Question

Prepare a basic tax return using the appropriate tax forms and rate schedules. Choosing and preparing an individual tax form. Use 1040 or 1040ez. Mark Huang is single, graduated from college in 2015 and began work as a systems analyst in July of that year. He is preparing to file his income tax return for 2015 and has collected the financial information shown below for that calendar year.

Scholarship used to pay tuition $ 5,750

Scholarship used to pay room and board 1,850

Salary 30,250

Interest income 185

Itemized deductions 3,000

Income taxes withheld 2,600

a. Prepare Mark’s 2015 tax return, using a $6,300 standard deduction, a personal exemption of $4,000, and the tax rates given. Which tax form should Mark use, and why?

b. Prepare Mark’s 2015 tax return using the data in part a along with the following information: IRA contribution $5,000 Cash dividends received 150 Which tax form should he use in this case? Why?

Answer 1

a

1.

*Form 1040*is specifically used by Individual Tax Payers to file
their tax returns and various schedules are also prepared to attach
with the form for supporting. The schedules appended to it are
supplementary to the Form 1040 and compulsory to fill up the form to
claim benefits enlisted ender the schedules.

2.

In this case, person DJ is a joint tax payer with his spouse within
formation given in the case which is being solved and treatment done
as well as their explanations is as follows:

*Medical and Dental Expenses: *There are the expenses which are paid
for the costs of diagnostician, treatment, equipment, supplies as
well as all services which are meant to cure or prevent a disease.
Expenses which are incurred on general nature of medical care such
as vaccination would not be qualified to be deducted. These expenses
can be deducted if paid for self, spouse or dependents of former.
Generally, maximum of deduction that a taxpayer can claim is the
amount which is more than10% of AGI otherwise no deduction is
allowed in such case.

In given problem, medical and dental expenses are paid of $ 2,800
which is less than 10% of AGI i.e. . Hence, deduction should not be
allowed of $ 2,800 in the Form-1040 as the amount of $ 2,800 is less
than $ 5,085.

3.

*Taxes Paid:*The taxes paid by tax payer should be mentioned in the
form at appropriate places. Person DJ, taxpayer has paid taxes and
the same should be reflected in the respective form.*The taxpayer
has also paid the tax of previous year which has been reflected as
netted amount in the form reason being it is not related to current
tax year 2015 and also it is deficient previous tax liability which
is paid out this year.*

*Personal Property Taxes: *These are the taxes which are charged by
the authority on yearly basis and thus can be claimed by tax payer.
In given case, the tax payer has paid personal property tax on
anyone of personal property *and an assumption can be taken that it
has been charged as per IRS regulations.* Hence, the amount has been
reflected in the form under the respective head as per information
given in the case.

*Home Mortgage Interest: *The interest cost paid by tax payer during
the current tax year of 2015 shall be available to be taken as
deduction in the respective form. Interest cost includes amount paid
for installment of loan taken as mortgage of first home only for
interest part and also if taxpayer shall take up any other loan to
pay first mortgage payment then interest cost on second loan shall
also be available for deduction.

In given case, tax payer has paid interest cost amounting to $ 11,
250on home acquisition mortgagewhich shall be available for
deduction as per IRS regulations.

b.

4.

*Interest on Credit Card:*Generally, interest on credit card spent
on personal belongings or domestic expenses are not allowed. But as
per IRS regulations, if tax payer has paid interest on credit card
spent for working related matter such as business expenses then it
would be allowed to be deducted. In given case, an assumption can be
taken that taxpayer after leaving the job has taken up a small
business and expensed credit card on business works and assuming the
same reflection as per given assumption has been made.

*Unreimbursed Employee Expenses:*These are the expenses which are
paid by every citizen of the State to get the membership of state.
If these are paid by any employee to get the membership and same are
not reimbursed by employer and they can be deducted from the income
portion. In the given case, reflection for the same has been made in
the respective form.

5.

DJ’s form 1040 needs to be completed in the following way:

6.

Payments made by DJ with respect to auto Uniform for loan, credit
card interest and auto insurance are not deductible as they are his
personal expenses.

However person DJ can claim for expenses made for business purposes
while assuming that such expenses was for business purposes solely.

His total itemized deduction comes out to be.

7.

In order to calculate the income earned from interest and ordinary
dividend that would be included in the taxable income, it is
required to fill the supportive form known as Schedule B of Form 1040.

8.

Since DJ is not earning any ordinary dividend, therefore DJ’s total
taxable income under the head of income from interest and ordinary
dividend would be. This would later be added in form 1040 under the
particular head.

9.

Form 2441 is a form which is required to be filled up in case when
the assesse is claiming for a deduction under the head of Child and
dependent care expenses. The total amount of form 2441 is subtracted
ultimately in the form 1040 line 49.

Since person DJ is claiming a deduction under the head of child and
dependent care therefore it is essential to submit form 2441 of IRS
along with form 1040 for reference.

Person DJ has claimed for an amount of as child care expensemade on
child or dependent on tax payer which later would be subtracted from
the income as a deduction in form 1040 of IRS.