$1$Tax Return Problem $3$

To be completed after Chapter $5$

Required:

$$ Use the following information to complete Sarah Hamblin$$s $2022$ federal income tax

return. If any information is missing, use reasonable assumptions to fill in the gaps.

$$ Form $1040,$ supporting schedules, and instructions to the forms and schedules can be

found at the IRS website $($www$.$irs.gov$).$

$$ For purposes of this assignment, unless instructed otherwise, you do not need to attach

Form $8582.$

Facts:

Sarah Hamblin and her now ex$-$husband Kevin were legally divorced on March $1,2022.$ As of

the end of the year, Sarah was unmarried. Sarah and Kevin had only one child, an $11-$year$-$old

girl named Elizabeth. As part of the divorce decree, Sarah was given custody of Elizabeth and

Kevin was required to pay $1)$ child support for Elizabeth$$s care, and $2)$ alimony to Sarah until she

remarries or dies. Because Kevin will be making child support payments, the divorce decree

provided that Kevin will be permitted to claim the child tax credit for Elizabeth until Elizabeth

no longer qualifies as a tax dependent of either parent and the decree obligates Sarah to sign

and$/$or file any required forms to cause this result to occur.

Sarah rents a home $($separate from Kevin$)$ that she pays for herself. Elizabeth lives with Sarah

most of the time, but she visits and stays with her father every other weekend and most holidays.

During the year, Elizabeth stayed at Kevin$$s house a total of $74$ nights.

Sarah provided the following information for $2022$:

$$ Sarah$$s Social Security number is $123-43-4321$

$$ Elizabeth$$s Social Security number is $123-34-1234$

$$ Sarah$$s mailing address is $1245$ Rose Petal Drive, Middletown, Wisconsin $53562$

$$ Elizabeth is a U$.$S$.$ citizen.

The following was reported on Sarah$$s Form W$-2$:

Employer Gross Wages Federal Income Tax

Withholding

State Income Tax

Withholding

Central Wisconsin

Heating and Air

$34,3506,9502,125$

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

During the year, Sarah also received the following:

Child Support Payment from Kevin Hamblin $$12,000$

Alimony Payment from Kevin Hamblin $$16,000$

Gift from her father to help with legal bills $ $8,500$

Interest income on U$.$S$.$ Treasury Bond $ $400$

Interest income of Madison City Bond $($municipal bond$)$ $ $250$

Interest income from First Bank of Madison $ $165$

Life insurance proceeds on the death of her mother $$45,000$

Sarah is a $50\%$ owner in a friend$$s company, Bright Day Flowers, Inc. Bright Day Flowers, Inc.

$($BDF$)$ is a Subchapter S corporation. The company reported ordinary business income for the

year of $$22,000.$ Sarah acquired the stock several years ago. Sarah worked a total of $600$ hours

at the BDF shop in the evenings and on the weekends during $2022.$ Bright Day Flowers, Inc.$$s

employer identification number is $56-3535353.$

Sarah entered a contest sponsored by a radio station and won $10$ gift cards to various restaurants.

The value of the gift cards was $$200$ each. Sarah gave $5$ of the gift cards away to her coworkers.

Sarah lost her job with Central Wisconsin Heating and Air on November $15$ because of a

reduction in work force. She collected $$1,250$ in unemployment benefits during the year. She is

currently looking for another job.

Sarah did not own, control, or manage any foreign bank accounts nor was she a grantor or

beneficiary of a foreign trust during the tax year. Also, Sarah did not buy, sell, exchange, or

otherwise acquire any financial interest in a virtual currency.

Sarah was provided with the following benefits as part of her employment:

$$ Group$-$term life insurance coverage of $$50,000.$ The cost to cover Sarah for the company

for the tax year is $$150.$

$$ Access to the company photocopy machine. Sarah estimates she made $$14$ worth of

copies during the year primarily for use with her church group activities.

Sarah reported no itemized deductions other than any described above.

Sarah does not want to contribute to the Presidential Election Campaign Fund. She would like to

receive a refund $($if any$)$ of any tax she may have overpaid for the year. Her preferred method of

receiving the refund is by check.