Prepare a Tax Year 2021 based on the following facts:
Taxpayer - Francisco Soler, 42 years old
Taxpayer spouse - Patricia Soler, 41 years old
Francisco and Patricia's three Kids:
John - 19 years old attends Georgia Tech University part-time and lived at home for the summer.
John earned $5,000 delivering pizza for the year.
Thomas - 13 years old
Patty - 10 years old
Thomas and Patty live full time at home and attend nearby public schools. The Soler's provide all financial support for Thomas and Patty and the majority of financial support for John.
TP's live at 226 Forest Lane, Marietta, GA, 30060. They purchased their home in 2017 for $350,000.
Francisco previously worked as a car mechanic for Sparky's Auto in Marietta, GA and received a W-2 salary of $9,000. In March of 2021 he was laid off. He then applied for and received $7,000 of unemployment compensation. During this time Mark decided to become self-reliant for work and he started his own business as a self-employed car mechanic. He rented a garage with car lifts. Francisco advertises his business as Soler Auto Repair and the business location is 515 Lower Roswell Road, Marietta, GA 30008. The self-employed professional activity code for auto mechanics is 811110. Francisco hired no employees. He received gross receipts of $180,000 and uses the Cash basis for taxes. Francisco made three quarterly tax pre-payments of $3,000 each in 2021. (Schedule C expenses are shown below).
Patricia works full time as a registered nurse at Marietta Regional Hospital. She receives a W-2 salary of $67,000. She has W-2 salary withholding payments totaling $7,000 for 2021. Patricia as part of her compensation package also receives health insurance in which the hospital pays $5,000/yr towards medical insurance premiums. Patricia's compensation package also pays the insurance premiums on a $1,000,000 life insurance policy, which would pay out to her husband in the event of her death.
Francisco and Patricia also received the following cash payments in 2021:
Francisco was injured in a car accident that was the fault of the other driver. As a result, Francisco now walks with a bit of a limp. He received $50,000 in payments from the other driver's insurance company as a result of the accident. The case went to district court and Mark was awarded punitive damages of $200,000.
Patricia invested $60,000 in an annuity in 2018 that pays $5,000 in annual payments each
November for 15 years.
State tax refund of $4,000 related to 2020 tax year.
Gross rental receipts of $45,000 (not including $3,000 security deposit and $4,000 advanced rent for January 2022 rental period that were both received in 2021).
The following are cash payments and donations that the Soler's paid out in 2021:
Medical expenses:
Insurance premiums $3,600
Surgery - John's broken arm from playing baseball $3,200 after insurance reimbursement
Medical Co-payments $650
State Income Taxes $5,100
State sales taxes $3,500
Real estate Taxes $7,400
Federal taxes due for 2020
Tax return $7,200
Mortgage Interest $8,400
Investment Interest expense $9,500. (The Solers make no elections and do not use Form 4952)
Charitable contributions to IRS recognized charitable institutions:
Cash $9,000
Donated painting purchased on February 10, 2020 for $500. FMV at donation date $800.
Gambling losses $200
Last year (Tax Year 2020) the Soler's claimed itemized expenses of $27,000.
REQUIREMENTS
Prepare an income tax return by hand in blue pen (no tax software) with needed schedules that can be obtained from the IRS website (irs.gov) for the Soler's for 2021 Tax Year. You will need to download applicable schedules for F1040 including Schedules 1-4, Schedules A through E, SE, Form 8949 and Form 8995-A. Also attach an additional sheet/sheets to show how you arrived at calculations where applicable (such as Car and Truck expenses, depreciation calculations, etc). In doing this, use the following guidelines:
• You may complete assignment individually or in groups up to 5 people. Place all participating student names on cover sheet.
Make necessary assumptions for information not given in the problem but needed to complete the return. Consider application of child tax credit and additional child tax credit. Ignore any other credits.
• The taxpayers have the necessary substantiation (e.g., records, receipts) to support the transactions involved.
If a refund results, the taxpayers want it sent to them. • Regarding possible credits, only consider the child tax credit.
