Zach (age 44) and Kelly (age 44) have been married for 24 years. They have an 8-year-old daughter, Jessie. They also have twin sons, Albert and Samuel (both age 19). All three children lived the entire year with Zach and Kelly.

Albert is a full-time student at the University of Illinois and his tuition and fees are completely covered by his wrestling athletic scholarship (the scholarship only covers tuition and fees). Zach and Kelly provide greater than half of Albert’s support.

Samuel decided against attending college, and instead works part-time at a local diner named "The Max," where he earned wages of $10,000. Zach and Kelly provide greater than half of Samuel’s support.

Zach works in management and earned W-2 wages of $80,000. He also had $8,000 in federal tax withheld and $4,000 in State of Illinois taxes withheld.

Kelly is a self-employed accountant. During the year, she operated a Single Member LLC (which is taxed on Schedule C). The business uses the cash method of accounting. She received $95,000 in cash payments for services provided during the year. In addition to the $95,000, Kelly also received a check for $5,000 on December 31st that she didn’t cash because the physical bank branch location where she usually cashes checks was closed. Kelly also had $10,000 in accounts receivable at year-end (she started the year with no A/R).

During the year, Kelly paid $22,000 to rent her office space (the payment covered the period from July 1, 2020 to June 30, 2021). She incurred advertising costs of $7,000, legal fees of $4,000, business insurance of $3,000, and supply expenses of $10,000. She also had meal expenses of $4,000 taking clients to dinner. She incurred $2,000 in ticket expenses entertaining clients at sporting events.

Kelly made no payments requiring the issuance of a Form 1099. Kelley made estimated payments during the year to the IRS of $8,000 and estimated state tax payments of $4,000.

Zach and Kelly received $1,200 of interest income from bonds issued by the City of Chicago and $3,600 of interest income from a money market fund at Vanguard (Form 1099-INT).

Zach and Kelly rented their home on Air-BNB during the weekend (3 nights) of a University of Illinois football game, earning $3,000. Air-BNB charged them a $300 commission.

Zach won $1,000 playing slot machines at a local casino. He lost $1,200 playing the slots on a separate trip to the casino.

The couple purchased 10 shares of Peloton stock (PTON) in March for $30 per share. They sold the stock in September for $100 per share. The transaction was reported on Form 1099-B with basis reported to the IRS.

The couple also paid $20,000 in principal payments, $9,000 in interest payments, and $8,000 in real estate taxes on their primary residence. They incurred $9,000 in unreimbursed medical expenses. And, they made $10,000 in cash contributions to qualifying charitable organizations. They paid $4,000 in student loan interest.

In addition, during 2020, the couple received a state tax refund of $3,000. On their 2019 tax return they claimed $10,000 (the limit) of their $12,000 in state and local taxes as an itemized deduction (their itemized deductions exceeded their standard deduction by $4,000).

In April 2020, the family received a recovery rebate credit (a.k.a. economic impact payment) of $2,900 based on the information reported on their 2019 tax return.

The family lives at 123 Taxman Lane, Champaign, IL 61822. Their family SSNs are as follows: Zach (123-44-5555); Kelly (123-55-6666); Jessie (123-66-7777); Albert (123-77-8888); and Samuel (123-88-9999).

Additional Information:

• All ages provided above are as of 12/31/2020.

• The couple wishes to file jointly.

• If the couple overpaid tax, they would like the entire overpayment refunded.

• The couple is not subject to AMT and were not subject to AMT in a prior year.

• Based on their prior year tax and AGI, they will not be subject to any underpayment of estimated tax penalty.

• They do not wish to contribute to the Presidential Election Campaign fund.

• They do not have foreign investments.

• They have never owned cryptocurrency.

• There is no QBI loss carried over from a prior year.

• Complete Schedule A even if the couple does not elect to itemize.

Form 1040; Schedule 1; Schedule 2; Schedule A; Schedule B; Schedule C; Schedule D; Schedule SE; Form 8995 have to be completed.

Answer rating: 100% (QA)

For 2021 Zach and Kelly Form 1040 Taxable Income 76118 Tax redundable 375 Schedule 1 Part I 56200 Pa... View the full answer