PROJECT 2 INSTRUCTIONS:

Please prepare the Hamiltons’ 2021 federal individual income tax return. They have asked you to minimize their tax liability to the extent legally possible. Be sure to read all sections of this document thoroughly (Instructions, Client Tax Information, and the Hints) before beginning work on this project. If necessary, clearly state any assumptions made in completing the tax return. Please read the directions on the forms and include any supporting schedules requested by the forms (unless otherwise noted in the Hints section of this assignment). Be sure to provide detail supporting any calculations. Please round numbers to the nearest dollar. Do NOT prepare the tax return with commercial tax preparation software (e.g., Turbo Tax).

Your completed project should include the following items, in the following order:

• 2021 Form 1040: U.S. Individual Income Tax Return (include Schedules 1 – 3, if applicable)
• 2021 Schedule C: Profit or Loss from Business
• 2021 Schedule SE: Self‐Employment Taxes

2021 Form 4562: Depreciation and Amortization (remember to include the completed supporting excel spreadsheet

CLIENT TAX INFORMATION:

“Lucky” Jack Hamilton comes to your office and asks you to prepare his 2021 federal income tax return. He provides you with the following information:

Jack (SS# 111-00-7878) and Vera (SS# 111-99-8800) Hamilton are married and file a joint income tax return. Their address is 910 Granny Avenue, Lee’s Summit, MO, 64086. Jack is employed as a blackjack dealer, and Vera operates a small, unincorporated shop selling gifts and souvenirs “Lakeside Oasis Gifts” (EIN 59-8884567, Business Identification Code 453220). She rents a small business space at 123 Leaf Street, Lee’s Summit, MO, 64086.

1. Jack and Vera have a nine year-old son, Chance (SS# 111-99-2222), and they provide 100% of his support. Chance attends Samson Elementary School.

2. Jack’s 2020 W-2 that he received from his employer is included in the tax information that he gives to you. He also included additional tax forms that he received. The following documents are available on Blackboard (Additional Client Info.pdf):

• Jack’s W-2
• 1099-INT from MNB Savings Bank
• 1099-INT from State of MO Water District (municipal bond interest)
• 1099-DIV from Ace Corp stock
• 1099-MISC from McDuffy & Sons

3. Vera’s business generated gross receipts of $93,000 in 2021. During 2021, she wrote checks for $30,520 related to her business. Vera uses the cash method of accounting and she keeps a separate bank account for her business. An Excel spreadsheet that includes a detailed list of Vera’s expenditures (and a template for computing tax depreciation) is available on Canvas under Project 2.

4. Vera began her Lakeside Oasis Gifts business in 2018 and purchased several assets during that year. She did not elect Section 179 expensing (and she elected out of bonus depreciation) at that time because her business was just beginning (with little cash inflow) and her accountant advised her that it would be better to stretch out the deductions over the depreciable lives of the assets. The assets are used 100% for business and have been depreciated using MACRS. The assets are listed on the tax depreciation schedule included with this assignment.

5. In August 2021, Vera purchased computer equipment (#2) for Lakeside Oasis Gifts for $5,500.

6. Additional business-related information:

Vera received $350 on September 21, 2021, from the sale of old computer equipment (Computer Equipment #1 which was purchased in February 2018).

7. The Hamiltons’ itemized deductions totaled $22,100 for 2021 (do not prepare Schedule A).

8. Jack’s Aunt Doris gives each of her favorite nieces and nephews $2,000 every year. Jack receives $2,000 as a gift from Aunt Doris in December 2021.

HINTS:

1.The best way to approach the project may be to complete it in the following order:

Depreciation expense (Form 4562, after completing the excel spreadsheet)

Profit and loss from the business (Schedule C),

Self-employment tax (Schedule SE)

Finally, carry over the information from Schedules C, and SE to Form 1040 and Schedules 1-3, along with any other information that needs to be reported on Form 1040.

2. Assume the computer equipment is located at Vera’s place of business (i.e., NOT listed property).

3. For this assignment (and this assignment only!), report the gain or loss on the sale of the computer equipment #1 on Schedule C as “other income” (line 6) or “other expenses” (line 27) as appropriate.

4. Ignore Part IV on Schedule C.

5. Enter $1,000,000 on line 11 of Part I on Form 4562. Ignore parts A, B, & C of Section V on Form 4562.

6. Neither Jack nor Vera elects to contribute to the Presidential Election Campaign

7.Vera has a beginning and ending inventory of $15,000 in her business.

8. Use the Tax Tables (available on Canvas) and the qualified dividend and capital gain worksheet (available on Canvas) to determine the tax liability.

9. Assume the Hamiltons have full health insurance coverage for the entire year through Jack’s employer.

10.The Hamiltons do not have a foreign address. They do not want to allow another person to discuss their return with the IRS.

11. You are not required to calculate AMT or any tax credits for this project.

12.In addition, I am available as the client (Jack and Vera Hamilton) and as a “consultant” for questions remaining after you thoroughly reviewed the entire assignment.