FEDERAL INCOME TAX

Task:

A. Write an essay (suggested length of 2–5 pages) in which you recommend the most advantageous tax filing status for Spouse A and Spouse B on their federal tax return. In your essay:
1. Explain your recommendation based on current, applicable tax laws.
2. Explain the rules that apply to the following types of income on the couple’s tax return.
a. Taxable and nontaxable income
b. Short-term and long-term capital gains or losses
c. Profit or losses from sale of property
d. Partnership income and losses
e. Gains or losses from passive activity
3. Explain your decision to include or exclude each of the types of income in part A2 based on current, applicable tax laws.
a. For part A2e, explain the rules that apply to gains or losses from passive activity.
4. Calculate the adjustments to income that you would include on the return(s).
a. Explain each adjustment item based on the applicable tax law.
5. Determine whether the couple should use the standard deduction or itemized deductions on their return(s).
a. Explain your decision based on current, applicable tax laws.
6. Based on the given data, identify all tax credits available to the couple.
a. Explain any credits based on the applicable tax law.

B. When you use sources, include all in-text citations and references in APA format.

Note: For definitions of terms commonly used in the rubric, see the attached Rubric Terms.

Note: When using sources to support ideas and elements in a paper or project, the submission MUST include APA formatted in-text citations with a corresponding reference list for any direct quotes or paraphrasing. It is not necessary to list sources that were consulted if they have not been quoted or paraphrased in the text of the paper or project.

Note: No more than a combined total of 30% of a submission can be directly quoted or closely paraphrased from sources, even if cited correctly. For tips on using APA style, please refer to the APA Handout web link included in the APA Guidelines section.

federal Income Tax
TAX CASE II
Activity Instructions?Review the scenario below and determine which IRS tax form is required to complete the task. Visit the IRS website and use the Search field to locate the form, or visit the Forms and Pub area. Please note that the design of the website is subject to change, so use your critical thinking and research skills to navigate the site if needed.
For purposes of this assignment, complete the tax return but ignore attaching federal Form 8582, as well as the W-2, to the front page of Form 1040. If required information is missing, use reasonable assumptions to fill in the gaps.
Tax Scenario?Sarah Hamblin is your client. Sarah and her now ex-husband Kevin were legally divorced on March 1 of the year for which you are completing the tax return. As of the end of year, Sarah was single. Sarah and Kevin had one child, an 11 year old girl named Elizabeth. As part of the divorce decree, Sarah was given custody of Elizabeth and Kevin was required to pay child support for Elizabeth’s care as well as alimony to Sarah until she remarries or dies. Because Kevin would be making child support payments, the divorce decree provided that Kevin would be permitted to claim the tax dependency exemption for Elizabeth until Elizabeth no longer qualifies as a tax dependent of her parents. The decree obligates Sarah to sign and/or file any required forms to cause this result to occur.
Sarah rents a home (separate from Kevin) that she pays for herself. Elizabeth lives with Sarah most of the time but she visits and stays with her father every other weekend and most holidays. During the year, Elizabeth stayed at Kevin’s house a total of 74 nights.
The following information relates to Sarah’s tax year:

• Sarah’s social security number is 123-43-4321
• Elizabeth’s social security number is 123-34-1234
• Sarah’s mailing address is 1245 Rose Petal Drive, Madison, Wisconsin 53562
• Elizabeth is a U.S .citizen

Sarah Hamblin received the following income during the year:

All applicable and appropriate payroll taxes were withheld by the employer.
During the year, Sarah also received the following:
• Child Support Payment from Kevin Hamblin: $12,000
• Alimony Payment from Kevin Hamblin: $16,000
• Gift from her father to help with legal bills: $8,500
• Interest income on U.S. Treasury Bond: $400
• Interest income of Madison City Bond (municipal): $250
• Interest income from First Bank of Madison: $165
• Life insurance proceeds on the death of her mother: $45,000
Sarah is a 50% owner in a friend’s company, Bright Day Flowers (“BDF”). BDF is a Subchapter S corporation. The company reported ordinary business income for the year of $22,000. Sarah acquired the stock several years ago. BDF’s employer identification number is 56-3535353.
Sarah won 10 tickets through a radio contest to the touring Broadway-style production of Wholesome. The value of the tickets was $200 each. Sarah took her friends from work to the production.
Sarah lost her job with Central Wisconsin Heating and Air on November 15 because of a reduction in work force. She collected $1,250 in unemployment benefits. She is currently looking for another job.
Sarah did not own, control or manage any foreign bank accounts nor was she a grantor or beneficiary of a foreign trust during the tax year.
Through work Sarah was provided with certain benefits as part of her employment:
• Group-term life insurance coverage of $50,000. Cost to cover Sarah for the company for the tax year is $150.
• Access to the company photocopy machine. Sarah estimates she made $40 worth of copies during the year primarily for use with her church group activities.
Sarah reported no itemized deductions other than any described above.
Sarah does not want to contribute to the Presidential Election Campaign. She would like to receive a refund (if any) of any tax she may have overpaid for the year. Her preferred method of receiving the refund is by check.

Business Letter
Introduction?You will continue to practice your writing skills by creating another business letter that is clear, concise, and accurate in content, and well-structured in grammar, punctuation, and formatting. The library resources for this activity present strategies and guidelines for writing a sound business letter.
Activity Instructions?Your business letter will be written to the tax client for whom you prepared the tax return for this week. The assumption is that the tax client has requested you to prepare their tax return and a letter indicating what all of the information on the tax return means. You need to give a detailed letter telling your client why you have to report each of the numbers on their tax return. You can also include a description of each of the calculations that are included on the tax return. You may use information from the textbook and from the IRS website to support your use of any information on the tax return.
Writing Requirements (APA format)
• 1 page single spaced business letter, followed by 3 pages double spaced research paper
• 1-inch margins
• 12-point Times New Roman font
References page