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1. Based on the facts below, prepare a federal individual income tax return, which is called
Form 1040, for married couple, Matthew and Shelli Thomson.
2. preper 1) IRS Form 1040 (federal individual tax return); 2)
Schedule A (itemized deduction statement); 3) Attachments Worksheet, Other Income
Form 1040, Line 21)
Below is the current information and facts Matthew and Shelli Thomson provided to you in order
to prepare their individual federal income tax return. If needed to complete the project, you can
1. Matthew Thomson (birthday January 1, 1970 and Social Security number 111-11-1112)
and Shelli Thomson (birthday March 1, 1970 and Social Security number 111-11-1113)
Thomson are married and live at 7605 Walnut Street, Kansas City, MO 64114.
2. Matthew is a chemist employed by Sargent Pharmaceuticals, Inc. Shelli is a stay at home
3. With respect to their federal income tax return, Matthew and Shelli:
a. Want to file a married filing joint federal income tax return (Form 1040);
b. Do not want to contribute to the Presidential Election Campaign Fund; and
c. Do not want to take the standard deduction, but would rather itemize their
deductions. Therefore, you must determine if they should take the standard
deduction or itemize their deductions.
4. The Thomsons claim dependency exemption for each of their children, Ethan and Bella.
Ethan’s birthday is January 1, 2015 and his Social Security number is 111-11-1114. Bella’s
birthday is January 1, 1995, her Social Security number is 111-11-1115, and she is a full
time student at CSULA and receives 100% of her support from her parents.
5. Matthew is the manager of a facility owned by Sargent Pharmaceuticals that develops and
produces injectable medicines used in chemotherapy treatments for cancer patients. Even
though Matthew did not provide you with his Form W-2, he told you that his annual salary
from Sargent was $90,000 and that $6,000 in federal taxes and $4,000 in state taxes were
withheld from his Sargent Pharmaceuticals paychecks.
6. Matthew participates in his employer’s, Sargent Pharmaceuticals, family group health
insurance plan Blue Cross. Shelli had surgery, which cost $70,000 of which Blue Cross
paid $30,000 and the Thomsons paid the remaining balance of the hospital bill which was
$40,000. In other words, the Thomsons paid out of pocket $40,000 in medical expenses
that were not covered by their health insurance provider, Blue Cross.
7. Because Matthew’s job at the facility can be dangerous resulting in serious injuries to
employees, he decided to look for a new job in his current field of work and incurred the
following expenses looking for a new job: 1) $3,000 to an employment agency; and 2)
$1,000 to prepare and mail his resume. Even though Matthew received several job offers,
he decided to stay with his current employer, Sargent Pharmaceuticals, because he was
promoted to regional manager.
8. Sargent Pharmaceuticals did not reimburse Matthew for the following work related
expenses: 1) $200 for dues to a professional organization for chemists; and 2) $100 for a
subscription to a professional journal for chemists.
9. While walking their dogs, Shelli was struck by a delivery van and was seriously injured.
The driver of the van was arrested and ticketed by the police for reckless operation of a
vehicle and was later prosecuted for drug use. Shelli filed a civil lawsuit against the delivery
company for her injuries and was awarded by a jury $10,000 in compensatory damages
and $5,000 in punitive damages (input in the H&R Block software that comes with the
textbook the $5,000 of punitive damages in the category of “miscellaneous income.”)
10. Several years ago, Matthew paid $4,000 to purchase his gun collection and sold it to
another gun collector for $5,000 realizing a long term capital gain of $1,000 ($5,000 gun
collection sold for – $4,000 Matthew paid to purchase the gun collection = $1,000 long
term capital gain).
11. Several years ago, the Thomsons purchased 300 shares of Dove Pharmaceuticals for $500.
After the Federal Drug Administration (FDA) did not approve Dove’s new cholesterol
drug, sold their 3,000 shares of Dove for $600. The Thomsons realized a $100 long term
capital gain on selling their Dove Pharmaceuticals ($600 Dove stock sold for – $500
Thomsons paid for Dove stock = $100 gain on sale of Dove stock).
12. Matthew received $10 for serving on a jury and his employer, Sargent Pharmaceuticals did
make him turn over his jury duty pay to it.
13. As the named beneficiary of her mother’s insurance policy, Shelli received life insurance
proceeds of $50,000
14. Last year, the Thomsons received a Missouri state income tax refund of $100
15. The Thomsons credit card company forgave their $1,000 credit card balance.
16. The Thomsons paid $15,000 of alimony to Matthew’s first wife.
17. After being injured at work, Matthew received $700 in worker’s compensation.
18. The Thomsons:
a. won $300 from gambling in Las Vegas but have no gambling losses to offset their
b. received $60 of interest on their bank savings account;
c. paid $3,000 for dentist bills not covered by insurance;
d. paid property taxes on their home of $5,000;
e. paid $6,000 in interest on their home mortgage;
f. paid Bella’s tuition at CSULA of $10,000;
g. received theft insurance proceeds of $7,000;
h. had a $11,000 casualty loss on their home after it was destroyed by a tornado, which
their insurance company refused to pay for the damage to their house; and
i. donated $2,000 to a qualified charity
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