TO-DO: explain whether each item presented in The Facts below is: (a) included

in gross income; (b) partially or fully excluded from gross income; (c) a deduction FOR

AGI (above-the-line deduction); (d) a deduction FROM AGI (below-the-line

deduction). Your determination must include reference to the authority (IRC Section or

rule) for your decision.

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FACTS Tax Year 2021

Steve and Mary Anderson were married on January 1, 2019. Mary has a seventeenyear-

old son, George Taylor, from her previous marriage. George is a student with no

income. George lives with Steve and Mary who have provided all of Georges support

since their marriage.

Steves SS# is 999-11-1111; Marys SS# is 666-22-2222; and Georges SS# is 777-

00-0007.

The Andersons live at 5432 Ordinary Street, Everywhere, VA 20XXX. They do not

want the $3 to go to the Presidential Fund and did not have any virtual currency

transactions in 2021.

Steve and Mary were born in 1970 and neither is blind.

Steve works as a computer programmer at Compu-Job Inc. (CJI). Mary is selfemployed

and runs a day care center. The Andersons reported the following

financial information pertaining to their activities during the 2021 calendar year.

a. Steve earned a $155,000 salary for the year.

b. Steve borrowed $12,000 from his employer, CJI, to purchase a car. CJI charged him 2 percent interest on the loan, which Steve paid on December 31, but would have charged Steve $720 if interest was calculated at the applicable federal interest rate. Assume that tax avoidance was not a motive for the loan.

c. Mary won a $900 cash prize at her church-sponsored Bingo game.

d. The Andersons received $500 of interest from an XRS Corp. corporate bond and $250 of interest from a municipal bond from Anytown, VA. Mary owned these bonds before she married Steve.

e. The couple bought 50 shares of ABC Inc. stock for $40 per share on July 2. The stock was worth $47 a share on December 31. The stock paid a dividend of $1.00 per share on December 1. The Andersons still own the stock.

f. Marys father passed away on April 14. She inherited cash of $50,000 and his baseball card collection, valued at $2,000. As beneficiary of her fathers life insurance policy, Mary also received $150,000.

g. The couple spent a weekend in Atlantic City in November and came home with gambling winnings of $1,200.

h. Steve received $400 cash for reaching 10 years of continuous service at CJI.

i. For meeting his performance goals this year, Steve was informed on December 27 that he would receive a $5,000 year-end bonus. CJI (located in Houston, Texas) mailed Steves bonus check from its payroll processing center (Tampa, Florida) on December 28th. Steve didnt receive the check at his home until January 2.

j. Marys daycare business collected $45,000 in revenues. In addition, customers owed her $3,000 at year-end. During the year, Mary spent $5,500 for supplies, $1,500 for utilities, $15,000 for rent, and $500 for miscellaneous expenses. One customer gave her use of his vacation home for a week (worth $2,500) in exchange for Mary allowing his child to attend the day care center free of charge. Mary accounts for her business activities using the cash method of accounting.

k. Steves employer pays the couples annual health insurance premiums of $5,500 for a qualified plan.

l. Mary incurred some extra medical expenses to treat a broken wrist from a mountain biking accident. In April, Mary broke her wrist in a mountain biking accident. She paid $2,000 for a visit to the hospital emergency room and follow-up visits with her doctor. While she recuperated, Mary paid $300 for prescription medicine and $700 to a therapist for rehabilitation. Marys insurance reimbursed her $1,840 for these expenses. Steve drove Mary 110 miles back and forth from the doctors office and the physical therapists facility during the period Mary was being treated for her broken wrist. Mary incurred $1,214 additional amounts of unreimbursed qualifying medical expenses.

m. Steve paid $31,154 withheld of Federal Taxes and $6,700 of state income taxes through withholding from his paycheck.

n. Mary and Steve paid $2,700 of real estate taxes on their personal residence and $850 of real estate taxes on an investment property she owns in Oklahoma. Finally, Mary paid $180 as a registration fee for her automobile (the fee is based on the year the automobile was manufactured, not its value).

o. Mary and Steve acquired their home on February 15, 2021, for $300,000 (also its value throughout the year). They purchased it by paying $40,000 as a down payment and borrowing $260,000 from a credit union. In January 2021, they paid points of $2,600 to obtain the loan and during 2021 they paid $6,567 in interest on the loan. Their home is the collateral for the loan.

p. This year they donated $1,700 to the Red Cross. Mary also gave $200 in cash to various home-less people she met on the streets during the year. Once a month, Steve does volunteer work at a Goodwill Industries outlet about 20 miles from their home. Altogether, Steve traveled 500 miles during the year driving to and from the Goodwill outlet. Steve has determined that the services she provided during the year are reasonably valued at $1,500. Prior to moving into their new home, Steve and Mary donated excess possessions to Goodwill Industries. They estimated that they paid over $900 for these items, including clothing, a table, and a couch. However, although the items were in excellent condition, they were worth only $160.