Advanced Scenario 7: Quincy and Marian Pike
Directions
Using the tax software, complete the tax return, including Form 1040 and all appropriate forms, schedules, or worksheets. Answer the questions following the scenario. Note: When entering Social Security numbers (SSNs) or Employer Identifcation Numbers (EINs), replace the Xs as directed, or with any four digits of your choice.
Interview Notes
- Quincy retired and began receiving retirement income on March 1, 2016. No distributions were received prior to his retirement. Quincy did not select a joint survivor annuity for these payments.
- Quincy brought last year's tax return. It includes a capital loss carryover worksheet.
- Quincy and Marian want to fle a joint return. They provided all the cost of keeping up the home and all of the support for their son Lucas.
- Quincy had Medicare Part A and Part B health coverage all year. Marian and Lucas did not have health insurance at all for 2016.
- Marian and Lucas do not qualify for any health insurance coverage exemptions.
- Lucas has no fling requirement
1. What is the total taxable interest income shown on Line 8a of Form 1040?
a. $70
b. $95
c. $150
d. $245
2. How does the code Q on Quincy's Form 1099-R from Essex Bank affect the return?
a. The entire distribution is not taxable.
b. Half of the distribution is taxable.
c. The entire distribution is taxable.
d. There is no such code. The taxpayer must get a corrected Form 1099-R from the bank.
3. What is the amount shown on Form 1040, Line 13 - Capital gain or loss?
a. A gain of $2,215
b. A gain of $2,141
c. A gain of $1,766
d. A gain of $1,691
4. How much of the $17,500 gross distribution reported on Form 1099-R is taxable in 2016? $ ________.
5. Is Quincy's Social Security income taxable?
a. Yes, a portion of the Social Security income is taxable.
b. Yes, all of the Social Security income is taxable.
c. No, because their total income is less than $32,000.
d. No, Social Security benefts are never taxable.
6. What is the amount of the shared responsibility payment on the Pikes' Form 1040, page 2? $_________
7. Are the Pikes entitled to claim an earned income credit for 2016?
a. No, because their investment income exceeds the amount allowed to claim the credit.
b. No, Quincy is over the age of 65.
c. No, Lucas is not a qualifying child for purposes of the EIC.
d. Yes, they are eligible for the credit.
Advanced Scenario 8: Austin Drake
Directions
Using the tax software, complete the tax return, including Form 1040 and all appropriate forms, schedules, or worksheets. Answer the questions following the scenario. Note: When entering Social Security numbers (SSNs) or Employer Identifcation Numbers (EINs), replace the Xs as directed, or with any four digits of your choice.
Interview Notes
Austin works as a customer service employee during the day. He also has a business as a personal trainer, called Austin's Abs. After work, he travels to teach classes at the gym fve days a week.
Austin is a cash-basis taxpayer who materially participates in the operation of his business. He did not make any payments that would require him to fle Form 1099.
Austin uses business code 812190.
He received Form 1099-MISC for classes he taught at the gym. He had an additional $3,729 cash income in payments from individual clients.
He has a written mileage log showing the following miles for 2016. All his travel is within his local commuting area.
- 3,750 miles from home to his main job
- 2,750 miles from his main job to the gym
- 1,200 miles from the gym each day to his home
The total mileage on his car for 2016 was 11,000 miles. He placed his car in service on January 6, 2011. He always takes the standard mileage rate. This is Austin's only car and it was available for personal use.
Austin has records for other expenses relating to his business:
- Advertising: $300
- Supplies: $1,000
- Nutritional supplements for his own consumption: $675
- Business liability insurance: $610
- Business license: $150
Austin has a statement from his church stating he donated $500 on December 1, 2016.
Austin also brought his Form 1098 showing the mortgage interest, mortgage insurance premium, and real estate tax he paid.
Austin has receipts for an eye exam for $80 and prescription contact lenses for $300.
Advanced Scenario 8: Test Questions
1. Where should Austin's cash income from his business be reported on the tax return?
a. Cash income does not have to be reported
b. Form 1040, Line 7
c. Form 1040, Line 21
d. Schedule C-EZ or C
2. What is Austin's mileage expense deduction (at the standard mileage rate) for his business as a personal trainer?
a. $1,485
b. $2,025
c. $2,133
d. $4,158
3. Which item cannot be deducted by Austin as a business expense?
a. Business license
b. Business liability insurance
c. Advertising
d. Nutritional supplements
4. How does Austin's self-employment tax affect his tax return?
a. Austin's self-employment tax is not reported anywhere on Form 1040.
b. A portion of the self-employment tax is deducted as a business expense on Schedule C-EZ or C.
c. The self-employment tax is shown on Form 1040, Other Taxes section, and the full amount is deducted on Schedule A, Taxes You Paid section.
d. The self-employment tax is shown on Form 1040, Other Taxes section, and the deductible part is an adjustment on Form 1040, page 1.
5. What is the amount Austin can take as a student loan interest deduction?
a. $0
b. $1,373
c. $2,500
d. $2,745
6. What are Austin's total itemized deductions on Schedule A, line 29?
a. $6,952
b. $7,086
c. $7,906
d. $8,286
7. The amount of Austin's retirement savings contributions credit in the Tax and Credits section of Form 1040 is $100.
a. True
b. False
8. Austin is not able to pay the entire balance due by the due date of the return (without extensions). What are his options?
a. He can submit a Form 9465, Installment Agreement Request.
b. He can contact the IRS for a full pay 120-day agreement.
c. He can pay using his credit card.
d. Any of the above.
Please answer the questions for scenario 7 and 8.
Scenarios - https://www.dropbox.com/s/623qk0lhdda3i7d/Scenarios.rar?dl=0