Reference no: EM133412594

Case Scenario: Year ending December 31, 2022 The taxpayers are Jim B. Baldwin (social security number 333-33-3330) and his wife, Sara M. Baldwin (social security number 444-44-4440). Both are 50 years old, have good eyesight, and live with their three children, Ned, Joseph and Megan, at 789 N. Code Drive, Chicago, Illinois 60699, (312) 679-9999. Mr. Baldwin wants to contribute $3 of his income tax to the Presidential Election Campaign Fund. Mrs. Baldwin elects not to contribute. The Baldwins' son, Ned, is a junior in college and he is 20 years old. He worked during the summer and earned $5,000. Their other son, Joseph, is a 17-year old high school student. He earned $2,750 during the summer and worked part-time during the remainder of the year. Neither son had any additional income. Their daughter, Megan, is eight years old and an elementary school student. She had no earned or unearned income during the year. In August, the Baldwins paid $6,300 in tuition for their son, Ned, for the academic period that started in September. Ned's social security number is 300- 11-0001, Joseph's social security number is 300-22-0002, and Megan's social security number is 300-33-0003. The Baldwins provide 55% of the support for Mrs. Baldwin's mother, Julia D. Major. Mrs. Julia D. Major lived with the Baldwins during all of 2022. Her social security number is 2 400-44-0004. The Baldwins have hired you, a CPA, to prepare their income tax return. Your PTIN is P98756432, and you work for Midwest Tax Preparation (EIN #36-0987456), which is located in a nearby suburb of Buffalo Grove, IL (telephone number 1-312-555-4010). However, the Baldwins do not authorize you to discuss their return with the IRS. Wages and Expenses Generally During 2022, Mrs. Baldwin was employed as an elementary school teacher. Her Form W-2 for 2022 reports the following: Box 1. Wages, tips and other compensation $156,350 Box 2. Federal income tax withheld $ 24,569 Box 4. Social security tax withheld $ 9,694 Box 6. Medicare tax withheld $ 2,267 Box 17. State income tax $ 7,740 Mr. Baldwin is the owns and operates office supply business as a sole proprietor. Mr. Baldwin's is realized net income of $77,658 for 2022. This amount is set forth on line 31 of Schedule C for Form 1040 which Mr. Baldwin has completed and provided to you. You must determine how this amount is reported to the IRS for 2022. Mrs. Baldwin is not covered by her employer's retirement plan. In addition, Mr. Baldwin is a self-employed individual who does not maintain a Keogh or a SEP plan. Mrs. Baldwin made a $1,500 contribution to a traditional IRA and a $2,000 contribution to a Roth IRA in 2022. Mr. Baldwin decided against making a contribution to a traditional IRA. The Baldwins received a $520 state income tax refund. They used itemized deductions of $25,420 on their 2021 federal income tax return and elected to take the state income tax as a deduction. The Baldwins also received a $310 federal income tax refund. The Baldwins made federal estimated tax payments of $21,000 for 2022. The Baldwins incurred the following medical expenses during 2022: • prescription drugs $1,000 • doctor bills $6,724 • hospital bills $4,256 • transportation $ 100 • eyeglasses $ 500 Mr. Baldwin, who is self-employed, paid $7,750 in premiums for health insurance 3 coverage for himself and his family. The Baldwins bought a new residence in September 2022. They sold their prior residence on September 13, 2022. The Baldwins paid their 2020 real estate taxes on the prior residence of $4,300 due on July 1, 2022. As the 2022 bill for the old residence will be paid in 2023, they allowed the buyer a credit equal to $2,590 for their portion of the bill. The real estate taxes on the new property they purchased on September 1, 2022, are not payable until 2023. The Baldwins purchased their prior residence on February 15, 2003 for $257,000. After expenses of the sale, they realized $843,457. Mr. and Mrs. Baldwin paid the total of $8,675 home mortgage interest on the two residences. They also paid $4,600 in points when they purchased their new home. Neither mortgage had a principal amount in excess of $750,000. They paid the following personal interest in 2022: • $1,625 to finance Mrs. Baldwin's car, and • $ 400 in credit card interest. The Baldwins gave $1,500 in cash to various recognized charities; no individual gift was $250 or more; all charities sent an acknowledgment of the contribution. Mrs. Baldwin bought $345 of supplies for her classroom. Dividends and Interest During 2022, the Baldwins received $780 in interest from the Heartland National Bank and $150 as nominees for Julia Major from the Third National Savings and Loan. They received $450 in interest from tax-exempt bonds issued by the State of Illinois. The Baldwin's received the following qualified dividends: $715 from E&Z Tax Preparation, Inc., $350 from Secure Money Market Fund, and $465 from Rapid Growth Mutual Fund. They also received a $300 capital gain distribution from Rapid Growth. In addition, the Baldwins received $700 in nonqualified foreign corporation dividends from Consolidated Tapioca,. The responses to the questions on Part III of Schedule B are "No." Sale of Stock and Other Investments During 2022, the Baldwins sold the following capital assets: (1) On February 2, 100 shares of Ahab Inc. were sold for $1,000. They had been purchased on November 18, 2008 for $3,500. 4 (2) On November 5, 200 shares of Pequod Inc. were sold for $10,000. They had been purchased on January 5, 2008 for $2,000. (3) On December 4, 100 shares of Squall Inc. were sold for $12,500. They had been purchased on January 4, 1998 for $4,000. (4) On December 10, 200 shares of Kismet Inc. were sold for $5,624. They had been purchased on September 5, 2002 for $2,000. (5) On December 15, a number of gold coins were sold for $11,800. The coins had been purchased on October 15, 2002 for $3,200.

Determine the Gains from the sale of stock, investments, their prior residence, then research the forms or schedules required to report the Gains to the IRS, download and complete the appropriate forms or schedules to complete. HINT: download IRS Publications 523 & 544 for guidance.
Complete lines 1 through 9 and calculate Total Income. Remember, as I have explained in my videos, that Total Income on Form 1040 is the taxpayer(s)' Gross Income under IRC Section 61.
Write any Schedules or Forms as required.
complete a basic individual tax return using a standard 1040 and the appropriate schedules.")

A "bigger bite" this week.

Using the Baldwin Case Study (attached) and posted in Content>Case Studies:

Determine the Gains from the sale of stock, investments, their prior residence, then research the forms or schedules required to report the Gains to the IRS, download and complete the appropriate forms or schedules to complete. HINT: download IRS Publications 523 & 544 for guidance.

Complete lines 1 through 9 and calculate Total Income. Remember, as I have explained in my videos, that Total Income on Form 1040 is the taxpayer(s)' Gross Income under IRC Section 61.
Prepare any Schedules or Forms as required.

Note that the assignment this week has three parts: (a) calculate the amounts required, (b) research how to report these items to the IRS, and (c) complete the forms.