Individual Income Tax
Facts:
1. Nancy Smith is single and has two children from her previous marriage. Her daughter, Tracy, is in her freshman year at Big State University and lives on campus in a dorm during the school year. Nancy pays for all of Tracy’s living expenses, including the amount of her tuition that is not covered by scholarships. Her younger child, Scott lives with Nancy, and Nancy provides more than half of his support. Nancy provides you with the following additional information:
• She uses the cash method of accounting and a calendar year for reporting.
• She does not wish to contribute to the presidential election campaign.
• Nancy lives at 523 Essex Street, Bangor, Michigan 49013.
• Nancy’s birthday is May 31, 1982.
• Tracy’s birthday is October 5, 2004.
• Scott’s birthday is December 1, 2007.
• Nancy’s Social Security number is 000-00-1000.
• Tracy’s Social Security number is 005-10-7232.
• Scott’s Social Security number is 004-10-3419.
2. Nancy is employed as a nuclear engineer with Atom Systems Consultants, Inc. (ASCI). ASCI’s federal employer identification number is 79-1234466. Nancy’s pay stubs indicate that she had $3,230 withheld in federal taxes, $2,270 in state taxes, $3,667 in Social Security taxes, and $858 in Medicare taxes.
3. Nancy earned a salary of $65,000 before subtracting her 401(k) contributions. She contributed $6,500 to her 401(k) account.
4. ASCI provided Nancy with $85,000 of group term life insurance coverage during the year. Use the information about group term life insurance policies from Chapter 12 to determine Nancy’s taxable benefit and include it as part of Line 1 on Form 1040.
5. ASCI paid health club dues of $600 to a nearby health club on Nancy’s behalf.
6. Nancy received free parking in the company’s security garage that would normally cost $200 per month.
7. For her strong performance, Nancy was offered a year-end bonus in 2023 equal to 5% of her regular salary. The bonus will be included with her first paycheck in January.
8. Nancy received a Form 1099-B from her broker for the sale of the following securities during 2023. The adjusted basis amounts were reported to the IRS.
Security Sale Date Purchase Date Sale Price Cost Basis
Exxon Mobil Corp (30 Shares) 03/14/2023 10/22/2014 $3,060 $1,890
Intel Corp (200 shares) 10/20/2023 02/19/2018 $8,966 $9,760
Netflix Inc (5 Shares) 11/07/2023 05/26/2023 $2,366 $2,150
9. In addition to the taxes withheld from her salary, Nancy also made timely estimated federal tax payments of $275 per quarter. Nancy made timely estimated state income tax payments of $125 for the first three quarters. The $150 fourth-quarter state payment was made on December 28, 2023. Nancy would like to receive a refund for any overpayment.
10. Nancy did not buy, sell, exchange, or otherwise acquire any financial interest in a virtual currency.
11. Nancy paid $3,055 in real estate taxes on her principal residence. The real estate tax is used to pay for town schools and other municipal services.
12. Nancy has been working diligently to pay off her student loans from her undergraduate degree at Larkin College. During 2023, Nancy’s payments totaled $3,700, which included $430 in interest.
13. Nancy drives a 2018 Acura TL and she paid $270 in property tax to the state based on the book value of the car.
14. Nancy incurred the following unreimbursed medical costs:
Dentist $ 340
Doctor $550
Prescription drugs $215
Over-the-counter drugs $140
Optometrist $125
Emergency room charges $2,440
LASIK eye surgery $6,000
Chiropractor $1,265
15. On May 14, 2023, Nancy contributed clothing to the Salvation Army. The original cost of the clothing was $740. She has substantiation valuing the donation at $247. The Salvation Army is located at 350 Stone Ridge Road, Bangor, Michigan 49013.
16. Nancy made the following cash contributions and received a statement from each of the following organizations acknowledging her contribution:
Larkin College $850
United Way $125
First Methodist Church $1,790
Amos House (homeless shelter) $200
17. Nancy received a statement from her credit union indicating that she paid $6,300 in mortgage interest on her home in 2023. Her mortgage was for $350,000 of acquisition indebtedness.
18. During 2023 Tracy was enrolled full-time in undergraduate engineering classes at Big State University, located at 101 Campus Drive in Bangor. Tracy received a $2,000 scholarship which was used for her tuition, and Nancy paid $5,314 for the remaining cost of tuition.
19. Nancy owns several other investments and in February 2024 received the following statements from her brokerage firm reporting the interest and dividends earned on the investments for 2023:
20. On January 15, 2023, Nancy’s father died. From her father’s estate, she received stock valued at $30,000 (his basis was $12,000) and her father’s house valued at $190,000 (his basis in the house was $55,000).