Taxpayer Project: Part 1

The Taxpayer Project is an individual project where you will design your own client and create their taxpayer information. As we progress through the semester and learn new concepts, you will add additional information to your taxpayer’s story, with the ultimate goal of putting it all together and solving for your taxpayer’s tax due or refund owed. In short, you will be following the individual income tax formula with the taxpayer information that you created. You will complete the project in pieces as we advance through the class. The project will be graded on completeness, accuracy, level of difficulty/complexity, and creativity/uniqueness.

Chapter 4 provided an overview of the individual income tax formula, dependents, and filing status. We reviewed Form 1040 and learned that the first pieces of information needed are filing status and dependents, as this information guides the rest of the return. In Part 1 of the Taxpayer Project, you will introduce your taxpayer and their potential dependents.

Requirements for Part 1:

Complete the following questions to begin creating your taxpayer information. While some questions are designed to specifically create the taxpayer information, other questions are designed to get you thinking about how you will use this information as you eventually complete the individual income tax formula.

It is recommended that you type your answers, so that you may later Copy-Paste as you organize the final project.

Your taxpayer must either be one unmarried taxpayer or two married taxpayers who have no reason to file separate returns.

Include information on your taxpayer’s name, age, and eyesight. As we progress through the class, you will add information about their jobs.

Your taxpayer must have 5 potential dependents, of which 3 should qualify as a dependent for your taxpayer. Provide sufficient information to determine whether each potential dependent meets the QC or QR tests. Consider providing nuanced and/or extra information to increase the level of complexity/difficulty. For example, including gross income information for a potential QC, when it only matters for a potential QR. Or, choosing a QC relationship other than daughter or son. Or creating a QC that does not qualify for the child tax credit, but does qualify for the dependent tax credit.

Taxpayer Project: Part 1

1.Who is the taxpayer (and spouse)? Provide all required information.

2.Why is it important to know the taxpayer’s age and eyesight?

3.Who are the 5 potential dependents? Provide all required information.

4.For each of the 5 potential dependents, are they a QR, QC, or neither? Explain your reasoning.

5.Based on your taxpayer information, what is your taxpayer’s filing status?

6.Why is it important to know the taxpayer’s filing status?

7.For each of the taxpayer’s 3 dependents, calculate the potential child tax credit and/or dependent tax credit. What is the total amount of the potential child and dependent tax credit?

8.Although you can calculate the potential child and dependent tax credit now, you will not know the actual credit until you complete more of the tax return. What “magic number” will you need to calculate before verifying the actual credit?

Example of the First Page of the Taxpayer Project

(Note: This example does not include the required 5 potential dependents. It represents a medium level of complexity/difficulty.)

Background Information:

Imagine you are a tax return preparer. Your clients are Sally and Jim Torero.

Sally and Jim are married taxpayers who file a joint return. Sally is 45 years old and Jim is 48 years old. Both have perfect vision. Sally works as an accountant for a CPA firm. Jim is self-employed and owns a bakery, which he operates as a sole proprietorship. Sally and Jim have three individuals they support – two children and a nephew.

Lisa is their 17-year-old daughter, who is a high school student. She earned $5,000 during the current year and lived with Sally and Jim for the whole year. Sally and Jim provided more than half the support for Lisa.

Jeremy is their 10-year-old nephew, who is an elementary school student. He earned $300 during the current year and lived with Sally and Jim for the whole year. Sally and Jim provided 100 percent of support for Jeremy.

Michael is their 21-year-old son, a high school graduate who works full-time. He earned $26,000 during the current year and lived with Sally and Jim for the whole year. Michael spent $8,000 on his own support and Sally and Jim provided approximately $10,000 of support.

Sally and Jim provide you with a lot of information related to their tax year. They have quite an eventful life! You have organized their information and are now ready to work on their tax return. Each section that follows will walk you through the individual income tax formula.

Your final goal is to determine the amount of Sally and Jim’s tax refund or amount owed.