ACCT 3101

Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Tax Return-Individual Number Two (after Chapter 5)

Instructions:

Please complete the 2019 federal income tax return for Sarah Hamblin. Be sure to include only required
tax forms when completing the tax return. For purposes of this assignment, unless instructed
otherwise, you do not need to attach Form 8582. Also, ignore the requirement to attach the Form(s) W-
2 to the front page of the Form 1040. If required information is missing, use reasonable assumptions to
fill in the gaps.

Sarah Hamblin and her now ex-husband Kevin were legally divorced on March 1, 2019. As of the end of
the year, Sarah was unmarried. Sarah and Kevin had only one child, an 11-year-old girl named Elizabeth.
As part of the divorce decree, Sarah was given custody of Elizabeth and Kevin was required to pay 1)
child support for Elizabeth’s care, and 2) alimony to Sarah until she remarries or dies. Because Kevin will
be making child support payments, the divorce decree provided that Kevin will be permitted to claim the
tax dependency exemption for Elizabeth until Elizabeth no longer qualifies as a tax dependent of either
parent and the decree obligates Sarah to sign and/or file any required forms to cause this result to
occur.

Sarah rents a home (separate from Kevin) that she pays for herself. Elizabeth lives with Sarah most of
the time, but she visits and stays with her father every other weekend and most holidays. During the
year, Elizabeth stayed at Kevin’s house a total of 74 nights.

Sarah provided the following information for 2019:

• Sarah’s Social Security number is 123-43-4321
• Elizabeth’s Social Security number is 123-34-1234
• Sarah’s mailing address is 1245 Rose Petal Drive, Middletown, Wisconsin 53562
• Elizabeth is a U.S. citizen

The following was reported on Sarah’s Form W-2:

Employer Gross Wages Federal Income Tax
Withholding

State Income Tax
Withholding

Central Wisconsin
Heating and Air

34,350 6,950 2,125

All applicable and appropriate payroll taxes were withheld by the employer.

Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

During the year, Sarah also received the following:

Child Support Payment from Kevin Hamblin $12,000
Alimony Payment from Kevin Hamblin $16,000
Gift from her father to help with legal bills $ 8,500
Interest income on U.S. Treasury Bond $ 400
Interest income of Madison City Bond (municipal bond) $ 250
Interest income from First Bank of Madison $ 165
Life insurance proceeds on the death of her mother $45,000

Sarah is a 50% owner in a friend’s company, Bright Day Flowers, Inc. Bright Day Flowers, Inc. (BDF) is a
Subchapter S corporation. The company reported ordinary business income for the year of $22,000.
Sarah acquired the stock several years ago. Sarah worked a total of 600 hours at the BDF shop in the
evenings and on the weekends during 2019. Bright Day Flowers, Inc.’s employer identification number
is 56-3535353.

Sarah entered a contest sponsored by a radio station and won 10 tickets to the touring Broadway-style
production of Wholesome. The value of the tickets was $200 each. Sarah took her friends from work to
the production.

Sarah lost her job with Central Wisconsin Heating and Air on November 15 because of a reduction in
work force. She collected $1,250 in unemployment benefits during the year. She is currently looking for
another job.

Sarah had qualifying minimum health insurance coverage provided to her because of her employment
with Central Wisconsin Heating and Air for each month in 2019 (the employer continued to cover her
through the end of the year). Elizabeth had qualifying minimum health insurance coverage provided
through Kevin through his work.

Sarah did not own, control or manage any foreign bank accounts nor was she a grantor or beneficiary of
a foreign trust during the tax year.

Sarah was provided with the following benefits as part of her employment:

• Group-term life insurance coverage of $50,000. The cost to cover Sarah for the company for the
tax year is $150.

• Access to the company photocopy machine. Sarah estimates she made $14 worth of copies
during the year primarily for use with her church group activities.

Sarah reported no itemized deductions other than any described above.

Sarah does not want to contribute to the Presidential Election Campaign Fund. She would like to receive
a refund (if any) of any tax she may have overpaid for the year. Her preferred method of receiving the
refund is by check.