ACCT 4331

Tax Return Project

Spring 2025

Sarah P. Nelson

1.      Sarah P. Nelson (SSN 456-37-7685; DOB 5-7-1972) is a single mom who works full- time as a financial analyst at Trell Corp. Her daughter, Charlotte M. Gaffney (SSN 456- 96-0756; DOB 1-22-2006) is a full-time student at the University of Houston. Both Sarah and Charlotte live at 8311 Forest Lane, Houston, TX 77077. The phone number Sarah wishes to show on her tax return is her daytime work number of 713-555-6654.

2.      Both Sarah and Charlotte were covered by health insurance from Blue Cross Blue Shield for 12 months of the year, as reported on their Forms 1095-B.

3.      Sarah wants to contribute $3 to the Presidential Election Campaign Fund.

4.      Sarah received a Form. W-2 from her employer, Trell Corp., 8375 West Drive, Houston TX 77204 (EIN 89-4658910) which reported the following items:

5.      Sarah received Forms 1099-INT reporting in box 1 (regular or OID interest) the following interest income during the year:

Hills Bank (savings account)                                                $2,013

Whitemore Corp. (corporate bonds)                                       1,080

Safe Logistics, Inc. (corporate bonds)                                    1,522

6.      Sarah has neither a foreign financial account nor a foreign trust, and she did not receive any distributions from a foreign trust during the year.

7.      Sarah received a Form 1099-MISC from Fleet State Title Co. (EIN 83-6941581) which reported $1,200 in box 3 (other income). Sarah was a member of a class-action lawsuit and the $1,200 represents her share of punitive damages assessed by the court against Fleet State Title Co. Sarah incurred no direct legal expenses related to the settlement.

8.      As a hobby, Sarah paints abstract portraits. During the year, she sold one of  her paintings at an art show for $250. She also incurred expenses of $563 for painting supplies.

9.      Sarah paid $18,600 of alimony to her former husband, Ted Gaffney (SSN: 451-84-1324).

The written divorce decree is dated July 15, 2016.

10.   Sarah incurred and paid the following personal expenses during the year:

Taxes:

Sales tax rate (State 6.25%; Local 2.00%)                8.25%

Sales tax on new car (cost $32,870; 8.25% tax rate)             2,712

Real estate property tax on home (reported by Chance Bank on

Form.

1098 - see interest, below)              9,000

Automobile registration (based on weight and horsepower)            150

Interest:

Mortgage used to purchase home (principal balance $450,000;

origination date July 15, 2015; reported by Chance Bank on Form.

1098 -

see taxes, above)            13,800

Credit cards                     600

Auto loan                         2,800

Cash contributions (all substantiated):

Museum of Fine Arts           500

Red Cross                          800

University of Houston          3,450

Other:

Losing lottery tickets           100

11.  Charlotte graduated from Memorial City High School in May and attended the University of Houston on a full-time basis from August to December 2024. In August, Sarah paid $8,200 in qualified tuition for Charlotte’s first semester. In December, Sarah paid another $8,200 in qualified tuition for Charlottes’s second semester beginning in January 2025. Charlotte received a Form 1098-T from the University of Houston, 5000 Gulf Freeway, Houston 77004 (EIN 74-6001399) reporting payments received for qualified tuition and related expenses of $16,400 in box 1. Box 8 was check marked to indicate that Charlotte is at least a half-time student. Charlotte has not been convicted of a felony for possessing or distributing a controlled substance.

12.   If  preparing the return with TaxAct Professional 2024 or similar professional  tax preparation software, complete form 8867 (Paid Preparer’s Due Diligence Checklist).

Assume you have interviewed Sarah and asked the appropriate questions and obtained appropriate documentation to support the income, deductions, and credits claimed on the return, including Sarah’s filing status.

13.   If you are using ProSeries 2024, please select “non-paid preparer” on part V (Return Preparer and Third Party Designee Information) of the Information Worksheet. This will eliminate error messages regarding the preparer and preparer’s code, as well as avoid messages regarding form. 8867 (Paid Preparer’s Due Diligence Checklist).

14.   If you are using ProSeries 2024, please do not attempt to change the preparer name.

Assignment:

Complete Sarah Nelson's Federal income tax return for 2024. Assume that Sarah is filing her return on time (before April 15, 2025). Allow her tax refund to be mailed to her rather than using electronic direct deposit. In preparing the return, you will need to use forms 1040 and 8863,  and schedules 1, 3, A and B. If you are preparing the return as a tax professional, you will also need to include form 8867.

Submit a PDF copy of your completed tax return for Sarah Nelson by emailing a copy of the PDF to Dr. Small at [email protected]. The return should be assembled as it would be filed with the IRS. Statements providing detail or explanation of any tax items should be attached as appropriate, and tax forms should be assembled in the correct order. Please do not submit the client copy of the return, input sheets, or taxpayer worksheets.

You may prepare the project either individually or as a member of a team. The team should consist of no more than 4 students and all members of a team will receive the same grade. Teams should submit one project, with team members indicating the names of other team members in the comment area for the submission on Blackboard.

Notes

1.     A link to install a free demo version of TaxAct tax preparation software is available on Blackboard. To print a PDF of the return in TaxAct, select Print, enter 1 for Federal Filing and Form 8879, click Print, and select to send Output to PDF (indicate the file location). Also check View PDF Output if you want the PDF document to pop-up on your screen. Do not worry if the return contains a watermark “DO NOT FILE.” This watermark is typical for evaluation/free tax preparation software and it will not affect your grade.

2.     The correct assembly order for the tax return is the order printed by TaxAct, ProSeries or other tax preparation software. If the return needs to be reassembled for any reason, organize the forms and schedules following the “attachment sequence numbers” listed in the top right-hand corner of each form. or schedule, generally below the tax year.