Comprehensive Tax Return Problems

APPENDIX C

INDIVIDUAL TAX RETURN PROBLEM 1
Required:
Use the following information to complete Keith and Jennifer Hamiltons
2011 federal income tax return. If 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 Web site (www.irs.gov).
Facts:
1. Keith Hamilton is employed as an airline pilot for Flyby Airlines in Las Vegas, NV.
Jennifer is employed as a teachers assistant at Small World Elementary School, in
Henderson, NV. Keith and Jennifer live in a home they purchased this year. Keith
and Jennifer have three children who lived with them all year, Joshua (17), Danielle
(14), and Sara (10). Keith and Jennifer provided the following personal information:

Keith and Jennifer do not want to contribute to the presidential election campaign.
Keith and Jennifer do not claim itemized deductions.
Keith and Jennifer live at 3678 Blue Sky Drive, Henderson, NV 89052.
Keiths birthday is 10/12/1966 and his Social Security number is 535-22-4466.
Jennifers birthday is 7/16/1969 and her Social Security number is 535-44-2255.
Joshuas birthday is 6/30/1994 and his Social Security number is 454-54-5454.
Danielles birthday is 8/12/1997 and her Social Security number is 343-43-4343.
Saras birthday is 5/13/2001 and her Social Security number is 232-32-3232.

2. Keith received the following Form W-2 for 2011 from Flyby Airlines.
a Employees social security number
OMB No. 1545-0008

535-22-4466

Safe, accurate,
FAST! Use

Visit the IRS website at
www.irs.gov/efile

1 Wages, tips, other compensation

b Employer identification number (EIN)

91-0001002

2 Federal income tax withheld

193,645.00

38,500.00

3 Social security wages

c Employers name, address, and ZIP code

Flyby Airlines
375 West Flight Blvd.
Las Vegas, NV 89119

4 Social security tax withheld

106,800.00

4,485.60

5 Medicare wages and tips

6 Medicare tax withheld

208,645.00

3,025.35

7 Social security tips

8 Allocated tips

9

d Control number
e Employees first name and initial

Last name

10 Dependent care benefits

Suff. 11 Nonqualified plans

Keith Hamilton
3678 Blue Sky Drive
Henderson, NV 89052

13

Statutory
employee

Retirement
plan

12a See instructions for box 12
C
o
d
e

Third-party
sick pay

D

15,000

12b
C
o
d
e

12c

14 Other

C
o
d
e

12d
C
o
d
e

f Employees address and ZIP code
15 State

Employers state ID number

NV

Form

987654321

W-2

Wage and Tax
Statement

16 State wages, tips, etc.

193,645.00

17 State income tax

18 Local wages, tips, etc.

19 Local income tax

20 Locality name

0.00

2011

Department of the TreasuryInternal Revenue Service

Copy BTo Be Filed With Employees FEDERAL Tax Return.
This information is being furnished to the Internal Revenue Service.

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Appendix C

3. Jennifer received the following Form W-2 for 2011 from Small World Elementary
School.
a Employees social security number
OMB No. 1545-0008

535-44-2255
b Employer identification number (EIN)

Safe, accurate,
FAST! Use

Visit the IRS website at
www.irs.gov/efile

1 Wages, tips, other compensation

91-0001003

2 Federal income tax withheld

36,825

5,524.00

3 Social security wages

c Employers name, address, and ZIP code

Small World Elementary School
333 Tiny Tot Lane
Henderson, NV 89053

4 Social security tax withheld

39,825

1,672.65

5 Medicare wages and tips

6 Medicare tax withheld

39,825

577.46

7 Social security tips
d Control number

8 Allocated tips

9

e Employees first name and initial

Last name

10 Dependent care benefits

Suff. 11 Nonqualified plans

Jennifer Hamilton
3678 Blue Sky Drive
Henderson, NV 89052

13

Statutory
employee

Retirement
plan

12a See instructions for box 12
C
o
d
e

Third-party
sick pay

D

3,000

12b
C
o
d
e

12c

14 Other

C
o
d
e

12d
C
o
d
e

f Employees address and ZIP code
15 State

Employers state ID number

NV

Form

123456789

W-2

Wage and Tax
Statement

16 State wages, tips, etc.

36,825

17 State income tax

18 Local wages, tips, etc.

19 Local income tax

20 Locality name

0.00

2011

Department of the TreasuryInternal Revenue Service

Copy BTo Be Filed With Employees FEDERAL Tax Return.
This information is being furnished to the Internal Revenue Service.

4. During 2011, Keith and Jennifer received $550 in interest from Las Vegas city
bonds, $1,070 interest from U.S. Treasury bonds, and $65 from their savings
account at SCD Credit Union. Keith and Jennifer are joint owners of the Las
Vegas city bonds and the U.S. Treasury bonds. They have a joint savings
account at SCD Credit Union.
5. On January 21, 2011, Jennifer was involved in a car accident. Because the other
driver was at fault, the other drivers insurance company paid Jennifer $1,350
for medical expenses and $300 for emotional distress. She received payment on
March 15, 2011.
6. Keiths father died on November 15, 2010. Keith received a $100,000 death
benefit from his fathers life insurance policy on February 8, 2011.
7. On February 15, 2011, Keith hurt his arm on a family skiing trip in Utah and
was unable to fly for two weeks. He received $4,000 for disability pay from
hisdisability insurance policy. He received the check on March 2, 2011. The
disability insurance policy premiums are paid for by Flyby Airlines as a fully
taxable fringe benefit to Keith (the premiums paid on his behalf are included
inKeiths compensation amount on his W-2). Flyby Airlines paid $600 in premiums on this policy during 2011.
8. Jennifers grandmother died on March 10, 2011, leaving Jennifer with an
inheritance of $30,000. (She received the inheritance on May 12, 2011.) Flyby
Airlines had space available on its Long Island, NY, flight and provided Keith,
Jennifer, and their three children with free flights so they could attend the
funeral. The value of the airfare was $5,284.
9. On April 1, 2011, Jennifer slipped in the Small World Elementary lunchroom,
and injured her back. Jennifer received $1,200 in workers compensation benefits because her work-related injury caused her to miss two weeks of work.
Shealso received a $2,645 reimbursement for medical expenses from the health
insurance company. Small World Elementary pays the premiums for Jennifers
health insurance policy as a nontaxable fringe benefit.

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Appendix C

10. On May 17, 2011, Keith and Jennifer received a federal income tax refund of
$975 from their 2010 federal income tax return.
11. On June 5, 2011, Keith and Jennifer sold their home in Henderson, NV, for
$510,000 (net of commissions). Keith and Jennifer purchased the home eleven
years ago for $470,000. On July 12, 2011, they bought a new home for $675,000.
12. On July 25, 2011, Keiths aunt Beatrice gave Keith $18,000 because she wanted
to let everyone know that Keith is her favorite nephew.
13. On September 29, 2011, Jennifer won an iPad valued at $500 in a raffle at the
annual fair held at Joshuas high school.

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