Comprehensive Tax Return Problem
Required:
• Use the following information to complete Keith and Jennifer Hamilton’s 2021 federal income tax return. If any information is missing, use reasonable assumptions to fill in the gaps.
• The forms, schedules, and instructions can be found at the IRS website (www.irs.gov). The instructions can be helpful in completing the forms.
Facts:
1. Keith Hamilton is employed as a human resources manager for Toys Unlimited, Inc., and Jennifer is a financial planner for her mother’s company, Long-term Investments, Inc., a full-service wealth-planning firm. They provide the following information:
• They both want to contribute to the presidential election campaign.
• They live at 9876 Old Waverly, Charleston, South Carolina 29401.
• Keith’s birthday is 7/17/1967 and his Social Security number is 555-12-6789.
• Jennifer’s birthday is 9/11/1969 and her Social Security number is 987-65-4321.
• Keith and Jennifer do not have any foreign bank accounts or trusts.
2. Keith received a Form W-2 from Toys Unlimited, Inc. that contained the following information:
• Line 1 Wages, tips, other compensation $45,000
• Line 2 Federal income tax withheld 7,500
• Line 3 Social Security wages 45,000
• Line 4 Social Security tax withheld 2,790
• Line 5 Medicare wages and tips 45,000
• Line 6 Medicare tax withheld 653
• Line 17 State income tax 2,200
3. Jennifer received a Form W-2 from Long-term Investments, Inc., that contained the following information:
• Line 1 Wages, tips, other compensation $85,000
• Line 2 Federal income tax withheld 12,500
• Line 3 Social Security wages 85,000
• Line 4 Social Security tax withheld 5,270
• Line 5 Medicare wages and tips 85,000
• Line 6 Medicare tax withheld 1,233
• Line 17 State income tax 4,200
4. Keith and Jennifer incurred the following medical expenses for the year:
• Transportation to Chicago for Keith’s cancer treatment 2,000 miles
• Unreimbursed hospital charges for Keith $6,500
• Unreimbursed prescription drug charges for Keith and Jennifer 1,750
• Unreimbursed physician charges for Keith and Jennifer 2,200
• Unreimbursed prescription glasses for Jennifer 150
• Laser hair removal treatment for Jennifer (so that she will no longer need to shave her legs) 2,000
5. Keith and Jennifer paid $12,000 of interest payments on their primary residence (acquisition debt of $225,000). They also paid $1,750 of interest expense on Jennifer’s car loan and $500 of interest on their Visa card.
6. Keith and Jennifer paid $4,000 of real estate taxes on their home and $1,000 of real estate tax on a vacant lot they purchased with the hope of building their dream home in the future. They also paid $3,000 in sales tax on Jennifer’s car and other purchases and $1,000 of ad valorem personal property tax on their cars.
7. Keith and Jennifer made the following contributions this year:
• American Red Cross $ 200
• United Way 150
• St. Joseph’s Catholic Church 8,000
• Food for the family of Hannah Barbara (a neighbor who suffered a tragic car accident this past year) 225
• Stock transfer to the University of South Carolina (originally purchased for $1,000 in January 2006) on July 1, 2021 750
8. Keith won $5,000 in the state lottery. He has been playing the lottery for years, spending $10 in lottery tickets every week ($520 in total) and is careful that he saves the old tickets to keep track of the numbers he plays.
9. Keith and Jennifer did not buy, sell, exchange, or otherwise acquire any financial interest in a virtual currency.
10. Keith and Jennifer received their Economic Impact Payment (stimulus check) in the full amount during 2021.
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