in 2022 that would require it to file Form(s) 1099? If “Yes,” did or will the corporation file required Form(s) 1099? . . . . . . . . .

. .

During this tax year, did the corporation have an 80%-or-more change in ownership, including a change due to redemption of its own stock? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

During or subsequent to this tax year, but before the filing of this return, did the corporation dispose of more than 65% (by value) of its assets in a taxable, non-taxable, or tax deferred transaction? . . . . . . . . . . . . . . . . . .

Did the corporation receive assets in a section 351 transfer in which any of the transferred assets had a fair market basis or fair market value of more than $1 million? . . . . . . . . . . . . . . . . . . . . . . . . . . .

During the corporation’s tax year, did the corporation make any payments that would require it to file Forms 1042 and 1042-S under chapter 3 (sections 1441 through 1464) or chapter 4 (sections 1471 through 1474) of the Code? . . . . . . . . Is the corporation operating on a cooperative basis?. . . . . . . . . . . . . . . . . . . . . . .

x x

During the tax year, did the corporation pay or accrue any interest or royalty for which the deduction is not allowed under section 267A? See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . If “Yes,” enter the total amount of the disallowed deductions $

Does the corporation have gross receipts of at least $500 million in any of the 3 preceding tax years? (See sections 59A(e)(2) and (3)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . If “Yes,” complete and attach Form 8991.

Did the corporation have an election under section 163(j) for any real property trade or business or any farming business in effect during the tax year? See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . Does the corporation satisfy one or more of the following? See instructions . . . . . . . . . . . . . . . . The corporation owns a pass-through entity with current, or prior year carryover, excess business interest expense.

x x

24 a

DRAFT AS OF October 3, 2022 DO NOT FILE . .

. .

The corporation is a tax shelter and the corporation has business interest expense. If “Yes,” complete and attach Form 8990. Is the corporation attaching Form 8996 to certify as a Qualified Opportunity Fund? . If “Yes,” enter amount from Form 8996, line 15 . . . . . $

Since December 22, 2017, did a foreign corporation directly or indirectly acquire substantially all of the properties held directly or indirectly by the corporation, and was the ownership percentage (by vote or value) for purposes of section 7874 greater than 50% (for example, the shareholders held more than 50% of the stock of the foreign corporation)? If “Yes,” list the ownership percentage by vote and by value. See instructions . . . . . . . . . . . . . . . . . . . . . . . Percentage: By Vote By Value

x x

Form 1120 (2022)

11-9

11-10 Chapter 11 – The Corporate Income Tax

Comprehensive Problem 1, cont. The Floyd Corporation

Form 1120 (2022)

Schedule L

Balance Sheets per Books Assets

Cash

2a b 3 4 5 6 7 8 9 10a b 11a b 12 13a b 14 15

Trade notes and accounts receivable . Less allowance for bad debts . . . Inventories . . . . . . . . . U.S. government obligations . . . Tax-exempt securities (see instructions) Other current assets (attach statement) Loans to shareholders . . . . . Mortgage and real estate loans . . . Other investments (attach statement) . Buildings and other depreciable assets Less accumulated depreciation . . . Depletable assets . . . . . . . Less accumulated depletion . . . . Land (net of any amortization) . . . Intangible assets (amortizable only) . Less accumulated amortization . . . Other assets (attach statement) . . . Total assets . . . . . . . .

. . . . . . . . . . . . . . . . . .

Page 6

Beginning of tax year (a) (b)

End of tax year (c)

Initial Return (

(d)

140,600

20,000

)

(

20,000 70,000

)

DRAFT AS OF October 3, 2022 DO NOT FILE 90,000 10,000

(

)

(

)

(

)

(

)

(

)

(

)

80,000

310,600

Liabilities and Shareholders’ Equity 16 17 18 19 20 21 22 23 24 25 26 27 28

24,000

Accounts payable . . . . . . . . . Mortgages, notes, bonds payable in less than 1 year Other current liabilities (attach statement) . . Loans from shareholders . . . . . . . Mortgages, notes, bonds payable in 1 year or more Other liabilities (attach statement) . . . .

85,000 16,800

Capital stock:

a Preferred stock . . . . b Common stock . . . . Additional paid-in capital . . . . . . . Retained earnings—Appropriated (attach statement) Retained earnings—Unappropriated . . . Adjustments to shareholders’ equity (attach statement) Less cost of treasury stock . . . . . . Total liabilities and shareholders’ equity . .

Schedule M-1

80,000

80,000 104,800

(

)

(

)

310,600

Reconciliation of Income (Loss) per Books With Income per Return Note: The corporation may be required to file Schedule M-3. See instructions.

Net income (loss) per books .

Federal income tax per books

Excess of capital losses over capital gains

Income subject to tax not recorded on books this year (itemize):

Expenses recorded on books this year not deducted on this return (itemize): Depreciation . . . . $ Charitable contributions . $ Travel and entertainment . $

a b c 6

Add lines 1 through 5 .

Schedule M-2 1 2 3

104,800 * 25,200

Income recorded on books this year not included on this return (itemize): Tax-exempt interest $

Deductions on this return not charged against book income this year (itemize): a Depreciation . . $ 80,000 ** b Charitable contributions $

9 10

Add lines 7 and 8 . . . . . . Income (page 1, line 28)—line 6 less line 9

130,000

80,000 80,000 50,000

Analysis of Unappropriated Retained Earnings per Books (Schedule L, Line 25)

Balance at beginning of year Net income (loss) per books . Other increases (itemize):

Add lines 1, 2, and 3 .

. .

0 104,800

104,800

6 7 8

Distributions: a Cash . . b Stock . c Property . Other decreases (itemize):

. . .

Add lines 5 and 6 . . . . . . Balance at end of year (line 4 less line 7)

0 104,800 Form 1120 (2022)

* Net income after tax is $130,000 – $25,200 income tax expense. ** Tax depreciation of $90,000 minus book depreciation of $10,000.

Solutions for Questions and Problems – Chapter 11 11-11

Comprehensive Problem 2 Form

1120-S

Department of the Treasury Internal Revenue Service

U.S. Income Tax Return for an S Corporation

OMB No. 1545-0123

Do not file this form unless the corporation has filed or is attaching Form 2553 to elect to be an S corporation. Go to www.irs.gov/Form1120S for instructions and the latest information.

2022

For calendar year 2022 or tax year beginning A S election effective date

01/01/22

, 2022, ending

Name

TYPE OR PRINT

, 20 D Employer identification number

George Corporation

94-8888888

DRAFT AS OF September 12, 2022 DO NOT FILE B Business activity code number (see instructions)

Number, street, and room or suite no. If a P.O. box, see instructions.

E Date incorporated

15620 McMullen Hwy SW

01/01/22

City or town, state or province, country, and ZIP or foreign postal code

C Check if Sch. M-3 attached

G H I J

Cumberland, MD 21502

F Total assets (see instructions)

319,000

Is the corporation electing to be an S corporation beginning with this tax year? See instructions. x Yes No Check if: (1) Final return (2) Name change (3) Address change (4) Amended return (5) S election termination Enter the number of shareholders who were shareholders during any part of the tax year . . . . . . . . 2 Check if corporation: (1) Aggregated activities for section 465 at-risk purposes (2) Grouped activities for section 469 passive activity purposes

Caution: Include only trade or business income and expenses on lines 1a through 21. See the instructions for more information.

Tax and Payments

Deductions (see instructions for limitations)

Income

c 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22a b c 23a b c d 24 25 26 27

Sign Here

Gross receipts or sales . . . . . . . . . . . . . . . . 1a 320,000 Returns and allowances . . . . . . . . . . . . . . . . 1b Balance. Subtract line 1b from line 1a . . . . . . . . . . . . . . . . . . . . Cost of goods sold (attach Form 1125-A) . . . . . . . . . . . . . . . . . . . Gross profit. Subtract line 2 from line 1c . . . . . . . . . . . . . . . . . . . Net gain (loss) from Form 4797, line 17 (attach Form 4797) . . . . . . . . . . . . . Other income (loss) (see instructions—attach statement) . . . . . . . . . . . . . . Total income (loss). Add lines 3 through 5 . . . . . . . . . . . . . . . . . . Compensation of officers (see instructions—attach Form 1125-E) . . . . . . . . . . . Salaries and wages (less employment credits) . . . . . . . . . . . . . . . . . Repairs and maintenance . . . . . . . . . . . . . . . . . . . . . . . . Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes and licenses . . . . . . . . . . . . . . . . . . . . . . . . . . Interest (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562) Depletion (Do not deduct oil and gas depletion.) . . . . . . . . . . . . . . . . Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension, profit-sharing, etc., plans . . . . . . . . . . . . . . . . . . . . . Employee benefit programs . . . . . . . . . . . . . . . . . . . . . . . Other deductions (attach statement) . . . . . . . . . . . . . . . . . . . . Total deductions. Add lines 7 through 19 . . . . . . . . . . . . . . . . . . Ordinary business income (loss). Subtract line 20 from line 6 . . . . . . . . . . . . Excess net passive income or LIFO recapture tax (see instructions) . . . 22a Tax from Schedule D (Form 1120-S) . . . . . . . . . . . . 22b Add lines 22a and 22b (see instructions for additional taxes) . . . . . . . . . . . . . 2022 estimated tax payments and 2021 overpayment credited to 2022 . 23a Tax deposited with Form 7004 . . . . . . . . . . . . . . 23b Credit for federal tax paid on fuels (attach Form 4136) . . . . . . . 23c Add lines 23a through 23c . . . . . . . . . . . . . . . . . . . . . . . Estimated tax penalty (see instructions). Check if Form 2220 is attached . . . . . . . . Amount owed. If line 23d is smaller than the total of lines 22c and 24, enter amount owed . . . Overpayment. If line 23d is larger than the total of lines 22c and 24, enter amount overpaid . . . Enter amount from line 26: Credited to 2023 estimated tax Refunded .

320,000 70,000 250,000

1c 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

250,000 80,000 20,000 3,000 9,000 15,000 90,000 3,000

220,000 30,000 0

22c

23d 24 25 26 27

Signature of officer

Paid Preparer Use Only

Print/Type preparer’s name

Date Preparer’s signature

May the IRS discuss this return with the preparer shown below? Yes No See instructions.

Title Date

Firm’s name

PTIN

Firm’s EIN

Firm’s address

For Paperwork Reduction Act Notice, see separate instructions.

Check if self-employed

Phone no. Cat. No. 11510H

Form 1120-S (2022)

11-12 Chapter 11 – The Corporate Income Tax

Comprehensive Problem 2, cont. Form 1120-S (2022)

Schedule B 1

George Corporation

Check accounting method:

a c See the instructions and enter the: a Business activity

2 3

Page 2

Other Information (see instructions)

Cash b x Accrual Other (specify)

Yes No

b Product or service

At any time during the tax year, was any shareholder of the corporation a disregarded entity, a trust, an estate, or a nominee or similar person? If “Yes,” attach Schedule B-1, Information on Certain Shareholders of an S Corporation . . At the end of the tax year, did the corporation:

DRAFT AS OF September 12, 2022 DO NOT FILE 4

Own directly 20% or more, or own, directly or indirectly, 50% or more of the total stock issued and outstanding of any foreign or domestic corporation? For rules of constructive ownership, see instructions. If “Yes,” complete (i) through (v) below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (i) Name of Corporation

6 7

(iii) Country of Incorporation

(ii) Employer Identification Number (if any)

(iii) Type of Entity

(iv) Percentage of (v) If Percentage in (iv) Is 100%, Enter the Stock Owned Date (if applicable) a Qualified Subchapter S Subsidiary Election Was Made

Own directly an interest of 20% or more, or own, directly or indirectly, an interest of 50% or more in the profit, loss, or capital in any foreign or domestic partnership (including an entity treated as a partnership) or in the beneficial interest of a trust? For rules of constructive ownership, see instructions. If “Yes,” complete (i) through (v) below . . . . . . . (i) Name of Entity

(ii) Employer Identification Number (if any)

(iv) Country of Organization

(v) Maximum Percentage Owned in Profit, Loss, or Capital

At the end of the tax year, did the corporation have any outstanding shares of restricted stock? . . . . . . . If “Yes,” complete lines (i) and (ii) below. Total shares of restricted stock . . . . . . . . . . . (i) (ii) Total shares of non-restricted stock . . . . . . . . . . At the end of the tax year, did the corporation have any outstanding stock options, warrants, or similar instruments? If “Yes,” complete lines (i) and (ii) below. Total shares of stock outstanding at the end of the tax year . . (i) (ii) Total shares of stock outstanding if all instruments were executed

Has this corporation filed, or is it required to file, Form 8918, Material Advisor Disclosure Statement, to provide information on any reportable transaction? . . . . . . . . . . . . . . . . . . . . . . . . Check this box if the corporation issued publicly offered debt instruments with original issue discount . . . . .

If checked, the corporation may have to file Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments. 8

If the corporation (a) was a C corporation before it elected to be an S corporation or the corporation acquired an asset with a basis determined by reference to the basis of the asset (or the basis of any other property) in the hands of a C corporation, and (b) has net unrealized built-in gain in excess of the net recognized built-in gain from prior years, enter the net unrealized built-in gain reduced by net recognized built-in gain from prior years. See instructions . . . . . . $

Did the corporation have an election under section 163(j) for any real property trade or business or any farming business in effect during the tax year? See instructions . . . . . . . . . . . . . . . . . . . . . . . . Does the corporation satisfy one or more of the following? See instructions . . . . . . . . . . . . . . The corporation owns a pass-through entity with current, or prior year carryover, excess business interest expense.

x x

The corporation’s aggregate average annual gross receipts (determined under section 448(c)) for the 3 tax years preceding the current tax year are more than $27 million and the corporation has business interest expense. The corporation is a tax shelter and the corporation has business interest expense. If “Yes,” complete and attach Form 8990, Limitation on Business Interest Expense Under Section 163(j). Does the corporation satisfy both of the following conditions? . . . . . . . . . . . . . . . . . . The corporation’s total receipts (see instructions) for the tax year were less than $250,000. The corporation’s total assets at the end of the tax year were less than $250,000. If “Yes,” the corporation is not required to complete Schedules L and M-1.

10 a b c 11 a b

Form 1120-S (2022)

Solutions for Questions and Problems – Chapter 11 11-13

Comprehensive Problem 2, cont. Form 1120-S (2022)

Schedule B 12

13 14a b 15

George Corporation

Page 3

Other Information (see instructions) (continued)

Yes

During the tax year, did the corporation have any non-shareholder debt that was canceled, was forgiven, or had the terms modified so as to reduce the principal amount of the debt? . . . . . . . . . . . . . . . . . If “Yes,” enter the amount of principal reduction . . . . . . . . . . . . . . . $ During the tax year, was a qualified subchapter S subsidiary election terminated or revoked? If “Yes,” see instructions . Did the corporation make any payments in 2022 that would require it to file Form(s) 1099? . . . . . . . . . . If “Yes,” did or will the corporation file required Form(s) 1099? . . . . . . . . . . . . . . . . . . . Is the corporation attaching Form 8996 to certify as a Qualified Opportunity Fund? . . . . . . . . . . . . If “Yes,” enter the amount from Form 8996, line 15 . . . . . . . . . . . . . . $

x x x

DRAFT AS OF September 12, 2022 DO NOT FILE

Items Affecting Shareholder Basis

Alternative Minimum Tax (AMT) Items

International

Credits

Deductions

Income (Loss)

Schedule K 1 2 3a b c 4 5

6 7 8a b c 9 10 11 12a b c d 13a b c d e f g 14

15a b c d e f 16a b c d e f

Shareholders’ Pro Rata Share Items

Total amount

Ordinary business income (loss) (page 1, line 21) . . . . . . . . . . . . . . . Net rental real estate income (loss) (attach Form 8825) . . . . . . . . . . . . . Other gross rental income (loss) . . . . . . . . . . . . 3a Expenses from other rental activities (attach statement) . . . . 3b Other net rental income (loss). Subtract line 3b from line 3a . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . Dividends: a Ordinary dividends . . . . . . . . . . . . . . . . . . . . 20,000 b Qualified dividends . . . . . . . . . . . . 5b Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . Net short-term capital gain (loss) (attach Schedule D (Form 1120-S)) . . . . . . . . Net long-term capital gain (loss) (attach Schedule D (Form 1120-S)) . . . . . . . . . Collectibles (28%) gain (loss) . . . . . . . . . . . . . 8b Unrecaptured section 1250 gain (attach statement) . . . . . . 8c Net section 1231 gain (loss) (attach Form 4797) . . . . . . . . . . . . . . . Other income (loss) (see instructions) . . . Type: Section 179 deduction (attach Form 4562) . . . . . . . . . . . . . . . . . Charitable contributions . . . . . . . . . . . . . . . . . . . . . . Investment interest expense . . . . . . . . . . . . . . . . . . . . . Section 59(e)(2) expenditures . . . . . . Type: Other deductions (see instructions) . . . . Type: Low-income housing credit (section 42(j)(5)) . . . . . . . . . . . . . . . . Low-income housing credit (other) . . . . . . . . . . . . . . . . . . . Qualified rehabilitation expenditures (rental real estate) (attach Form 3468, if applicable) . . Other rental real estate credits (see instructions) Type: Other rental credits (see instructions) . . . Type: Biofuel producer credit (attach Form 6478) . . . . . . . . . . . . . . . . Other credits (see instructions) . . . . . Type:

1 2

9 10 11 12a 12b 12c 12d 13a 13b 13c 13d 13e 13f 13g

Attach Schedule K-2 (Form 1120-S), Shareholders’ Pro Rata Share Items—International, and check this box to indicate you are reporting items of international tax relevance . . . . Post-1986 depreciation adjustment . . . . . . . . . . . . . . . . . . . Adjusted gain or loss . . . . . . . . . . . . . . . . . . . . . . . Depletion (other than oil and gas) . . . . . . . . . . . . . . . . . . . Oil, gas, and geothermal properties—gross income . . . . . . . . . . . . . . Oil, gas, and geothermal properties—deductions . . . . . . . . . . . . . . . Other AMT items (attach statement) . . . . . . . . . . . . . . . . . . . Tax-exempt interest income . . . . . . . . . . . . . . . . . . . . . Other tax-exempt income . . . . . . . . . . . . . . . . . . . . . . Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . . Distributions (attach statement if required) (see instructions) . . . . . . . . . . . Repayment of loans from shareholders . . . . . . . . . . . . . . . . . . Foreign taxes paid or accrued . . . . . . . . . . . . . . . . . . . .

15a 15b 15c 15d 15e 15f 16a 16b 16c 16d 16e 16f

3c 4 5a

30,000

20,000

6 7 8a

Form 1120-S (2022)

11-14 Chapter 11 – The Corporate Income Tax

Comprehensive Problem 2, cont. Form 1120-S (2022)

ReconOther ciliation Information

Schedule K 17a b c d

George Corporation

Page 4

Shareholders’ Pro Rata Share Items (continued)

Total amount

Investment income . . . . . . . . . . . . . . . Investment expenses . . . . . . . . . . . . . . Dividend distributions paid from accumulated earnings and profits Other items and amounts (attach statement)

. . .

17a 17b 17c

DRAFT AS OF September 12, 2022 DO NOT FILE 18

Schedule L 1 2a b 3 4 5 6 7 8 9 10a b 11a b 12 13a b 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Income (loss) reconciliation. Combine the amounts on lines 1 through 10 in the far right column. From the result, subtract the sum of the amounts on lines 11 through 12d and 16f .

Balance Sheets per Books

Assets Cash . . . . . . . . . . . . . Trade notes and accounts receivable . . . Less allowance for bad debts . . . . . . Inventories . . . . . . . . . . . U.S. government obligations . . . . . . Tax-exempt securities (see instructions) . . Other current assets (attach statement) . . . Loans to shareholders . . . . . . . . Mortgage and real estate loans . . . . . Other investments (attach statement) . . . Buildings and other depreciable assets . . . Less accumulated depreciation . . . . . Depletable assets . . . . . . . . . Less accumulated depletion . . . . . . Land (net of any amortization) . . . . . . Intangible assets (amortizable only) . . . . Less accumulated amortization . . . . . Other assets (attach statement) . . . . . Total assets . . . . . . . . . . . Liabilities and Shareholders’ Equity Accounts payable . . . . . . . . . Mortgages, notes, bonds payable in less than 1 year Other current liabilities (attach statement) . . Loans from shareholders . . . . . . . Mortgages, notes, bonds payable in 1 year or more Other liabilities (attach statement) . . . . Capital stock . . . . . . . . . . . Additional paid-in capital . . . . . . . Retained earnings . . . . . . . . . Adjustments to shareholders’ equity (attach statement) Less cost of treasury stock . . . . . . Total liabilities and shareholders’ equity . .

Beginning of tax year

(a)

(b)

(c)

Initial Return

(

50,000

End of tax year

(d)

109,000

20,000

)

(

20,000 70,000

)

40,000

(

)

(

90,000 10,000 )

(

)

(

)

(

)

(

)

80,000

319,000 24,000

85,000 80,000 130,000 (

)

(

)

319,000 Form 1120-S (2022)

Solutions for Questions and Problems – Chapter 11 11-15

Comprehensive Problem 2, cont. Form 1120-S (2022)

Schedule M-1

George Corporation

Page 5

Reconciliation of Income (Loss) per Books With Income (Loss) per Return Note: The corporation may be required to file Schedule M-3. See instructions.

Net income (loss) per books

Income included on Schedule K, lines 1, 2, 3c, 4, 5a, 6, 7, 8a, 9, and 10, not recorded on books this year (itemize)

130,000

Income recorded on books this year not included on Schedule K, lines 1 through 10 (itemize): a

Tax-exempt interest $

DRAFT AS OF September 12, 2022 DO NOT FILE 3

Expenses recorded on books this year not included on Schedule K, lines 1 through 12, and 16f (itemize): Depreciation $

Travel and entertainment $

Add lines 5 and 6 .

Income (loss) (Schedule K, line 18). Subtract line 7 from line 4 . . . .

Add lines 1 through 3

Schedule M-2

Deductions included on Schedule K, lines 1 through 12, and 16f, not charged against book income this year (itemize): Depreciation $ 80,000 *

130,000

80,000 80,000

50,000

Analysis of Accumulated Adjustments Account, Shareholders’ Undistributed Taxable Income Previously Taxed, Accumulated Earnings and Profits, and Other Adjustments Account (see instructions) (a) Accumulated adjustments account

1 2 3 4 5 6 7

Balance at beginning of tax year . . Ordinary income from page 1, line 21 Other additions . . . . . . . Loss from page 1, line 21 . . . . Other reductions . . . . . . . Combine lines 1 through 5 . . . . Distributions . . . . . . . .

. . . . . . .

Balance at end of tax year. Subtract line 7 from line 6 . . . . . . . . . . . . .

(b) Shareholders’ undistributed taxable income previously taxed

(d) Other adjustments account

0 30,000 20,000

( (

) )

(

)

50,000 50,000 Form 1120-S (2022)

* Tax depreciation of $90,000 minus book depreciation of $10,000.

11-16 Chapter 11 – The Corporate Income Tax

Comprehensive Problem 2, cont. 671121

2022

Schedule K-1 (Form 1120-S) Department of the Treasury Internal Revenue Service /

beginning

Deductions, Credits, and Other Items 1

2022

ending

OMB No. 1545-0123

Amended K-1

Part III Shareholder’s Share of Current Year Income,

For calendar year 2022, or tax year

Shareholder’s Share of Income, Deductions, Credits, etc. See separate instructions. Part I

Final K-1

Ordinary business income (loss)

Credits

15,000 Net rental real estate income (loss)

DRAFT AS OF July 7, 2022 DO NOT FILE

Information About the Corporation

Other net rental income (loss)

Interest income

Corporation’s employer identification number

5a Ordinary dividends

Corporation’s name, address, city, state, and ZIP code

5b Qualified dividends

10,000

94-8888888

George Corporation 15620 McMullen Hwy SW Cumberland, MD 21502 C

IRS Center where corporation filed return

Corporation’s total number of shares

Schedule K-3 is attached if checked . . . . .

Alternative minimum tax (AMT) items

Items affecting shareholder basis

Other information

10,000

Royalties

Net short-term capital gain (loss)

8a Net long-term capital gain (loss)

Kansas City, MO Beginning of tax year End of tax year

Part II E

8b Collectibles (28%) gain (loss)

100

8c Unrecaptured section 1250 gain

Information About the Shareholder

Shareholder’s identifying number

Net section 1231 gain (loss)

Other income (loss)

444-11-5555 F

Shareholder’s name, address, city, state, and ZIP code

Brianna Tabor 12 Bowery Street Frostburg, MD 21532 G

Current year allocation percentage .

% 11

Section 179 deduction

Other deductions

Shareholder’s number of shares Beginning of tax year End of tax year

Loans from shareholder Beginning of tax year .

For IRS Use Only

End of tax year

10,000

V**

15,000

V**

50,000

V**

45,000

170,000

More than one activity for at-risk purposes*

More than one activity for passive activity purposes*

* See attached statement for additional information. (a) For Paperwork Reduction Act Notice, see the Instructions for Form 1120-S.

www.irs.gov/Form1120S

Cat. No. 11520D

Schedule K-1 (Form 1120-S) 2022

** The IRS uses code V for QBI deduction reporting and recommends Statement A from the Form 1120-S instructions. Use of Intuit ProConnect software will create Statement A. A version of Statement A is presented on the next page.

Solutions for Questions and Problems – Chapter 11 11-17

Comprehensive Problem 2, cont. Ê·Ê»Ã»ÄÊ Ƴ ·ÉÉƖ ¾ÈÅË½¾ ÄÊ¿ÊÏ »ÆÅÈÊ¿Ä½

George Corporation Brianna Tabor

·ÉÉƖÊ¾ÈÅË½¾ »ÄÊ¿ÊÏͱÉ Ä·Ã»Ɠ ¾·È»¾ÅÂº»ÈƠÉ Ä·Ã»Ɠ

È·º» ÅÈ ËÉ¿Ä»ÉÉ ʸ

¾·È»¾ÅÂº»ÈƠÉ É¾·È» Å¼Ɠ

½½È»½·Ê»º

15,000

Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

»¹Ê¿ÅÄ ʸʾˀ º»ºË¹Ê¿ÅÄ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ê¾»È º»ºË¹Ê¿ÅÄÉ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɩʹ Í·½»É Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Å¼ ÇË·Â¿¼¿»º ÆÈÅÆ»ÈÊÏ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ »¹Ê¿ÅÄ ʸˀˀ º¿Ì¿º»ÄºÉ Ɣ Ɣ Ɣ Ɣ Ɣ

È·º» ÅÈ ËÉ¿Ä»ÉÉ ʺ

½½È»½·Ê»º

»¹Ê¿ÅÄ ʸʹʺʸ ½·¿Ä ƺÂÅÉÉƻ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ê¾»È ¿Ä¹ÅÃ» ƺÂÅÉÉƻ

È·º» ÅÈ ËÉ¿Ä»ÉÉ ʹ

»ÄÊ·Â ¿Ä¹ÅÃ» ƺÂÅÉÉƻ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ ÅÏ·ÂÊÏ ¿Ä¹ÅÃ» ƺÂÅÉÉƻ

444-11-5555

ÅÈ ÇË·Â¿¼¿»º ¿Ê»ÃÉ ÉË¸À»¹Ê ÊÅ É¾·È»¾ÅÂº»ÈƖÉÆ»¹¿¼¿¹ º»Ê»ÈÃ¿Ä·Ê¿ÅÄÉƓ Èº¿Ä·ÈÏ ¸ËÉ¿Ä»ÉÉ ¿Ä¹ÅÃ» ƺÂÅÉÉƻ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ Ɣ

94-8888888

·ÉÉƖÊ¾ÈÅË½¾ »ÄÊ¿ÊÏͱÉ Ɠ ¾·È»¾ÅÂº»ÈƠÉ ¿º»ÄÊ¿¼Ï¿Ä½ ÄËÃ¸»ÈƓ

50,000 45,000

11-18 Chapter 11 – The Corporate Income Tax

Key Number Tax Return Summary Chapter 11 Comprehensive Problem 1 Total Income (Line 11)

270,000

Dividends Received Deduction (Line 29b)

10,000

Taxable Income (Line 30)

40,000

Total Tax (Line 31)

8,400

Overpayment (Line 36)

600

Comprehensive Problem 2 Cost of Goods Sold (Line 2)

70,000

Total Income (Loss) (Line 6)

250,000

Ordinary Business Income (Loss) (Line 21)

30,000

Amount Owed (Line 25)

Qualified Dividends (Schedule K-1, Line 5b)

10,000

CHAPTER 12 TAX ADMINISTRATION AND TAX PLANNING Group 1 – Multiple Choice Questions 1. E 2. E 3. B 4. E

5. D 6. E 7. D 8. C

9. D

10. C 11. C

12. C

13. D

14. D

None of these duties belong to a local office (LO 12.1) The IRS has the authority to take all of these actions (LO 12.1) Correspondence audits remain the most popular type of audit (LO 12.2) The IRS is capable of using a wide variety of information from which to select returns for review (LO 12.2) A District Court proceeding can only be pursued if that tax has been paid (LO 12.2) All of these are possible viable sources of audits (LO 12.2) There is no penalty for filing taxes early (LO 12.3) Martha’s penalty would be $250 (5% of $1,000 x 5 months max); however, after 60 days, the minimum penalty is $450 in 2022. (LO 12.3) The over and underpayment rates are equal and underpayment interest is nondeductible and overpayment interest is taxable (LO 12.3) $20,000 x 20% (LO 12.3) The penalty is 2% of the check amount or if the check is less than $1,250, lesser of $25 or check amount (LO 12.3) Generally, the statute is 3 years from the later of the actual filing date or the original due date (LO 12.4) Generally, the statute is 3 years from the later of the actual filing date or the original due date (LO 12.4) The statute of limitations is extended to 6 years for large omissions of gross income (LO 12.4)

15. D All of these types of preparers may represent their clients in IRS matters (LO 12.5) 16. C Notify the client of the error and explain the consequences (LO 12.5) 17. B The penalty for a preparer cashing a client refund check is $560 (LO 12.5) 18. C The burden of proof remains on the taxpayer when no books and records can be located (LO 12.5) 19. E The IRS grants limited privilege to tax advisers in noncriminal tax matters (LO 12.5) 20. D The burden of proof remains with large entities ($7 million threshold) (LO 12.5) 21. A The IRS need not disclose the method by which a tax return was selected for review (LO 12.6) 22. D Innocent spouses may not always be held liable for the joint tax liability and associated penalties and interest (LO 12.6) 23. D IRS Publication 1 is the Taxpayer Bill of Rights (LO 12.6) 24. D Taxpayers have the right to demand a reasonable location for which to meet for an IRS examination of their return (LO 12.6) 25. D The Taxpayer Bill of Rights provides some opportunity for taxpayers to recover some of the costs of litigation but only if a good faith effort to resolve the issue was attempted first (LO 12.6) 26. B The IRS must issue the refund within 45 days or pay interest (LO 12.6) 27. B ($8,817 – $6,617)/($60,000 – $50,000) (LO 12.7) 28. D ($5,077 – $4,475)/($43,000 – $39,000) (LO 12.7) 29. D $2,000 – (30% x $1,700) (LO 12.7)

Group 2 – Problems 1. a. True.

The IRS is a bureau of the Treasury Department, administering the tax laws of the US. (LO 12.1) b. False. See The IRS Organizational Structure in Figure 12.2 (LO 12.1) c. False. Most individual returns are processed at one of the IRS Campus Processing Sites. (LO 12.1) 12-1

12-2

Chapter 12 – Tax Administration and Tax Planning

d. False. Taxpayers can call an IRS toll-free phone number or visit their local IRS office (some take appointments) for tax information. (LO 12.1) e. False. The IRS may issue a summons for a taxpayer’s records which are in the possession of third parties, such as CPAs. (LO 12.1) f. True. Taxpayer audits are also conducted at the office of the taxpayer or at the IRS office. (LO 12.2) 2. a. False. In a field audit, the IRS agent reviews a taxpayer’s books and records at the taxpayer’s place of business or at the office of the taxpayer’s accountant. (LO 12.2) b. False. A low DIF score decreases the possibility that a return will be selected for audit. (LO 12.2) c. False. The IRS pays interest on overpayments of taxes, except for overpayments of current year taxes. (LO 12.3) d. True. (LO 12.3) e. True. (LO 12.3) f. False. The fraud penalty is only applied when a tax return has been filed. (LO 12.3) 3. a. $7.00 = $700 x 0.5% x 2 months. b. Failure-to-pay penalty (0.5% x $750 x 5 months) $ 18.75 Failure-to-file penalty (5% x $750 x 5 months) $187.50 Less the failure-to-pay penalty (18.75) Net failure-to-file penalty 168.75 Minimum failure-to-file penalty (over 60 days) $450.00 450.00 Total penalties $468.75 c. $0. If the taxpayer is entitled to a refund, there is no penalty. (LO 12.3) 4. $0. None of the amounts are deductible since (1) the interest is considered consumer interest which is 100 percent disallowed, (2) federal income taxes are not deductible and (3) fines and penalties are not allowed as deductions. (LO 12.3) 5. a. Negligence penalty (20% x $4,000) = $800 b. Fraud penalty (75% x $4,000) = $3,000 (LO 12.3) 6. a. Filing a frivolous tax return; $5,000 b. Bad check; $25, since the check is less than $1,250. c. Accuracy-related penalty, substantial understatement; $2,000 = $10,000 x 20%. (LO 12.3) 7. a. True. (LO 12.3) b. False. The statute of limitations is normally 3 years from the date the tax return was filed or the date it was due, whichever is later. (LO 12.4) c. True. (LO 12.4) d. False. Enrolled agents are tax practitioners who have passed an exam. They are allowed to represent taxpayers in proceedings before the IRS. (LO 12.5) e. False. Only enrolled agents, CPAs, and attorneys may represent their clients in IRS proceedings. (LO 12.5) f. False. The IRS must schedule audits at a reasonable time and place. (LO 12.6)

Solutions for Questions and Problems – Chapter 12

8. a. b. c. d.

12-3

Never May 19, 2026, assuming a valid extension was filed. April 18, 2026 April 18, 2029, due to an omission of 25 percent or more of gross income, which increases the statute of limitations to 6 years. (LO 12.4)

9. a. $1,000 or more (the greater of $1,000 or 50 percent of the income derived by the tax preparer for an undisclosed unrealistic position) b. $55 c. $1,000, for each separate return or document, etc. d. $560 (LO 12.5) 10. a. b. c. d.

enrolled enrolled unenrolled enrolled (LO 12.5)

11. The 10 rights are (1) the right to be informed, (2) the right to quality service, (3) the right to pay no more than the correct amount of tax, (4) the right to challenge the IRS’s position and be heard, (5) the right to appeal an IRS decision in an independent forum, (6) the right to finality, (7) the right to privacy, (8) the right to confidentiality, (9) the right to retain representation, and (10) the right to a fair and just tax system. (LO 12.6) 12. a. True. b. True. c. False. The marginal tax rate represents the rate of tax that will be applied to the “next” dollar of income. d. True. e. True. (LO 12.7)

SOLUTIONS FOR ADDITIONAL COMPREHENSIVE TAX RETURN PROBLEMS

Solutions for Additional Comprehensive Tax Return Problems

Form

Comprehensive Problem 1

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

Single

Married filing jointly

OMB No. 1545-0074

Married filing separately (MFS)

IRS Use Only—Do not write or staple in this space.

Head of household (HOH)

DRAFT AS OF September 1, 2022 DO NOT FILE

Your first name and middle initial

Last name

Your social security number

If joint return, spouse’s first name and middle initial

Last name

Spouse’s social security number

Noah

Arc

Joan

434 11 3311

Arc

456 87 5432

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

1265 W. Riverview Ave.

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Dayton

Foreign country name

45402

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four Shem dependents, Nora see instructions and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

Was born before January 2, 1958

Last name

(2) Social security number

(3) Relationship to you

Arc Arc

598 01 2345 554 33 2411

Son Daughter . . .

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

1,930

. . .

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

Credit for other dependents

x x

. . .

. . 2a 3a

. . .

Child tax credit

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

. .

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

x No

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Yes

Spouse

Cat. No. 11320B

31,000

31,000 1,945

11,450 36,909 81,304 7,536 73,768 25,900 6,673 32,573 41,195 Form 1040 (2022)

D-1

D-2

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont.

Noah and Joan Arc

Form 1040 (2022)

Tax and Credits

434-11-3311

16 17

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

25d

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

4972 3 . . . .

16 17

. . .

18 19 20

. . .

21 22 23

Page 2

2,988 2,988 2,358 630 2,988 0 5,072 5,072

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

. . .

5,100

. . 27 28

1,642

29 30 31

35a Direct deposit? b See instructions. d 36

Amount You Owe

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Paid Preparer Use Only

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

5,100 4,000

Phone no.

. .

. Savings

35a

1,642 10,742 5,670 5,670

32 33 34

Yes. Complete below.

Personal identification number (PIN)

Date

Your occupation

Pet Store Owner Spouse’s signature. If a joint return, both must sign.

Date

Phone no.

Email address

Spouse’s occupation

Firefighter Preparer’s name

Preparer’s signature

Date

If the IRS sent you an Identity Protection PIN, enter it here (see inst.) If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

Noah and Joan Arc Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

434-11-3311

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

35,900 1,009

36,909

Schedule 1 (Form 1040) 2022

D-3

D-4

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont.

Noah and Joan Arc Part II Adjustments to Income

Schedule 1 (Form 1040) 2022

11 12 13 14 15 16 17 18 19a b c 20 21 22 23 24 a b c d e f g h i

j k z 25 26

434-11-3311

Page 2

Educator expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 . . . . . . . . . . . . . . . . . . . . . . . . 12 Health savings account deduction. Attach Form 8889 . . . . . . . . . . . . . . 13 Moving expenses for members of the Armed Forces. Attach Form 3903 . . . . . . . 14 Deductible part of self-employment tax. Attach Schedule SE . . . . . . . . . . . 15 Self-employed SEP, SIMPLE, and qualified plans . . . . . . . . . . . . . . . . 16 Self-employed health insurance deduction . . . . . . . . . . . . . . . . . . 17 Penalty on early withdrawal of savings . . . . . . . . . . . . . . . . . . . . 18 Alimony paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19a Recipient’s SSN . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): IRA deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Student loan interest deduction . . . . . . . . . . . . . . . . . . . . . . 21 22 Reserved for future use . . . . . . . . . . . . . . . . . . . . . . . . . Archer MSA deduction . . . . . . . . . . . . . . . . . . . . . . . . . 23 Other adjustments: Jury duty pay (see instructions) . . . . . . . . . . . . . . 24a Deductible expenses related to income reported on line 8l from the rental of personal property engaged in for profit . . . . . . . . 24b Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 8m . . . . . . . . . . 24c Reforestation amortization and expenses . . . . . . . . . . . 24d Repayment of supplemental unemployment benefits under the Trade Act of 1974 . . . . . . . . . . . . . . . . . . . . . . 24e Contributions to section 501(c)(18)(D) pension plans . . . . . . . 24f Contributions by certain chaplains to section 403(b) plans . . . . 24g Attorney fees and court costs for actions involving certain unlawful discrimination claims (see instructions) . . . . . . . . . . . . 24h Attorney fees and court costs you paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations . . . . . . . . . . . . . . . . . . . 24i Housing deduction from Form 2555 . . . . . . . . . . . . . 24j Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041) . . . . . . . . . . . . . . . . . . . . . . . . 24k Other adjustments. List type and amount: 24z Total other adjustments. Add lines 24a through 24z . . . . . . . . . . . . . . . 25 Add lines 11 through 23 and 25. These are your adjustments to income. Enter here and on Form 1040 or 1040-SR, line 10, or Form 1040-NR, line 10a . . . . . . . . . . . . 26

DRAFT AS OF July 27, 2022 DO NOT FILE

2,536

5,000

7,536

Schedule 1 (Form 1040) 2022

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont. SCHEDULE 2

OMB No. 1545-0074

Additional Taxes

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 02

Your social security number

Noah and Joan Arc Part I Tax

434-11-3311

DRAFT AS OF July 27, 2022 DO NOT FILE

Alternative minimum tax. Attach Form 6251 . . . . . . . . . . . . . . . .

Excess advance premium tax credit repayment. Attach Form 8962 . . . . . . .

Add lines 1 and 2. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 17 . .

Part II Other Taxes 4

Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . . .

Social security and Medicare tax on unreported tip income. Attach Form 4137 . . . . . . . . . . . . . . . . . .

Uncollected social security and Medicare tax on wages. Attach Form 8919 . . . . . . . . . . . . . . . . . . . . .

Total additional social security and Medicare tax. Add lines 5 and 6

. . . . . .

Additional tax on IRAs or other tax-favored accounts. Attach Form 5329 if required.

If not required, check here . . . . . . . . . . . . . . . . . . . . .

Household employment taxes. Attach Schedule H

. . . . . . . . . . . . .

Repayment of first-time homebuyer credit. Attach Form 5405 if required . . . . .

Additional Medicare Tax. Attach Form 8959 . . . . . . . . . . . . . . . .

Net investment income tax. Attach Form 8960 . . . . . . . . . . . . . . .

Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance from Form W-2, box 12 . . . . . . . . . . . . . . . . . . . .

Interest on tax due on installment income from the sale of certain residential lots and timeshares . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest on the deferred tax on gain from certain installment sales with a sales price over $150,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recapture of low-income housing credit. Attach Form 8611 . . . . . . . . . .

5,072

(continued on page 2) For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71478U

Schedule 2 (Form 1040) 2022

D-5

D-6

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont. Schedule 2 (Form 1040) 2022

Noah and Joan Arc

434-11-3311

Page 2

Part II Other Taxes (continued) 17

Other additional taxes: a Recapture of other credits. List type, form number, and amount: 17a

DRAFT AS OF July 27, 2022 DO NOT FILE

b Recapture of federal mortgage subsidy, if you sold your home see instructions . . . . . . . . . . . . . . . . . . . 17b c Additional tax on HSA distributions. Attach Form 8889 . . . .

17c

d Additional tax on an HSA because you didn’t remain an eligible individual. Attach Form 8889 . . . . . . . . . . . . . . 17d e Additional tax on Archer MSA distributions. Attach Form 8853 .

17e

f Additional tax on Medicare Advantage MSA distributions. Attach 17f Form 8853 . . . . . . . . . . . . . . . . . . . . .

Section 72(m)(5) excess benefits tax . . . . . . . . . . .

k Golden parachute payments l

17j

. . . . . . . . . . . . . .

17k

Tax on accumulation distribution of trusts . . . . . . . . .

17l

17q

z Any other taxes. List type and amount: 17z 18

Total additional taxes. Add lines 17a through 17z . . . . . . . . . . . . . .

Reserved for future use

20 21

. . . . . . . . . . . . . . . . . . . . . . . .

5,072

Schedule 2 (Form 1040) 2022

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont. SCHEDULE 3

OMB No. 1545-0074

Additional Credits and Payments

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 03

Your social security number

Noah and Joan Arc Part I Nonrefundable Credits

434-11-3311

DRAFT AS OF July 27, 2022 DO NOT FILE

Foreign tax credit. Attach Form 1116 if required

. . . . . . . . . . . . . .

Credit for child and dependent care expenses from Form 2441, line 11. Attach Form 2441 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

600

Education credits from Form 8863, line 19 . . . . . . . . . . . . . . . . .

Retirement savings contributions credit. Attach Form 8880 . . . . . . . . . .

Residential energy credits. Attach Form 5695

Other nonrefundable credits:

a General business credit. Attach Form 3800

. . . . . . . . . . . . . . .

. . . . . . . .

b Credit for prior year minimum tax. Attach Form 8801

. . . .

c Adoption credit. Attach Form 8839 . . . . . . . . . . . .

d Credit for the elderly or disabled. Attach Schedule R . . . . .

e Alternative motor vehicle credit. Attach Form 8910

. . . . .

f Qualified plug-in motor vehicle credit. Attach Form 8936 . . .

g Mortgage interest credit. Attach Form 8396 . . . . . . . .

h District of Columbia first-time homebuyer credit. Attach Form 8859

Qualified electric vehicle credit. Attach Form 8834

. . . . .

Reserved for future use . . . . . . . . . . . . . . . . .

k Credit to holders of tax credit bonds. Attach Form 8912 . . .

Amount on Form 8978, line 14. See instructions

. . . . . .

z Other nonrefundable credits. List type and amount: 6z 7 8

7 8

630

(continued on page 2) For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71480G

Schedule 3 (Form 1040) 2022

D-7

D-8

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont. Schedule 3 (Form 1040) 2022

Noah and Joan Arc

434-11-3311

Page 2

Part II Other Payments and Refundable Credits 9

Net premium tax credit. Attach Form 8962 . . . . . . . . . . . . . . . . .

Amount paid with request for extension to file (see instructions) . . . . . . . .

Excess social security and tier 1 RRTA tax withheld . . . . . . . . . . . . .

Credit for federal tax on fuels. Attach Form 4136 . . . . . . . . . . . . . .

Other payments or refundable credits:

DRAFT AS OF July 27, 2022 DO NOT FILE

. . . . . . . . . . . . . . . .

13e

f Deferred amount of net 965 tax liability (see instructions) . . .

13f

14 15 Schedule 3 (Form 1040) 2022

Solutions for Additional Comprehensive Tax Return Problems

Schedule A not required as standard deduction exceeds itemized deductions. Comprehensive SCHEDULE A Problem 1, cont.

Itemized Deductions

OMB No. 1545-0074

2022

(Form 1040)

Your social security number

Noah and Joan Arc Medical and Dental Expenses Taxes You Paid

434-11-3311

DRAFT AS OF July 21, 2022 DO NOT FILE 1 2 3 4

Caution: Do not include expenses reimbursed or paid by others. Medical and dental expenses (see instructions) . . . . . . . Enter amount from Form 1040 or 1040-SR, line 11 2 73,768 Multiply line 2 by 7.5% (0.075) . . . . . . . . . . . . . Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- . . .

5 State and local taxes. 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. If you elect to include general sales taxes instead of income taxes, check this box . . . . . . . . . . . . . . . . . b State and local real estate taxes (see instructions) . . . . . . . c State and local personal property taxes . . . . . . . . . . d Add lines 5a 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: 7 Add lines 5e and 6 .

Interest You Paid Caution: Your mortgage interest deduction may be limited. See instructions.

700

3 . .

Caution: If you made a gift and got a benefit for it, see instructions.

5,533

5a 5b 5c 5d

6,520 2,400

8,920

6 . .

(a)

8,920

10,056

5,000

10,056

Gifts to Charity

Attachment Sequence No. 07

10,056 .

5,000

For Paperwork Reduction Act Notice, see the Instructions for Form 1040.

Cat. No. 17145C

23,976

. Schedule A (Form 1040) 2022

(a) $1,950 state income tax + $770 local income tax (Form W-2) + $3,800 estimated tax payments by The Arc.

D-9

D-10

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive SCHEDULE B Problem 1, cont. (Form 1040)

OMB No. 1545-0074

Interest and Ordinary Dividends

2022

Go to www.irs.gov/ScheduleB for instructions and the latest information. Attach to Form 1040 or 1040-SR.

Department of the Treasury Internal Revenue Service Name(s) shown on return

Attachment Sequence No. 08 Your social security number

Noah and Joan Arc Part I Interest (See instructions and the Instructions for Form 1040, line 2b.) Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm’s name as the payer and enter the total interest shown on that form.

434-11-3311

DRAFT AS OF July 7, 2022 DO NOT FILE 1

2 3

Part II Ordinary Dividends

Amount

2 3 4 Amount

Exxon Mobil Texas Utilities CS Growth Fund

(See instructions and the Instructions for Form 1040, line 3b.)

350 1,200 395

1,945

b If you are required to file FinCEN Form 114, list the name(s) of the foreign country(-ies) where the financial account(s) are located: 8

During 2022, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If “Yes,” you may have to file Form 3520. See instructions . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 17146N

Schedule B (Form 1040) 2022

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive SCHEDULE C Problem 1, cont. (Form 1040) Department of the Treasury Internal Revenue Service

Profit or Loss From Business

OMB No. 1545-0074

2022

(Sole Proprietorship) Go to www.irs.gov/ScheduleC for instructions and the latest information.

Social security number (SSN)

Noah Arc

434-11-3311

DRAFT AS OF July 15, 2022 DO NOT FILE

Principal business or profession, including product or service (see instructions)

B Enter code from instructions

Business name. If no separate business name, leave blank.

D Employer ID number (EIN) (see instr.)

Pet Store

Attachment Sequence No. 09

Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.

Name of proprietor A

The Arc

4 5 3 9 1 0

9 5 9 8 7 6 5 5 6

1415 S. Patterson Blvd. Dayton, OH 45409

Business address (including suite or room no.)

F G

x Yes

H I J

. . .

x Yes x Yes

No No

Part I 1

. . .

Income

2 3 4

1 2 3 4

5 6 7

. . .

5 6 7

Office expense (see instructions) . Pension and profit-sharing plans .

18 19

Rent or lease (see instructions): Vehicles, machinery, and equipment Other business property . . .

20a 20b

8,500

Part II

Advertising .

Car and truck expenses (see instructions) . . . Commissions and fees . Contract labor (see instructions)

12 13

Depletion . . . . . Depreciation and section 179 expense deduction (not included in Part III) (see instructions) . . . .

14 15 16 a b

. . .

150,000 150,000 67,000 83,000 83,000

Expenses. Enter expenses for business use of your home only on line 30.

10 11

D-11

Employee benefit programs (other than on line 19) . Insurance (other than health) Interest (see instructions): Mortgage (paid to banks, etc.)

18 19

9 10 11

21 22 23

Repairs and maintenance . . . Supplies (not included in Part III) . Taxes and licenses . . . . .

21 22 23

4,000

Travel and meals: Travel . . . .

24a

1,300

Deductible meals (see instructions) . . . . . . . Utilities . . . . . . . . Wages (less employment credits)

24b 25 26

1,000 1,500 25,000

(a)

47,100 35,900

(b)

a b

a 14 15

4,000 25 26

16a

17 28

Other . . . . . . 16b 27a Other expenses (from line 48) . Legal and professional services 17 b Reserved for future use . . 1,800 Total expenses before expenses for business use of home. Add lines 8 through 27a . . . . . .

. . .

27a 27b 28

Tentative profit or (loss). Subtract line 28 from line 7 .

and (b) the part of your home used for business: Method Worksheet in the instructions to figure the amount to enter on line 30

. Use the Simplified . . . . . . .

Net profit or (loss). Subtract line 30 from line 29.

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

}

32a 32b

35,900

All investment is at risk. Some investment is not at risk. Schedule C (Form 1040) 2022

(a) $500 Restaurant business travel meals + $300 employee holiday party + $200 restaurant overtime meals. (b) Book expenses of $55,800 – estimated fed tax payments $4,000 – estimated state tax payments $3,800 – nondeductible meals and entertainment $600 – nondeductible miscellaneous political contribution $300.

D-12

Solutions for Additional Comprehensive Tax Return Problems

Schedule C (Form 1040)Problem 2022 Comprehensive 1, cont. Noah Arc

Part III

434-11-3311

Page 2

Cost of Goods Sold (see instructions)

Method(s) used to value closing inventory:

Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . .

x Cost

Lower of cost or market

Other (attach explanation)

DRAFT AS OF July 15, 2022 DO NOT FILE

Yes

x No

Inventory at beginning of year. If different from last year’s closing inventory, attach explanation .

11,000

Purchases less cost of items withdrawn for personal use

66,000

Cost of labor. Do not include any amounts paid to yourself .

Materials and supplies

Other costs .

Add lines 35 through 39 .

77,000

Inventory at end of year .

10,000

Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 .

67,000

Part IV

When did you place your vehicle in service for business purposes? (month/day/year)

Of the total number of miles you drove your vehicle during 2022, enter the number of miles you used your vehicle for: a

Business

b Commuting (see instructions)

c Other

Was your vehicle available for personal use during off-duty hours?

Yes

Do you (or your spouse) have another vehicle available for personal use?.

Yes

47a

Do you have evidence to support your deduction?

Yes

If “Yes,” is the evidence written?

Yes

Part V

Other Expenses. List below business expenses not included on lines 8–26 or line 30.

Total other expenses. Enter here and on line 27a

48 Schedule C (Form 1040) 2022

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive SCHEDULE D Problem 1, cont. (Form 1040) Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

Capital Gains and Losses

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/ScheduleD for instructions and the latest information. Use Form 8949 to list your transactions for lines 1b, 2, 3, 8b, 9, and 10.

Name(s) shown on return

Attachment Sequence No. 12 Your social security number

Noah and Joan Arc

434-11-3311

DRAFT AS OF July 15, 2022 DO NOT FILE

Short-Term Capital Gains and Losses—Generally Assets Held One Year or Less (see instructions)

(d) Proceeds (sales price)

6,000

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part I, line 2, column (g)

5,500

Part II

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

500

4 5 6

(

)

500

Long-Term Capital Gains and Losses—Generally Assets Held More Than One Year (see instructions)

(d) Proceeds (sales price)

16,700

(e) Cost (or other basis)

(g) Adjustments to gain or loss from Form(s) 8949, Part II, line 2, column (g)

4,700

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

12,000

Cat. No. 11338H

11 12 13

250

14 (

1,300

10,950

)

Schedule D (Form 1040) 2022

D-13

D-14

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont. Noah and Joan Arc Schedule D (Form 1040) 2022 Part III 16

434-11-3311

Page 2

Summary

Combine lines 7 and 15 and enter the result

DRAFT AS OF July 15, 2022 DO NOT FILE

11,450

Are lines 15 and 16 both gains? x Yes. Go to line 18. No. Skip lines 18 through 21, and go to line 22.

If you are required to complete the 28% Rate Gain Worksheet (see instructions), enter the amount, if any, from line 7 of that worksheet . . . . . . . . . . . . . . . . . .

If you are required to complete the Unrecaptured Section 1250 Gain Worksheet (see instructions), enter the amount, if any, from line 18 of that worksheet . . . . . . . . . .

If line 16 is a loss, enter here and on Form 1040, 1040-SR, or 1040-NR, line 7, the smaller of: • The loss on line 16; or • ($3,000), or if married filing separately, ($1,500)

}

21 (

)

Note: When figuring which amount is smaller, treat both amounts as positive numbers. 22

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive SCHEDULE E Problem 1, cont. (Form 1040)

Supplemental Income and Loss

OMB No. 1545-0074

Attach to Form 1040, 1040-SR, 1040-NR, or 1041. Go to www.irs.gov/ScheduleE for instructions and the latest information.

Department of the Treasury Internal Revenue Service Name(s) shown on return

Attachment Sequence No. 13 Your social security number

Noah and Joan Arc Part I

2022

(From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.)

434-11-3311

Income or Loss From Rental Real Estate and Royalties

DRAFT AS OF July 22, 2022 DO NOT FILE

Note: If you are in the business of renting personal property, use Schedule C. See instructions. If you are an individual, report farm rental income or loss from Form 4835 on page 2, line 40.

A B

Did you make any payments in 2022 that would require you to file Form(s) 1099? See instructions . If “Yes,” did you or will you file required Form(s) 1099? . . . . . . . . . . . . . .

Physical address of each property (street, city, state, ZIP code)

A B C 1b

16 Oakwood Ave., Unit A, Dayton, OH 45409 Type of Property (from list below)

A 1 B C Type of Property: 1 Single Family Residence 2 Multi-Family Residence

3 Vacation/Short-Term Rental 4 Commercial

Fair Rental Days

A B C

5 Land 6 Royalties

. .

Yes Yes

Personal Use Days

QJV

365

7 Self-Rental 8 Other (describe)

Properties: Income: A B 3 Rents received . . . . . . . . . . . . . . . 3 16,600 (a) 4 Royalties received . . . . . . . . . . . . . . 4 Expenses: 5 5 Advertising . . . . . . . . . . . . . . . . 6 Auto and travel (see instructions) . . . . . . . . 6 7 Cleaning and maintenance . . . . . . . . . . . 7 8 Commissions . . . . . . . . . . . . . . . 8 9 Insurance . . . . . . . . . . . . . . . . . 9 800 10 Legal and other professional fees . . . . . . . . 10 11 Management fees . . . . . . . . . . . . . . 11 12 Mortgage interest paid to banks, etc. (see instructions) 12 5,800 13 Other interest . . . . . . . . . . . . . . . 13 14 Repairs . . . . . . . . . . . . . . . . . . 14 400 15 Supplies . . . . . . . . . . . . . . . . . 15 16 Taxes . . . . . . . . . . . . . . . . . . 16 1,500 17 Utilities . . . . . . . . . . . . . . . . . . 17 18 Depreciation expense or depletion . . . . . . . . 18 6,591 19 19 Other (list) Miscellaneous 500 20 Total expenses. Add lines 5 through 19 . . . . . . 20 15,591 21 Subtract line 20 from line 3 (rents) and/or 4 (royalties). If result is a (loss), see instructions to find out if you must file Form 6198 . . . . . . . . . . . . . . . 21 1,009 22 Deductible rental real estate loss after limitation, if any, on Form 8582 (see instructions) . . . . . . . . . 22 ( )( )( 23a Total of all amounts reported on line 3 for all rental properties . . . . . 23a 16,600 b Total of all amounts reported on line 4 for all royalty properties . . . . . 23b c Total of all amounts reported on line 12 for all properties . . . . . . . 23c 5,800 d Total of all amounts reported on line 18 for all properties . . . . . . . 23d 6,591 e Total of all amounts reported on line 20 for all properties . . . . . . . 23e 15,591 24 Income. Add positive amounts shown on line 21. Do not include any losses . . . . . . . 24 25 Losses. Add royalty losses from line 21 and rental real estate losses from line 22. Enter total losses here 25 ( 26 Total rental real estate and royalty income or (loss). Combine lines 24 and 25. Enter the result here. If Parts II, III, IV, and line 40 on page 2 do not apply to you, also enter this amount on Schedule 1 (Form 1040), line 5. Otherwise, include this amount in the total on line 41 on page 2 . 26 For Paperwork Reduction Act Notice, see the separate instructions.

x No

Cat. No. 11344L

)

1,009 )

1,009

Schedule E (Form 1040) 2022

(a) Rent received (including last month’s rent) plus $400 for repairs paid by tenant.

D-15

D-16

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive 1, cont. Schedule E (Form 1040)Problem 2022

Attachment Sequence No. 13

Page 2

Name(s) shown on return. Do not enter name and social security number if shown on other side.

Your social security number

Noah and Joan Arc

434-11-3311

Caution: The IRS compares amounts reported on your tax return with amounts shown on Schedule(s) K-1.

Part II

Income or Loss From Partnerships and S Corporations Note: If you report a loss, receive a distribution, dispose of stock, or receive a loan repayment from an S corporation, you must check the box in column (e) on line 28 and attach the required basis computation. If you report a loss from an at-risk activity for which any amount is not at risk, you must check the box in column (f) on line 28 and attach Form 6198. See instructions.

DRAFT AS OF July 22, 2022 DO NOT FILE

Are you reporting any loss not allowed in a prior year due to the at-risk or basis limitations, a prior year unallowed loss from a passive activity (if that loss was not reported on Form 8582), or unreimbursed partnership expenses? If you answered “Yes,” see instructions before completing this section . . . . . . . . . . . . . . . . . . . . . Yes No

(b) Enter P for partnership; S for S corporation

(a) Name

A B C D

Passive Income and Loss

(g) Passive loss allowed (attach Form 8582 if required)

A B C D 29a b 30 31 32

Nonpassive Income and Loss

(h) Passive income from Schedule K-1

(i) Nonpassive loss allowed (see Schedule K-1)

(j) Section 179 expense deduction from Form 4562

Totals Totals Add columns (h) and (k) of line 29a . . . . . . . . . . . . . . . . Add columns (g), (i), and (j) of line 29b. . . . . . . . . . . . . . . . Total partnership and S corporation income or (loss). Combine lines 30 and 31

Part III

(e) Check if (f) Check if basis computation any amount is is required not at risk

(d) Employer identification number

. . .

(k) Nonpassive income from Schedule K-1

30 31 ( 32

)

Income or Loss From Estates and Trusts

(b) Employer identification number

(a) Name

A B Passive Income and Loss (c) Passive deduction or loss allowed (attach Form 8582 if required)

A B 34a b 35 36 37 38

. . .

(f) Other income from Schedule K-1

. . .

35 36 ( 37

)

Income or Loss From Real Estate Mortgage Investment Conduits (REMICs)—Residual Holder (a) Name

(b) Employer identification number

(d) Taxable income (net loss) from Schedules Q, line 1b

Combine columns (d) and (e) only. Enter the result here and include in the total on line 41 below .

Part V 40 41

(e) Deduction or loss from Schedule K-1

Totals Totals Add columns (d) and (f) of line 34a . . . . . . . . . . . Add columns (c) and (e) of line 34b . . . . . . . . . . . Total estate and trust income or (loss). Combine lines 35 and 36 .

Part IV

Nonpassive Income and Loss

(d) Passive income from Schedule K-1

(e) Income from Schedules Q, line 3b

Summary

Net farm rental income or (loss) from Form 4835. Also, complete line 42 below . . . . . . . Total income or (loss). Combine lines 26, 32, 37, 39, and 40. Enter the result here and on Schedule 1 (Form 1040), line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . Reconciliation of farming and fishing income. Enter your gross farming and fishing income reported on Form 4835, line 7; Schedule K-1 (Form 1065), box 14, code B; Schedule K-1 (Form 1120-S), box 17, code 42 AD; and Schedule K-1 (Form 1041), box 14, code F. See instructions . Reconciliation for real estate professionals. If you were a real estate professional (see instructions), enter the net income or (loss) you reported anywhere on Form 1040, Form 1040-SR, or Form 1040-NR from all rental real estate activities in which you materially participated under the passive activity loss rules . . . . . . . . . . . . 43

40 41

Schedule E (Form 1040) 2022

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive SCHEDULE SE Problem 1, cont. (Form 1040) Department of the Treasury Internal Revenue Service

2022

Go to www.irs.gov/ScheduleSE for instructions and the latest information. Attach to Form 1040, 1040-SR, or 1040-NR.

Name of person with self-employment income (as shown on Form 1040, 1040-SR, or 1040-NR)

Attachment Sequence No. 17

Social security number of person with self-employment income 434-11-3311

Noah Arc Part I

OMB No. 1545-0074

Self-Employment Tax

DRAFT AS OF July 28, 2022 DO NOT FILE

Note: If your only income subject to self-employment tax is church employee income, see instructions for how to report your income and the definition of church employee income. A If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you had $400 or more of other net earnings from self-employment, check here and continue with Part I . . . . . . . . . Skip lines 1a and 1b if you use the farm optional method in Part II. See instructions. 1a Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), 1a box 14, code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b If you received social security retirement or disability benefits, enter the amount of Conservation Reserve Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code AH 1b ( ) Skip line 2 if you use the nonfarm optional method in Part II. See instructions. 2 Net profit or (loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than 2 farming). See instructions for other income to report or if you are a minister or member of a religious order 35,900 3 Combine lines 1a, 1b, and 2 . . . . . . . . . . . . . . . . . . . . . . . . . 3 35,900 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3 . 4a 33,154 Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions. b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here . . . . . 4b c Combine lines 4a and 4b. If less than $400, stop; you don’t owe self-employment tax. Exception: If less than $400 and you had church employee income, enter -0- and continue . . . . . . . . 4c 33,154 5a Enter your church employee income from Form W-2. See instructions for definition of church employee income . . . . . . . . . . . . . 5a b Multiply line 5a by 92.35% (0.9235). If less than $100, enter -0- . . . . . . . . . . . . . 5b 6 Add lines 4c and 5b . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 33,154 7 Maximum amount of combined wages and self-employment earnings subject to social security tax or 147,000 the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2022 . . . . . . . . . . . 7 8a Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2) and railroad retirement (tier 1) compensation. If $147,000 or more, skip lines 8b through 10, and go to line 11 . . . . . . . . . . . . . . . 8a b Unreported tips subject to social security tax from Form 4137, line 10 . . . 8b c Wages subject to social security tax from Form 8919, line 10 . . . . . . 8c d Add lines 8a, 8b, and 8c . . . . . . . . . . . . . . . . . . . . . . . . . . 8d 9 Subtract line 8d from line 7. If zero or less, enter -0- here and on line 10 and go to line 11 . . . . 9 147,000 10 Multiply the smaller of line 6 or line 9 by 12.4% (0.124) . . . . . . . . . . . . . . . . 10 4,111 11 Multiply line 6 by 2.9% (0.029) . . . . . . . . . . . . . . . . . . . . . . . . 11 961 12 Self-employment tax. Add lines 10 and 11. Enter here and on Schedule 2 (Form 1040), line 4 . . 12 5,072 13 Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50). Enter here and on Schedule 1 (Form 1040), line 15 . . . . . . . . . . . . . . . . . . . . . . . . 13 2,536

Part II

Optional Methods To Figure Net Earnings (see instructions)

For Paperwork Reduction Act Notice, see your tax return instructions.

6,040

16 17

From Sch. C, line 31; and Sch. K-1 (Form 1065), box 14, code A. 4 From Sch. C, line 7; and Sch. K-1 (Form 1065), box 14, code C. Cat. No. 11358Z

Schedule SE (Form 1040) 2022

D-17

D-18

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont. Form

2441

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form2441 for instructions and the latest information.

Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

Child and Dependent Care Expenses

Name(s) shown on return

Noah and Joan Arc

2022

Attachment Sequence No. 21 Your social security number

434-11-3311

Part I

DRAFT AS OF August 1, 2022 DO NOT FILE

Persons or Organizations Who Provided the Care—You must complete this part. If you have more than three care providers, see the instructions and check this box . . . . . . . .

1 (a) Care provider’s

(b) Address (number, street, apt. no., city, state, and ZIP code)

name

Roundup Day Care Center

(d) Was the care provider your household employee in 2022? (c) Identifying number For example, this generally includes (SSN or EIN) nannies but not daycare centers. (see instructions)

245 N. Wilkinson St, Dayton, OH 45402

Did you receive dependent care benefits?

54-0983456

Yes

x No

Yes

Complete only Part II below.

Yes

Complete Part III on page 2 next.

(e) Amount paid (see instructions)

7,000

Part II 2

Credit for Child and Dependent Care Expenses

Information about your qualifying person(s). If you have more than three qualifying persons, see the instructions and check this box (a) Qualifying person’s name First

(b) Qualifying person’s social security number Last

Nora

Arc

554-33-2411

7,000

4 5

6 7 8

Enter the smallest of line 3, 4, or 5 . . . . . . . . . . . . . . . . . . . . Enter the amount from Form 1040, 1040-SR, or 1040-NR, line 11 . . . 7 73,768 Enter on line 8 the decimal amount shown below that applies to the amount on line 7. If line 7 is: But not Over over $0—15,000 15,000—17,000 17,000—19,000 19,000—21,000 21,000—23,000 23,000—25,000

If line 7 is: Decimal amount is .35 .34 .33 .32 .31 .30

Over

(d) Qualified expenses you incurred and paid in 2022 for the person listed in column (a)

3 4

3,000 33,364

5 6

31,000 3,000

X . 20

600

9b 9c

600

If line 7 is: But not over

$25,000—27,000 27,000—29,000 29,000—31,000 31,000—33,000 33,000—35,000 35,000—37,000

Decimal amount is .29 .28 .27 .26 .25 .24

Over

But not over

$37,000—39,000 39,000—41,000 41,000—43,000 43,000—No limit

Decimal amount is .23 .22 .21 .20

9a Multiply line 6 by the decimal amount on line 8 . . . . . . . . . . . . . . . . b If you paid 2021 expenses in 2022, complete Worksheet A in the instructions. Enter the amount from line 13 of the worksheet here. Otherwise, enter -0- on line 9b and go to line 9c . . . . c Add lines 9a and 9b and enter the result . . . . . . . . . . . . . . . . . . 2,958 10 Tax liability limit. Enter the amount from the Credit Limit Worksheet in the instructions 10 11 Credit for child and dependent care expenses. Enter the smaller of line 9c or line 10 here and on Schedule 3 (Form 1040), line 2 . . . . . . . . . . . . . . . . . . . . . For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 11862M

(b) 11

(a) $35,900 (Sch. C) less $2,536 (Sch. SE). found Schedule 1. * Calculation of Alternative Minimum TaxBoth not amounts required for thison problem. (b) $2,988 of taxes from Form 1040 line 18 less foreign tax credit of $30.

600 Form 2441 (2022)

(a)

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont.

Credits for Qualifying Children and Other Dependents

SCHEDULE 8812 (Form 1040)

Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

2022

Attach to Form 1040, 1040-SR, or 1040-NR.

Attachment Sequence No. 47

Go to www.irs.gov/Schedule8812 for instructions and the latest information.

Name(s) shown on return

Your social security number

Noah and Joan Arc Part I 1 2a b c d 3 4 5 6

7 8 9

434-11-3311

DRAFT AS OF August 3, 2022 DO NOT FILE

Child Tax Credit and Credit for Other Dependents

Enter the amount from line 11 of your Form 1040, 1040-SR, or 1040-NR . . . . . . . . . . . . Enter income from Puerto Rico that you excluded . . . . . . . . . . . 2a Enter the amounts from lines 45 and 50 of your Form 2555 . . . . . . . . 2b Enter the amount from line 15 of your Form 4563 . . . . . . . . . . . 2c Add lines 2a through 2c . . . . . . . . . . . . . . . . . . . . . . . . . . . Add lines 1 and 2d . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of qualifying children under age 17 with the required social security number 4 2 Multiply line 4 by $2,000 . . . . . . . . . . . . . . . . . . . . . . . . . . Number of other dependents, including any qualifying children who are not under age 17 or who do not have the required social security number . . . . . . . . 6 Caution: Do not include yourself, your spouse, or anyone who is not a U.S. citizen, U.S. national, or U.S. resident alien. Also, do not include anyone you included on line 4. Multiply line 6 by $500 . . . . . . . . . . . . . . . . . . . . . . . . . . . Add lines 5 and 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enter the amount shown below for your filing status. • Married filing jointly—$400,000 . . . . . . . . . . . . . . . . . . . . . . • All other filing statuses—$200,000 Subtract line 9 from line 3. • If zero or less, enter -0-. • If more than zero and not a multiple of $1,000, enter the next multiple of $1,000. For example, if the result is $425, enter $1,000; if the result is $1,025, enter $2,000, etc. . . . . . . . Multiply line 10 by 5% (0.05) . . . . . . . . . . . . . . . . . . . . . . . . . Is the amount on line 8 more than the amount on line 11? . . . . . . . . . . . . . . . . . No. STOP. You cannot take the child tax credit, credit for other dependents, or additional child tax credit. Skip Parts II-A and II-B. Enter -0- on lines 14 and 27. X Yes. Subtract line 11 from line 8. Enter the result. Enter the amount from the Credit Limit Worksheet A . . . . . . . . . . . . . . . . . Enter the smaller of line 12 or 13. This is your child tax credit and credit for other dependents . . . . . Enter this amount on Form 1040, 1040-SR, or 1040-NR, line 19.

}

11 12

13 14

73,768

2d 3

73,768

4,000

7 8

0 4,000

400,000

10 11 12

0 0 4,000

13 14

2,358 (a) 2,358

Cat. No. 59761M

Schedule 8812 (Form 1040) 2022

(a) Tax liability of $2,988 less the foreign tax credit $30 and the child and dependent care credit $600.

* Calculation of Alternative Minimum Tax not required for this problem.

D-19

D-20

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont.Noah and Joan Arc Schedule 8812 (Form 1040) 2022

434-11-3311

Page 2

Part II-A Additional Child Tax Credit for All Filers Caution: If you file Form 2555, you cannot claim the additional child tax credit. 15 Check this box if you do not want to claim the additional child tax credit. Skip Parts II-A and II-B. Enter -0- on line 27 . 16a Subtract line 14 from line 12. If zero, stop here; you cannot take the additional child tax credit. Skip Parts II-A and II-B. Enter -0- on line 27 . . . . . . . . . . . . . . . . . . . . . . . . . 16a b Number of qualifying children under 17 with the required social security number: x $1,500. 2 Enter the result. If zero, stop here; you cannot claim the additional child tax credit. Skip Parts II-A and II-B. 16b Enter -0- on line 27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . TIP: The number of children you use for this line is the same as the number of children you used for line 4. 17 Enter the smaller of line 16a or line 16b . . . . . . . . . . . . . . . . . . . . . . 17 18a Earned income (see instructions) . . . . . . . . . . . . . . . . 18a 64,364 (a) b Nontaxable combat pay (see instructions) . . . . . . 18b 19 Is the amount on line 18a more than $2,500? No. Leave line 19 blank and enter -0- on line 20. 19 X Yes. Subtract $2,500 from the amount on line 18a. Enter the result . . . . 61,864 20 Multiply the amount on line 19 by 15% (0.15) and enter the result . . . . . . . . . . . . . . 20 Next. On line 16b, is the amount $4,500 or more? X No. If you are a bona fide resident of Puerto Rico, go to line 21. Otherwise, skip Part II-B and enter the smaller of line 17 or line 20 on line 27. Yes. If line 20 is equal to or more than line 17, skip Part II-B and enter the amount from line 17 on line 27. Otherwise, go to line 21.

DRAFT AS OF August 3, 2022 DO NOT FILE

1,642 3,000 1,642

9,280

Part II-B Certain Filers Who Have Three or More Qualifying Children and Bona Fide Residents of Puerto Rico 21

22 23 24

}

25 26

. .

25 26

This is your additional child tax credit. Enter this amount on Form 1040, 1040-SR, or 1040-NR, line 28 .

. .

Part II-C Additional Child Tax Credit 27

1,642

Schedule 8812 (Form 1040) 2022

(a) $31,000 W-2 + $35,900 Sch C – $2,536 Sch SE

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont. Form

8995

Department of the Treasury Internal Revenue Service

Qualified Business Income Deduction Simplified Computation

OMB No. 1545-2294

2021

a Attach to your tax return. a Go to www.irs.gov/Form8995 for instructions and the latest information.

Attachment Sequence No. 55

Your taxpayer identification number

Name(s) shown on return

Noah and Joan Arc

434-11-3311

(a) Trade, business, or aggregation name

The Arc

(b) Taxpayer identification number

95-9876556

33,364 (a)

ii iii iv v 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Total qualified business income or (loss). Combine lines 1i through 1v, 2 column (c) . . . . . . . . . . . . . . . . . . . . . . 33,364 Qualified business net (loss) carryforward from the prior year . . . . . . . 3 ( ) Total qualified business income. Combine lines 2 and 3. If zero or less, enter -04 33,364 Qualified business income component. Multiply line 4 by 20% (0.20) . . . . . . . . . . . 5 Qualified REIT dividends and publicly traded partnership (PTP) income or (loss) (see instructions) . . . . . . . . . . . . . . . . . . . . 6 Qualified REIT dividends and qualified PTP (loss) carryforward from the prior ) year . . . . . . . . . . . . . . . . . . . . . . . . . 7 ( Total qualified REIT dividends and PTP income. Combine lines 6 and 7. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . 8 REIT and PTP component. Multiply line 8 by 20% (0.20) . . . . . . . . . . . . . . . 9 Qualified business income deduction before the income limitation. Add lines 5 and 9 . . . . . . 10 Taxable income before qualified business income deduction (see instructions) 11 47,868 (b) Net capital gain (see instructions) . . . . . . . . . . . . . . . 12 12,880 (c) Subtract line 12 from line 11. If zero or less, enter -0- . . . . . . . . 13 34,988 Income limitation. Multiply line 13 by 20% (0.20) . . . . . . . . . . . . . . . . . . 14 Qualified business income deduction. Enter the smaller of line 10 or line 14. Also enter this amount on the applicable line of your return (see instructions) . . . . . . . . . . . . . . . . a 15 Total qualified business (loss) carryforward. Combine lines 2 and 3. If greater than zero, enter -0- . . 16 ( Total qualified REIT dividends and PTP (loss) carryforward. Combine lines 6 and 7. If greater than zero, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (

For Privacy Act and Paperwork Reduction Act Notice, see instructions.

Cat. No. 37806C

6,673

6,998 6,673 0 ) ) Form 8995 (2021)

(a) $35,900 (Sch. C) less $2,536 (Sch. SE). Both shown on Schedule 1. (b) $73,768 (AGI) less $25,900 (standard deduction) (c) $1,930 (qualified dividends) + $10,950 (LT capital gains) Please go to www.irs.gov to download the latest Form 8995. The 2022 version of Form 8995 was not available as we went to print.

D-21

D-22

Solutions for Additional Comprehensive Tax Return Problems

4562

(Including Information on Listed Property)

Department of the Treasury Internal Revenue Service

Attach to your tax return. Go to www.irs.gov/Form4562 for instructions and the latest information.

Comprehensive Problem 1, cont. Form

Depreciation and Amortization

Name(s) shown on return

Business or activity to which this form relates

Noah and Joan Arc Part I 1 2 3 4 5

OMB No. 1545-0172

Identifying number

Rental Property

434-11-3311

Election To Expense Certain Property Under Section 179 Note: If you have any listed property, complete Part V before you complete Part I.

DRAFT AS OF June 9, 2022 DO NOT FILE

2022

Attachment Sequence No. 179

(a) Description of property

(b) Cost (business use only)

1 2 3 4 5

7 Listed property. Enter the amount from line 29 . . . . . . . . . 7 8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 . . . . . . 8 9 Tentative deduction. Enter the smaller of line 5 or line 8 . . . . . . . . . . . . . . . . 9 10 Carryover of disallowed deduction from line 13 of your 2021 Form 4562 . . . . . . . . . . . 10 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5. See instructions 11 12 Section 179 expense deduction. Add lines 9 and 10, but don’t enter more than line 11 . . . . . . 12 13 13 Carryover of disallowed deduction to 2023. Add lines 9 and 10, less line 12 . Note: Don’t use Part II or Part III below for listed property. Instead, use Part V. Part II Special Depreciation Allowance and Other Depreciation (Don’t include listed property. See instructions.) 14 Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year. See instructions . . . . . . . . . . . . . . . . . . . . . . . 14 3,500 15 Property subject to section 168(f)(1) election . . . . . . . . . . . . . . . . . . . . 15 16 Other depreciation (including ACRS) . . . . . . . . . . . . . . . . . . . . . . 16 Part III MACRS Depreciation (Don’t include listed property. See instructions.) Section A 17 17 MACRS deductions for assets placed in service in tax years beginning before 2022 . . . . . . . 3,091 18 If you are electing to group any assets placed in service during the tax year into one or more general asset accounts, check here . . . . . . . . . . . . . . . . . . . . . . . Section B—Assets Placed in Service During 2022 Tax Year Using the General Depreciation System (a) Classification of property

(b) Month and year placed in service

(d) Recovery period

(e) Convention

(f) Method

(g) Depreciation deduction

19a 3-year property b 5-year property c 7-year property d 10-year property e 15-year property f 20-year property 25 yrs. S/L g 25-year property 27.5 yrs. MM S/L h Residential rental 27.5 yrs. MM S/L property 39 yrs. MM S/L i Nonresidential real MM S/L property Section C—Assets Placed in Service During 2022 Tax Year Using the Alternative Depreciation System S/L 20a Class life 12 yrs. S/L b 12-year 30 yrs. MM S/L c 30-year 40 yrs. MM S/L d 40-year

Part IV

Summary (See instructions.)

Cat. No. 12906N

6,591

Form 4562 (2022)

(a) $85,000 x 3.636% depreciation factor for residential property purchased in 2006.

(a)

Solutions for Additional Comprehensive Tax Return Problems

Noah and Joan Arc

434-11-3311

41,195 1,930 X 10,950 12,880 28,315 $41,675 $83,350 $55,800

83,350

$459,750 $258,600 $517,200 $488,500

517,200

41,195 28,315 12,880 12,880 12,880 0

41,195 41,195 0 0 0 12,880 0 0 2,988 2,988 4,530 2,988

This worksheet adapted from the 2021 worksheet.

D-23

D-24

Solutions for Additional Comprehensive Tax Return Problems

Form

Comprehensive Problem 2

1040 U.S. Individual Income Tax Return 2022 Department of the Treasury—Internal Revenue Service

Filing Status Check only one box.

Single

X Married filing jointly

OMB No. 1545-0074

Married filing separately (MFS)

IRS Use Only—Do not write or staple in this space.

Head of household (HOH)

DRAFT AS OF September 1, 2022 DO NOT FILE

Your first name and middle initial

Last name

Michael D.

Your social security number

Boyd

If joint return, spouse’s first name and middle initial

543 88 9756

Last name

Jeanette S.

Spouse’s social security number

Boyd

256 43 8819

Home address (number and street). If you have a P.O. box, see instructions.

Apt. no.

Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 ZIP code to go to this fund. Checking a box below will not change Foreign postal code your tax or refund.

33333 Fume Blanc Way

City, town, or post office. If you have a foreign address, also complete spaces below.

State

Temecula

Foreign country name

92591

Foreign province/state/county

You

Digital Assets Standard Deduction

Were born before January 2, 1958

Are blind

Dependents (see instructions): (1) First name If more than four Maxwell dependents, Seve see instructions Denzel and check here . .

Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld.

Spouse:

Last name

(2) Social security number

Boyd Boyd Boyd

466 74 1131 465 76 8375 475 23 1426

Was born before January 2, 1958 Child tax credit

Son Son Son . . .

. . .

1a 1b 1c

d e f

. . .

1d 1e 1f

g h i

Wages from Form 8919, line 6 . . . . . . . Other earned income (see instructions) . . . . Nontaxable combat pay election (see instructions) .

. . .

. . . . 1i

. .

1g 1h

z 2a 3a

Add lines 1a through 1h Tax-exempt interest . . Qualified dividends . .

. . .

. . . . . . . b Taxable interest . b Ordinary dividends .

. . .

1z 2b 3b

14,400 2,114 901

4a 5a 6a

IRA distributions . . . Pensions and annuities . Social security benefits .

. . .

b Taxable amount . b Taxable amount . b Taxable amount .

. . .

4b 5b 6b

14,800

c 7 8

. . .

7 8

9 10 11

Add lines 1z, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income . Adjustments to income from Schedule 1, line 26 . . . . . . Subtract line 10 from line 9. This is your adjusted gross income .

. . .

9 10 11

12 13 14 15

. . . .

12 13 14

4a 5a 6a

1,500 901

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

. . .

14,400

. . .

x x . . .

. . 2a 3a

. . .

Credit for other dependents

Total amount from Form(s) W-2, box 1 (see instructions) . Household employee wages not reported on Form(s) W-2 . Tip income not reported on line 1a (see instructions) . .

. . .

Is blind

(4) Check the box if qualifies for (see instructions):

(3) Relationship to you

1a b c

If you did not get a Form W-2, see instructions. Attach Sch. B if required.

X No

Yes

Someone can claim: You as a dependent Your spouse as a dependent Spouse itemizes on a separate return or you were a dual-status alien

Age/Blindness You:

Income

Spouse

. . .

. .

. . .

Cat. No. 11320B

488 31,877 64,580 2,552 62,028 25,900 5,925 31,825 30,203 Form 1040 (2022)

Solutions for Additional Comprehensive Tax Return Problems

543-88-9756

Comprehensive Problem 2, and cont.Jeanette S. Boyd Michael D. Form 1040 (2022) Tax and Credits

. . . .

18 19 20

3,108 3,108

. . .

21 22 23

3,108 0 4,504 4,504

25d

2,800

18 19 20

Add lines 16 and 17 . . . . . . . . . . . . . . . Child tax credit or credit for other dependents from Schedule 8812 . Amount from Schedule 3, line 8 . . . . . . . . . . .

. . .

21 22 23

Add lines 19 and 20 . . . . . . . . . . . . . . . Subtract line 21 from line 18. If zero or less, enter -0- . . . . . Other taxes, including self-employment tax, from Schedule 2, line 21

. . .

24 25

Add lines 22 and 23. This is your total tax Federal income tax withheld from:

Form(s) W-2

25a

b c d

Form(s) 1099 . . . . . . Other forms (see instructions) . Add lines 25a through 25c . .

. . .

25b 25c . . .

26 27 28

2022 estimated tax payments and amount applied from 2021 return . Earned income credit (EIC) . . . . . . . . . . . . . Additional child tax credit from Schedule 8812 . . . . . . .

. . .

29 30 31

American opportunity credit from Form 8863, line 8 . Reserved for future use . . . . . . . . . Amount from Schedule 3, line 15 . . . . . .

. . .

32 33

Add lines 27, 28, 29, and 31. These are your total other payments and refundable credits Add lines 25d, 26, and 32. These are your total payments . . . . . . . . . .

If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid

Page 2

3,108

Tax (see instructions). Check if any from Form(s): 1 8814 Amount from Schedule 2, line 3 . . . . . . . .

4972 3 . . . .

16 17

. . .

DRAFT AS OF September 1, 2022 DO NOT FILE

Payments

If you have a qualifying child, attach Sch. EIC.

Refund

. . .

. . 27 28

1,500 1,300

1,392

29 30 31

11,600

35a Direct deposit? b See instructions. d 36

Amount You Owe

Subtract line 33 from line 24. This is the amount you owe. For details on how to pay, go to www.irs.gov/Payments or see instructions .

Estimated tax penalty (see instructions)

Third Party Designee

Joint return? See instructions. Keep a copy for your records.

Phone no.

. .

. Savings

35a

12,992 15,792 11,288 11,288

32 33 34

Yes. Complete below.

Personal identification number (PIN)

Date

Your occupation

Bed & Breakfast Owner Spouse’s signature. If a joint return, both must sign.

Date

Spouse’s occupation

Teacher Phone no.

Paid Preparer Use Only

Do you want to allow another person to discuss this return with the IRS? See instructions . . . . . . . . . . . . . . . . . . . . . Designee’s name

Sign Here

. .

Preparer’s name

If the IRS sent you an Identity Protection PIN, enter it here (see inst.) If the IRS sent your spouse an Identity Protection PIN, enter it here (see inst.)

Email address Preparer’s signature

Date

PTIN

Check if: Self-employed

Firm’s name

Phone no.

Firm’s address

Firm’s EIN

Go to www.irs.gov/Form1040 for instructions and the latest information.

Form 1040 (2022)

D-25

D-26

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont. SCHEDULE 1 Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 01

Your social security number

Michael D. and Jeanette S. Boyd Part I Additional Income 1 2a b 3 4 5 6 7 8 a b c d e f g h i j k l

OMB No. 1545-0074

Additional Income and Adjustments to Income

(Form 1040)

543-88-9756

DRAFT AS OF July 27, 2022 DO NOT FILE

Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . 1 2a Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): Business income or (loss). Attach Schedule C . . . . . . . . . . . . . . . . . 3 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . 4 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . 5 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . 6 7 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . Other income: ) 8a ( Net operating loss . . . . . . . . . . . . . . . . . . . Gambling . . . . . . . . . . . . . . . . . . . . . . 8b Cancellation of debt . . . . . . . . . . . . . . . . . . 8c ) Foreign earned income exclusion from Form 2555 . . . . . . . 8d ( Income from Form 8853 . . . . . . . . . . . . . . . . . 8e Income from Form 8889 . . . . . . . . . . . . . . . . . 8f Alaska Permanent Fund dividends . . . . . . . . . . . . . 8g Jury duty pay . . . . . . . . . . . . . . . . . . . . . 8h Prizes and awards . . . . . . . . . . . . . . . . . . . 8i Activity not engaged in for profit income . . . . . . . . . . . 8j Stock options . . . . . . . . . . . . . . . . . . . . . 8k Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property . . . 8l m Olympic and Paralympic medals and USOC prize money (see instructions) . . . . . . . . . . . . . . . . . . . . . 8m n Section 951(a) inclusion (see instructions) . . . . . . . . . . 8n o Section 951A(a) inclusion (see instructions) . . . . . . . . . . 8o p Section 461(l) excess business loss adjustment . . . . . . . . 8p q Taxable distributions from an ABLE account (see instructions) . . . 8q r Scholarship and fellowship grants not reported on Form W-2 . . . 8r s Nontaxable amount of Medicaid waiver payments included on Form ) 1040, line 1a or 1d . . . . . . . . . . . . . . . . . . . 8s ( t Pension or annuity from a nonqualifed deferred compensation plan or a nongovernmental section 457 plan . . . . . . . . . . . . 8t u Wages earned while incarcerated . . . . . . . . . . . . . 8u z Other income. List type and amount: 8z 9 Total other income. Add lines 8a through 8z . . . . . . . . . . . . . . . . . . 9 10 Combine lines 1 through 7 and 9. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 10 For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71479F

30,277 1,600

31,877

Schedule 1 (Form 1040) 2022

Solutions for Additional Comprehensive Tax Return Problems

D-27

Comprehensive Problem 1, cont. Schedule 1 (Form 1040) 2022

Michael D. and Jeanette S. Boyd

543-88-9756

Page 2

Part II Adjustments to Income 11 12 13 14 15 16 17 18 19a b c 20 21 22 23 24 a b c d e f g h i

j k z 25 26

Educator expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 . . . . . . . . . . . . . . . . . . . . . . . . 12 Health savings account deduction. Attach Form 8889 . . . . . . . . . . . . . . 13 Moving expenses for members of the Armed Forces. Attach Form 3903 . . . . . . . 14 Deductible part of self-employment tax. Attach Schedule SE . . . . . . . . . . . 15 Self-employed SEP, SIMPLE, and qualified plans . . . . . . . . . . . . . . . . 16 Self-employed health insurance deduction . . . . . . . . . . . . . . . . . . 17 Penalty on early withdrawal of savings . . . . . . . . . . . . . . . . . . . . 18 Alimony paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19a Recipient’s SSN . . . . . . . . . . . . . . . . . . . . . . Date of original divorce or separation agreement (see instructions): IRA deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Student loan interest deduction . . . . . . . . . . . . . . . . . . . . . . 21 22 Reserved for future use . . . . . . . . . . . . . . . . . . . . . . . . . Archer MSA deduction . . . . . . . . . . . . . . . . . . . . . . . . . 23 Other adjustments: Jury duty pay (see instructions) . . . . . . . . . . . . . . 24a Deductible expenses related to income reported on line 8l from the rental of personal property engaged in for profit . . . . . . . . 24b Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 8m . . . . . . . . . . 24c Reforestation amortization and expenses . . . . . . . . . . . 24d Repayment of supplemental unemployment benefits under the Trade Act of 1974 . . . . . . . . . . . . . . . . . . . . . . 24e Contributions to section 501(c)(18)(D) pension plans . . . . . . . 24f Contributions by certain chaplains to section 403(b) plans . . . . 24g Attorney fees and court costs for actions involving certain unlawful discrimination claims (see instructions) . . . . . . . . . . . . 24h Attorney fees and court costs you paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations . . . . . . . . . . . . . . . . . . . 24i Housing deduction from Form 2555 . . . . . . . . . . . . . 24j Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041) . . . . . . . . . . . . . . . . . . . . . . . . 24k Other adjustments. List type and amount: 24z Total other adjustments. Add lines 24a through 24z . . . . . . . . . . . . . . . 25 Add lines 11 through 23 and 25. These are your adjustments to income. Enter here and on Form 1040 or 1040-SR, line 10, or Form 1040-NR, line 10a . . . . . . . . . . . . 26

DRAFT AS OF July 27, 2022 DO NOT FILE

300

2,252 0 (a)

2,552

Schedule 1 (Form 1040) 2022

(a) The self-employed health care insurance deduction is $0 as stated in the facts of the problem.

D-28

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont. SCHEDULE 2

OMB No. 1545-0074

Additional Taxes

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 02

Your social security number

Michael D. and Jeanette S. Boyd Part I Tax

543-88-9756

DRAFT AS OF July 27, 2022 DO NOT FILE

Alternative minimum tax. Attach Form 6251 . . . . . . . . . . . . . . . .

Excess advance premium tax credit repayment. Attach Form 8962 . . . . . . .

Add lines 1 and 2. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 17 . .

Part II Other Taxes 4

Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . . .

Social security and Medicare tax on unreported tip income. Attach Form 4137 . . . . . . . . . . . . . . . . . .

Uncollected social security and Medicare tax on wages. Attach Form 8919 . . . . . . . . . . . . . . . . . . . . .

Total additional social security and Medicare tax. Add lines 5 and 6

. . . . . .

Additional tax on IRAs or other tax-favored accounts. Attach Form 5329 if required.

If not required, check here . . . . . . . . . . . . . . . . . . . . .

Household employment taxes. Attach Schedule H

. . . . . . . . . . . . .

Repayment of first-time homebuyer credit. Attach Form 5405 if required . . . . .

Additional Medicare Tax. Attach Form 8959 . . . . . . . . . . . . . . . .

Net investment income tax. Attach Form 8960 . . . . . . . . . . . . . . .

Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance from Form W-2, box 12 . . . . . . . . . . . . . . . . . . . .

Interest on tax due on installment income from the sale of certain residential lots and timeshares . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest on the deferred tax on gain from certain installment sales with a sales price over $150,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recapture of low-income housing credit. Attach Form 8611 . . . . . . . . . .

4,504

(continued on page 2) For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71478U

Schedule 2 (Form 1040) 2022

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont. Schedule 2 (Form 1040) 2022

Michael D. and Jeanette S. Boyd

543-88-9756

Page 2

Part II Other Taxes (continued) 17

Other additional taxes: a Recapture of other credits. List type, form number, and amount: 17a

DRAFT AS OF July 27, 2022 DO NOT FILE

b Recapture of federal mortgage subsidy, if you sold your home see instructions . . . . . . . . . . . . . . . . . . . 17b c Additional tax on HSA distributions. Attach Form 8889 . . . .

17c

d Additional tax on an HSA because you didn’t remain an eligible individual. Attach Form 8889 . . . . . . . . . . . . . . 17d e Additional tax on Archer MSA distributions. Attach Form 8853 .

17e

f Additional tax on Medicare Advantage MSA distributions. Attach 17f Form 8853 . . . . . . . . . . . . . . . . . . . . .

Section 72(m)(5) excess benefits tax . . . . . . . . . . .

k Golden parachute payments l

17j

. . . . . . . . . . . . . .

17k

Tax on accumulation distribution of trusts . . . . . . . . .

17l

17q

z Any other taxes. List type and amount: 17z 18

Total additional taxes. Add lines 17a through 17z . . . . . . . . . . . . . .

Reserved for future use

20 21

. . . . . . . . . . . . . . . . . . . . . . . .

4,504

Schedule 2 (Form 1040) 2022

D-29

D-30

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont. SCHEDULE 3

OMB No. 1545-0074

Additional Credits and Payments

(Form 1040) Department of the Treasury Internal Revenue Service

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form1040 for instructions and the latest information.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR

Attachment Sequence No. 03

Your social security number

Michael D. and Jeanette S. Boyd Part I Nonrefundable Credits

543-88-9756

DRAFT AS OF July 27, 2022 DO NOT FILE

Foreign tax credit. Attach Form 1116 if required

. . . . . . . . . . . . . .

Credit for child and dependent care expenses from Form 2441, line 11. Attach Form 2441 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Education credits from Form 8863, line 19 . . . . . . . . . . . . . . . . .

Retirement savings contributions credit. Attach Form 8880 . . . . . . . . . .

Residential energy credits. Attach Form 5695

Other nonrefundable credits:

a General business credit. Attach Form 3800

. . . . . . . . . . . . . . .

. . . . . . . .

b Credit for prior year minimum tax. Attach Form 8801

. . . .

c Adoption credit. Attach Form 8839 . . . . . . . . . . . .

d Credit for the elderly or disabled. Attach Schedule R . . . . .

e Alternative motor vehicle credit. Attach Form 8910

. . . . .

f Qualified plug-in motor vehicle credit. Attach Form 8936 . . .

g Mortgage interest credit. Attach Form 8396 . . . . . . . .

h District of Columbia first-time homebuyer credit. Attach Form 8859

Qualified electric vehicle credit. Attach Form 8834

. . . . .

Reserved for future use . . . . . . . . . . . . . . . . .

k Credit to holders of tax credit bonds. Attach Form 8912 . . .

Amount on Form 8978, line 14. See instructions

. . . . . .

z Other nonrefundable credits. List type and amount: 6z 7 8

7 8

(continued on page 2) For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 71480G

Schedule 3 (Form 1040) 2022

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 1, cont. Schedule 3 (Form 1040) 2022

Michael D. and Jeanette S. Boyd

543-88-9756

Page 2

Part II Other Payments and Refundable Credits 9

Net premium tax credit. Attach Form 8962 . . . . . . . . . . . . . . . . .

Amount paid with request for extension to file (see instructions) . . . . . . . .

Excess social security and tier 1 RRTA tax withheld . . . . . . . . . . . . .

Credit for federal tax on fuels. Attach Form 4136 . . . . . . . . . . . . . .

Other payments or refundable credits:

11,600

DRAFT AS OF July 27, 2022 DO NOT FILE

. . . . . . . . . . . . . . . .

13e

f Deferred amount of net 965 tax liability (see instructions) . . .

13f

14 15

11,600

Schedule 3 (Form 1040) 2022

D-31

D-32

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive SCHEDULE B Problem 2, cont. (Form 1040) Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

Interest and Ordinary Dividends

2022

Go to www.irs.gov/ScheduleB for instructions and the latest information. Attach to Form 1040 or 1040-SR.

Name(s) shown on return

Attachment Sequence No. 08 Your social security number

Michael D. and Jeanette S. Boyd Part I Interest (See instructions and the Instructions for Form 1040, line 2b.) Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm’s name as the payer and enter the total interest shown on that form.

543-88-9756

DRAFT AS OF July 7, 2022 DO NOT FILE 1

Bob’s Big Bank Bank of California Vintage Bank

411 289 1,414

2 3

Part II Ordinary Dividends

Amount

2 3 4

2,114 2,114 Amount

312 579 10

Southwest Airlines Heinz Foods Wine Acres Partners

(See instructions and the Instructions for Form 1040, line 3b.)

901

b If you are required to file FinCEN Form 114, list the name(s) of the foreign country(-ies) where the financial account(s) are located: 8

During 2022, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If “Yes,” you may have to file Form 3520. See instructions . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

Cat. No. 17146N

Schedule B (Form 1040) 2022

Solutions for Additional Comprehensive Tax Return Problems

SCHEDULE C (Form 1040)

Profit or Loss From Business

Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

2022

(Sole Proprietorship) Go to www.irs.gov/ScheduleC for instructions and the latest information.

Attachment Sequence No. 09

Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.

Name of proprietor

Social security number (SSN)

Michael D. Boyd

543-88-9756

DRAFT AS OF July 15, 2022 DO NOT FILE

Principal business or profession, including product or service (see instructions)

Business name. If no separate business name, leave blank.

Business address (including suite or room no.)

F G

x Yes

H I J

. . .

x Yes x Yes

No No

B Enter code from instructions

Bed & Breakfast

7 2 1 1 9 1

Rock Glen House B&B

Part I 1

D Employer ID number (EIN) (see instr.)

9 5 1 2 3 4 5 6 7

33333 Fume Blanc Way Temecula, CA 92591

. . .

2 3 4

1 2 3 4

5 6 7

. . .

5 6 7

Office expense (see instructions) . Pension and profit-sharing plans .

18 19

Rent or lease (see instructions): Vehicles, machinery, and equipment Other business property . . .

20a 20b

Repairs and maintenance . . . Supplies (not included in Part III) . Taxes and licenses . . . . .

21 22 23

Travel and meals: Travel . . . .

24a

Deductible meals (see instructions) . . . . . . . Utilities . . . . . . . . Wages (less employment credits)

24b 25 26

Advertising .

Car and truck expenses (see instructions) . . . Commissions and fees . Contract labor (see instructions)

12 13

Depletion . . . . . Depreciation and section 179 expense deduction (not included in Part III) (see instructions) . . . .

Employee benefit programs (other than on line 19) . Insurance (other than health) Interest (see instructions): Mortgage (paid to banks, etc.)

15 16 a b

. . .

Expenses. Enter expenses for business use of your home only on line 30.

10 11

. . .

Income

Part II

. . .

4,945

18 19

9 10 11

21 22 23

a b

18,000

24 a

14 15 16a

6,233 25 26

22,900

17 28

. . .

27a 27b 28

Tentative profit or (loss). Subtract line 28 from line 7 .

and (b) the part of your home used for business: Method Worksheet in the instructions to figure the amount to enter on line 30

. Use the Simplified . . . . . . .

Net profit or (loss). Subtract line 30 from line 29.

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

}

138,137 138,137 138,137 2,167 140,304 2,281

19,185 6,400

6,283 17,800 4,200 110,027 30,277

32a 32b

30,277

All investment is at risk. Some investment is not at risk. Schedule C (Form 1040) 2022

D-33

D-34

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive 2, cont. Michael D. Boyd Schedule C (Form 1040)Problem 2022 Part III

543-88-9756

Method(s) used to value closing inventory:

Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . .

Cost

Lower of cost or market

Other (attach explanation)

DRAFT AS OF July 15, 2022 DO NOT FILE

Inventory at beginning of year. If different from last year’s closing inventory, attach explanation .

Purchases less cost of items withdrawn for personal use

Cost of labor. Do not include any amounts paid to yourself .

Materials and supplies

Other costs .

Add lines 35 through 39 .

Inventory at end of year .

Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 .

Part IV

Yes

When did you place your vehicle in service for business purposes? (month/day/year)

Of the total number of miles you drove your vehicle during 2022, enter the number of miles you used your vehicle for: a

Page 2

Cost of Goods Sold (see instructions)

Business

b Commuting (see instructions)

c Other

Was your vehicle available for personal use during off-duty hours?

Yes

Do you (or your spouse) have another vehicle available for personal use?.

Yes

47a

Do you have evidence to support your deduction?

Yes

If “Yes,” is the evidence written?

Yes

Part V

Other Expenses. List below business expenses not included on lines 8–26 or line 30.

Laundry expenses

Total other expenses. Enter here and on line 27a

4,200

4,200 Schedule C (Form 1040) 2022

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive SCHEDULE D Problem 2, cont. (Form 1040) Department of the Treasury Internal Revenue Service

OMB No. 1545-0074

Capital Gains and Losses

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/ScheduleD for instructions and the latest information. Use Form 8949 to list your transactions for lines 1b, 2, 3, 8b, 9, and 10.

Name(s) shown on return

Attachment Sequence No. 12 Your social security number

Michael D. and Jeanette S. Boyd

543-88-9756

DRAFT AS OF July 15, 2022 DO NOT FILE

Part I

Short-Term Capital Gains and Losses—Generally Assets Held One Year or Less (see instructions)

(d) Proceeds (sales price)

(e) Cost (or other basis)

20,100

17,850

(g) Adjustments to gain or loss from Form(s) 8949, Part I, line 2, column (g)

Part II

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

2,250

4 5 6

(

)

2,250

Long-Term Capital Gains and Losses—Generally Assets Held More Than One Year (see instructions)

(d) Proceeds (sales price)

(e) Cost (or other basis)

1,555

2,417

(g) Adjustments to gain or loss from Form(s) 8949, Part II, line 2, column (g)

(h) Gain or (loss) Subtract column (e) from column (d) and combine the result with column (g)

(862)

Cat. No. 11338H

11 12 13

(900)

14 ( 15

)

(1,762)

Schedule D (Form 1040) 2022

D-35

D-36

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 2, cont. Schedule D (Form 1040) 2022 Part III 16

543-88-9756

Michael D. and Jeanette S. Boyd

Page 2

Summary

Combine lines 7 and 15 and enter the result

488

DRAFT AS OF July 15, 2022 DO NOT FILE

Are lines 15 and 16 both gains? Yes. Go to line 18. x No. Skip lines 18 through 21, and go to line 22.

If you are required to complete the 28% Rate Gain Worksheet (see instructions), enter the amount, if any, from line 7 of that worksheet . . . . . . . . . . . . . . . . . .

If you are required to complete the Unrecaptured Section 1250 Gain Worksheet (see instructions), enter the amount, if any, from line 18 of that worksheet . . . . . . . . . .

If line 16 is a loss, enter here and on Form 1040, 1040-SR, or 1040-NR, line 7, the smaller of: • The loss on line 16; or • ($3,000), or if married filing separately, ($1,500)

}

21 (

)

Note: When figuring which amount is smaller, treat both amounts as positive numbers. 22

Do you have qualified dividends on Form 1040, 1040-SR, or 1040-NR, line 3a?

x Yes. Complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040, line 16. No. Complete the rest of Form 1040, 1040-SR, or 1040-NR. Schedule D (Form 1040) 2022

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive SCHEDULE E Problem 1, cont. (Form 1040)

Supplemental Income and Loss

OMB No. 1545-0074

Attach to Form 1040, 1040-SR, 1040-NR, or 1041. Go to www.irs.gov/ScheduleE for instructions and the latest information.

Department of the Treasury Internal Revenue Service Name(s) shown on return

Attachment Sequence No. 13 Your social security number

Michael D. and Jeanette S. Boyd

Part I

2022

(From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.)

543-88-9756

Income or Loss From Rental Real Estate and Royalties

DRAFT AS OF July 22, 2022 DO NOT FILE

Note: If you are in the business of renting personal property, use Schedule C. See instructions. If you are an individual, report farm rental income or loss from Form 4835 on page 2, line 40.

A B 1a A B C 1b

Did you make any payments in 2022 that would require you to file Form(s) 1099? See instructions . If “Yes,” did you or will you file required Form(s) 1099? . . . . . . . . . . . . . .

. .

Yes Yes

No No

Physical address of each property (street, city, state, ZIP code)

Type of Property (from list below)

A B C Type of Property: 1 Single Family Residence 2 Multi-Family Residence

3 Vacation/Short-Term Rental 4 Commercial

Fair Rental Days

Personal Use Days

A B C

5 Land 6 Royalties

7 Self-Rental 8 Other (describe)

Properties: Income: A B 3 Rents received . . . . . . . . . . . . . . . 3 4 Royalties received . . . . . . . . . . . . . . 4 Expenses: 5 5 Advertising . . . . . . . . . . . . . . . . 6 Auto and travel (see instructions) . . . . . . . . 6 7 Cleaning and maintenance . . . . . . . . . . . 7 8 Commissions . . . . . . . . . . . . . . . 8 9 Insurance . . . . . . . . . . . . . . . . . 9 10 Legal and other professional fees . . . . . . . . 10 11 Management fees . . . . . . . . . . . . . . 11 12 Mortgage interest paid to banks, etc. (see instructions) 12 13 Other interest . . . . . . . . . . . . . . . 13 14 Repairs . . . . . . . . . . . . . . . . . . 14 15 Supplies . . . . . . . . . . . . . . . . . 15 16 Taxes . . . . . . . . . . . . . . . . . . 16 17 Utilities . . . . . . . . . . . . . . . . . . 17 18 Depreciation expense or depletion . . . . . . . . 18 19 19 Other (list) 20 Total expenses. Add lines 5 through 19 . . . . . . 20 21 Subtract line 20 from line 3 (rents) and/or 4 (royalties). If result is a (loss), see instructions to find out if you must file Form 6198 . . . . . . . . . . . . . . . 21 22 Deductible rental real estate loss after limitation, if any, on Form 8582 (see instructions) . . . . . . . . . 22 ( )( )( 23a Total of all amounts reported on line 3 for all rental properties . . . . . 23a b Total of all amounts reported on line 4 for all royalty properties . . . . . 23b c Total of all amounts reported on line 12 for all properties . . . . . . . 23c d Total of all amounts reported on line 18 for all properties . . . . . . . 23d e Total of all amounts reported on line 20 for all properties . . . . . . . 23e 24 Income. Add positive amounts shown on line 21. Do not include any losses . . . . . . . 24 25 Losses. Add royalty losses from line 21 and rental real estate losses from line 22. Enter total losses here 25 ( 26 Total rental real estate and royalty income or (loss). Combine lines 24 and 25. Enter the result here. If Parts II, III, IV, and line 40 on page 2 do not apply to you, also enter this amount on Schedule 1 (Form 1040), line 5. Otherwise, include this amount in the total on line 41 on page 2 . 26 For Paperwork Reduction Act Notice, see the separate instructions.

QJV

Cat. No. 11344L

)

Schedule E (Form 1040) 2022

D-37

D-38

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive 1, cont. Schedule E (Form 1040)Problem 2022

Attachment Sequence No. 13

Page 2

Name(s) shown on return. Do not enter name and social security number if shown on other side.

Your social security number

Michael D. and Jeanette S. Boyd

543-88-9756

Caution: The IRS compares amounts reported on your tax return with amounts shown on Schedule(s) K-1.

Part II

DRAFT AS OF July 22, 2022 DO NOT FILE

(b) Enter P for partnership; S for S corporation

(a) Name

Wine Acres Partners

A B C D

Passive Income and Loss

(g) Passive loss allowed (attach Form 8582 if required)

A B C D 29a b 30 31 32

(e) Check if (f) Check if basis computation any amount is is required not at risk

(d) Employer identification number

11-2343212

Nonpassive Income and Loss

(h) Passive income from Schedule K-1

(i) Nonpassive loss allowed (see Schedule K-1)

(j) Section 179 expense deduction from Form 4562

(k) Nonpassive income from Schedule K-1

1,600

Totals 1,600 Totals Add columns (h) and (k) of line 29a . . . . . . . . . . . . . . . . Add columns (g), (i), and (j) of line 29b. . . . . . . . . . . . . . . . Total partnership and S corporation income or (loss). Combine lines 30 and 31

Part III

. . .

1,600

30 31 ( 32

)

1,600

Income or Loss From Estates and Trusts

(b) Employer identification number

(a) Name

A B Passive Income and Loss (c) Passive deduction or loss allowed (attach Form 8582 if required)

A B 34a b 35 36 37 38

. . .

(f) Other income from Schedule K-1

. . .

35 36 ( 37

)

Income or Loss From Real Estate Mortgage Investment Conduits (REMICs)—Residual Holder (a) Name

(b) Employer identification number

(d) Taxable income (net loss) from Schedules Q, line 1b

Combine columns (d) and (e) only. Enter the result here and include in the total on line 41 below .

Part V 40 41

(e) Deduction or loss from Schedule K-1

Totals Totals Add columns (d) and (f) of line 34a . . . . . . . . . . . Add columns (c) and (e) of line 34b . . . . . . . . . . . Total estate and trust income or (loss). Combine lines 35 and 36 .

Part IV

Nonpassive Income and Loss

(d) Passive income from Schedule K-1

(e) Income from Schedules Q, line 3b

Summary

40 41

1,600

Schedule E (Form 1040) 2022

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive SCHEDULE SE Problem 2, cont. (Form 1040) Department of the Treasury Internal Revenue Service

2022

Go to www.irs.gov/ScheduleSE for instructions and the latest information. Attach to Form 1040, 1040-SR, or 1040-NR.

Name of person with self-employment income (as shown on Form 1040, 1040-SR, or 1040-NR)

Attachment Sequence No. 17

Social security number of person with self-employment income

Michael D. Boyd Part I

OMB No. 1545-0074

Self-Employment Tax

543-88-9756

Self-Employment Tax

DRAFT AS OF July 28, 2022 DO NOT FILE

Note: If your only income subject to self-employment tax is church employee income, see instructions for how to report your income and the definition of church employee income. A If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you had $400 or more of other net earnings from self-employment, check here and continue with Part I . . . . . . . . . Skip lines 1a and 1b if you use the farm optional method in Part II. See instructions. 1a Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), 1a box 14, code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b If you received social security retirement or disability benefits, enter the amount of Conservation Reserve Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code AH 1b ( ) Skip line 2 if you use the nonfarm optional method in Part II. See instructions. 2 Net profit or (loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than 2 farming). See instructions for other income to report or if you are a minister or member of a religious order 31,877 (a) 3 Combine lines 1a, 1b, and 2 . . . . . . . . . . . . . . . . . . . . . . . . . 3 31,877 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3 . 4a 29,438 Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions. b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here . . . . . 4b c Combine lines 4a and 4b. If less than $400, stop; you don’t owe self-employment tax. Exception: If less than $400 and you had church employee income, enter -0- and continue . . . . . . . . 4c 29,438 5a Enter your church employee income from Form W-2. See instructions for definition of church employee income . . . . . . . . . . . . . 5a b Multiply line 5a by 92.35% (0.9235). If less than $100, enter -0- . . . . . . . . . . . . . 5b 6 Add lines 4c and 5b . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 29,438 7 Maximum amount of combined wages and self-employment earnings subject to social security tax or 147,000 the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2022 . . . . . . . . . . . 7 8a Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2) and railroad retirement (tier 1) compensation. If $147,000 or more, skip lines 8b through 10, and go to line 11 . . . . . . . . . . . . . . . 8a b Unreported tips subject to social security tax from Form 4137, line 10 . . . 8b c Wages subject to social security tax from Form 8919, line 10 . . . . . . 8c d Add lines 8a, 8b, and 8c . . . . . . . . . . . . . . . . . . . . . . . . . . 8d 9 Subtract line 8d from line 7. If zero or less, enter -0- here and on line 10 and go to line 11 . . . . 9 147,000 10 Multiply the smaller of line 6 or line 9 by 12.4% (0.124) . . . . . . . . . . . . . . . . 10 3,650 11 Multiply line 6 by 2.9% (0.029) . . . . . . . . . . . . . . . . . . . . . . . . 11 854 12 Self-employment tax. Add lines 10 and 11. Enter here and on Schedule 2 (Form 1040), line 4 . . 12 4,504 13 Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50). Enter here and on Schedule 1 (Form 1040), line 15 . . . . . . . . . . . . . . . . . . . . . . . . 13 2,252

Part II

Optional Methods To Figure Net Earnings (see instructions)

For Paperwork Reduction Act Notice, see your tax return instructions.

(a) Schedule C $30,277 + Schedule K-1 $1,600

6,040

16 17

From Sch. C, line 31; and Sch. K-1 (Form 1065), box 14, code A. 4 From Sch. C, line 7; and Sch. K-1 (Form 1065), box 14, code C. Cat. No. 11358Z

Schedule SE (Form 1040) 2022

D-39

D-40

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 2, cont. SCHEDULE 8812

Credits for Qualifying Children and Other Dependents

(Form 1040)

Department of the Treasury Internal Revenue Service

7 8 9

11 12

13 14

Attachment Sequence No. 47

Go to www.irs.gov/Schedule8812 for instructions and the latest information.

Your social security number

Michael D. and Jeanette S. Boyd

1 2a b c d 3 4 5

2022

Attach to Form 1040, 1040-SR, or 1040-NR.

Name(s) shown on return

Part I

OMB No. 1545-0074

543-88-9756

DRAFT AS OF August 3, 2022 DO NOT FILE

Child Tax Credit and Credit for Other Dependents

Enter the amount from line 11 of your Form 1040, 1040-SR, or 1040-NR . . . . . . . . . . . . Enter income from Puerto Rico that you excluded . . . . . . . . . . . 2a Enter the amounts from lines 45 and 50 of your Form 2555 . . . . . . . . 2b Enter the amount from line 15 of your Form 4563 . . . . . . . . . . . 2c Add lines 2a through 2c . . . . . . . . . . . . . . . . . . . . . . . . . . . Add lines 1 and 2d . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of qualifying children under age 17 with the required social security number 4 2 Multiply line 4 by $2,000 . . . . . . . . . . . . . . . . . . . . . . . . . . Number of other dependents, including any qualifying children who are not under age 17 or who do not have the required social security number . . . . . . . . 6 1 Caution: Do not include yourself, your spouse, or anyone who is not a U.S. citizen, U.S. national, or U.S. resident alien. Also, do not include anyone you included on line 4. Multiply line 6 by $500 . . . . . . . . . . . . . . . . . . . . . . . . . . . Add lines 5 and 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enter the amount shown below for your filing status. • Married filing jointly—$400,000 . . . . . . . . . . . . . . . . . . . . . . • All other filing statuses—$200,000 Subtract line 9 from line 3. • If zero or less, enter -0-. • If more than zero and not a multiple of $1,000, enter the next multiple of $1,000. For example, if the result is $425, enter $1,000; if the result is $1,025, enter $2,000, etc. . . . . . . . Multiply line 10 by 5% (0.05) . . . . . . . . . . . . . . . . . . . . . . . . . Is the amount on line 8 more than the amount on line 11? . . . . . . . . . . . . . . . . . No. STOP. You cannot take the child tax credit, credit for other dependents, or additional child tax credit. Skip Parts II-A and II-B. Enter -0- on lines 14 and 27. X Yes. Subtract line 11 from line 8. Enter the result. Enter the amount from the Credit Limit Worksheet A . . . . . . . . . . . . . . . . . Enter the smaller of line 12 or 13. This is your child tax credit and credit for other dependents . . . . . Enter this amount on Form 1040, 1040-SR, or 1040-NR, line 19.

}

62,028

2d 3

62,028

4,000

7 8

500 4,500

400,000

10 11 12

0 0 4,500

13 14

3,108 3,108

Cat. No. 59761M

Schedule 8812 (Form 1040) 2022

Solutions for Additional Comprehensive Tax Return Problems

Comprehensive Problem 2, cont. Michael D. and Jeanette S. Boyd Schedule 8812 (Form 1040) 2022

543-88-9756

Page 2

Part II-A Additional Child Tax Credit for All Filers Caution: If you file Form 2555, you cannot claim the additional child tax credit. 15 Check this box if you do not want to claim the additional child tax credit. Skip Parts II-A and II-B. Enter -0- on line 27 . 16a Subtract line 14 from line 12. If zero, stop here; you cannot take the additional child tax credit. Skip Parts II-A and II-B. Enter -0- on line 27 . . . . . . . . . . . . . . . . . . . . . . . . . 16a b Number of qualifying children under 17 with the required social security number: x $1,500. 2 Enter the result. If zero, stop here; you cannot claim the additional child tax credit. Skip Parts II-A and II-B. 16b Enter -0- on line 27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . TIP: The number of children you use for this line is the same as the number of children you used for line 4. 17 Enter the smaller of line 16a or line 16b . . . . . . . . . . . . . . . . . . . . . . 17 18a Earned income (see instructions) . . . . . . . . . . . . . . . . 18a 42,425 (a) b Nontaxable combat pay (see instructions) . . . . . . 18b 19 Is the amount on line 18a more than $2,500? No. Leave line 19 blank and enter -0- on line 20. 19 X Yes. Subtract $2,500 from the amount on line 18a. Enter the result . . . . 39,925 20 Multiply the amount on line 19 by 15% (0.15) and enter the result . . . . . . . . . . . . . . 20 Next. On line 16b, is the amount $4,500 or more? No. If you are a bona fide resident of Puerto Rico, go to line 21. Otherwise, skip Part II-B and enter the smaller of line 17 or line 20 on line 27. X Yes. If line 20 is equal to or more than line 17, skip Part II-B and enter the amount from line 17 on line 27. Otherwise, go to line 21.

DRAFT AS OF August 3, 2022 DO NOT FILE

1,392 3,000 1,392

5,989

Part II-B Certain Filers Who Have Three or More Qualifying Children and Bona Fide Residents of Puerto Rico 21

22 23 24

}

25 26

. .

25 26

This is your additional child tax credit. Enter this amount on Form 1040, 1040-SR, or 1040-NR, line 28 .

. .

Part II-C Additional Child Tax Credit 27

1,392

Schedule 8812 (Form 1040) 2022

(a) $14,400 W-2 + $30,277 Sch C – $2,252 Sch SE

D-41

D-42

Solutions for Additional Comprehensive Tax Return Problems

8995

Comprehensive Problem 2, cont. Form

Department of the Treasury Internal Revenue Service

Qualified Business Income Deduction Simplified Computation

OMB No. 1545-2294

2021

a Attach to your tax return. a Go to www.irs.gov/Form8995 for instructions and the latest information.

Attachment Sequence No. 55

Your taxpayer identification number

Name(s) shown on return

Michael D. and Jeanette S. Boyd

543-88-9756

(a) Trade, business, or aggregation name

(b) Taxpayer identification number

Rock Glen House B&B

95-1234567

28,138

(a)

Wine Acres Partners

11-2343212

1,487

(a)

iii iv v 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Total qualified business income or (loss). Combine lines 1i through 1v, column (c) . . . . . . . . . . . . . . . . . . . . . . 2 29,625 Qualified business net (loss) carryforward from the prior year . . . . . . . 3 ( ) Total qualified business income. Combine lines 2 and 3. If zero or less, enter -04 29,625 Qualified business income component. Multiply line 4 by 20% (0.20) . . . . . . . . . . . 5 Qualified REIT dividends and publicly traded partnership (PTP) income or (loss) (see instructions) . . . . . . . . . . . . . . . . . . . . 6 Qualified REIT dividends and qualified PTP (loss) carryforward from the prior ) year . . . . . . . . . . . . . . . . . . . . . . . . . 7 ( Total qualified REIT dividends and PTP income. Combine lines 6 and 7. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . 8 REIT and PTP component. Multiply line 8 by 20% (0.20) . . . . . . . . . . . . . . . 9 Qualified business income deduction before the income limitation. Add lines 5 and 9 . . . . . . 10 Taxable income before qualified business income deduction (see instructions) 11 36,128 (b) Net capital gain (see instructions) . . . . . . . . . . . . . . . 12 901 (c) Subtract line 12 from line 11. If zero or less, enter -0- . . . . . . . . 13 35,227 Income limitation. Multiply line 13 by 20% (0.20) . . . . . . . . . . . . . . . . . . 14 Qualified business income deduction. Enter the smaller of line 10 or line 14. Also enter this amount on the applicable line of your return (see instructions) . . . . . . . . . . . . . . . . a 15 Total qualified business (loss) carryforward. Combine lines 2 and 3. If greater than zero, enter -0- . . 16 ( Total qualified REIT dividends and PTP (loss) carryforward. Combine lines 6 and 7. If greater than zero, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (

For Privacy Act and Paperwork Reduction Act Notice, see instructions.

Cat. No. 37806C

5,925

7,045 5,925 ) ) Form 8995 (2021)

(a) Self-employment taxes and self-employed health care deductions are allocated between the two activities: Rock Glen House B&B $30,277 95.0% Wine Acres Partners 1,600 5.0% Total $31,877 100.0% SE Taxes $2,252 x 95.0% = $2,139 allocated to B&B with residual of $113 allocated to Wine Acres Partners Net earnings for B&B: $30,277 – $2,139 = $28,138 Net earnings for Wine Acres: $1,600 – $113 = $1,487 (b) $62,028 (AGI) less $25,900 (standard deduction) (c) $901 (qualified dividends) Please go to www.irs.gov to download the latest Form 8995. The 2022 version of Form 8995 was not available as we went to print.

Solutions for Additional Comprehensive Tax Return Problems

Form

8962

OMB No. 1545-0074

Premium Tax Credit (PTC)

Department of the Treasury Internal Revenue Service Name shown on your return

2022

Attach to Form 1040, 1040-SR, or 1040-NR. Go to www.irs.gov/Form8962 for instructions and the latest information.

Attachment Sequence No. 73

Your social security number

Michael D. and Jeanette S. Boyd

543-88-9756

A. You cannot take the PTC if your filing status is married filing separately unless you qualify for an exception. See instructions. If you qualify, check the box

DRAFT AS OF September 19, 2022 DO NOT FILE Part I

Annual and Monthly Contribution Amount

1 2a

Tax family size. Enter your tax family size. See instructions . Modified AGI. Enter your modified AGI. See instructions .

. .

Enter the total of your dependents’ modified AGI. See instructions . . Household income. Add the amounts on lines 2a and 2b. See instructions

. .

. . 2a

2b . .

63,528

(a)

63,528

4 5

31,040 204 %

Federal poverty line. Enter the federal poverty line amount from Table 1-1, 1-2, or 1-3. See instructions. Check the Hawaii c appropriate box for the federal poverty table used. a Alaska b Other 48 states and DC Household income as a percentage of federal poverty line (see instructions) . . . . . . . . . . . . Reserved for future use . . . . . . . . . . . . . . . . . . . . . . . . . . .

Applicable figure. Using your line 5 percentage, locate your “applicable figure” on the table in the instructions

0.0216

Annual contribution amount. Multiply line 3 by line 7. Round to nearest whole dollar amount

b Monthly contribution amount. Divide line 8a by 12. Round to nearest whole dollar amount

114

3 4 5

Part II 9

1,372

Premium Tax Credit Claim and Reconciliation of Advance Payment of Premium Tax Credit

Are you allocating policy amounts with another taxpayer or do you want to use the alternative calculation for year of marriage? See instructions. Yes. Skip to Part IV, Allocation of Policy Amounts, or Part V, Alternative Calculation for Year of Marriage. x No. Continue to line 10. See the instructions to determine if you can use line 11 or must complete lines 12 through 23. Yes. Continue to line 11. Compute your annual PTC. Then skip lines 12–23 x No. Continue to lines 12–23. Compute and continue to line 24. your monthly PTC and continue to line 24.

Annual Calculation 11

(b) Annual applicable SLCSP premium (Form(s) 1095-A, line 33B)

(d) Annual maximum premium assistance (subtract (c) from (b); if zero or less, enter -0-)

(a) Monthly enrollment (b) Monthly applicable premiums (Form(s) SLCSP premium 1095-A, lines 21–32, (Form(s) 1095-A, lines column A) 21–32, column B)

(a) Annual enrollment premiums (Form(s) 1095-A, line 33A)

(e) Annual premium tax (f) Annual advance credit allowed payment of PTC (Form(s) 1095-A, line 33C) (smaller of (a) or (d))

Annual Totals

Monthly Calculation

12 13 14 15 16 17 18 19 20 21 22 23

January February March April May June July August September October November December

Total premium tax credit. Enter the amount from line 11(e) or add lines 12(e) through 23(e) and enter the total here

Advance payment of PTC. Enter the amount from line 11(f) or add lines 12(f) through 23(f) and enter the total here

0 0 0 0 0 0 0 0 11,600 0

11,600

Part III

1,450 1,450 1,450 1,450 1,450 1,450 1,450 1,450

1,610 1,610 1,610 1,610 1,610 1,610 1,610 1,610

114 114 114 114 114 114 114 114

1,496 1,496 1,496 1,496 1,496 1,496 1,496 1,496

1,450 1,450 1,450 1,450 1,450 1,450 1,450 1,450

Repayment of Excess Advance Payment of the Premium Tax Credit

Excess advance payment of PTC. If line 25 is greater than line 24, subtract line 24 from line 25. Enter the difference here

28 29

Repayment limitation (see instructions)

Excess advance premium tax credit repayment. Enter the smaller of line 27 or line 28 here and on Schedule 2 (Form 1040), line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For Paperwork Reduction Act Notice, see your tax return instructions.

(a) $62,028 AGI + $1,500 tax-exempt interest income

Cat. No. 37784Z

Form 8962 (2022)

D-43

D-44

Solutions for Additional Comprehensive Tax Return Problems

Michael D. and Jeanette S. Boyd

543-88-9756

30,203 901 X 0 901 29,302 $41,675 $83,350 $55,800

83,350

$459,750 $258,600 $517,200 $488,500

517,200

30,203 29,302 901 901 901 0

30,203 30,203 0 0 0 901 0 0 3,108 3,108 3,216 3,108

This worksheet adapted from the 2021 worksheet.