Determine eligibility for available tax credits and complete an official worksheet for each credit, to demonstrate eligibility.
Note: Completing a tax form requires specific steps that need to be executed in a sequence. The assessments in this course are presented in a sequence and must be completed in order. Incorrect entries in previous assessments will result in incorrect entries in future assessments. Do not complete Assessment 5 until you have submitted and received faculty feedback for Assessment 4.
Introduction
Tax credits work to lower taxpayer liability rather than provide refund incentives. A tax credit is subtracted directly from the taxpayer’s tax obligation, providing equal relief to all taxpayers. This can make the credit more valuable than a deduction taken during the filing process.
There are credits for foreign taxes paid, child and dependent care expenses, and for the elderly or disabled; credits for education, retirement savings contributions, and residential energy; and child tax credit, adoption, retirement savings, and earned income.
Note: The assessments in this course are presented in a sequence and must be completed in order. In Assessments 2-5, you will work step-by-step toward completing a 1040 tax return and all the necessary related forms, based on a provided scenario. Do not complete Assessment 5 until you have submitted and received faculty feedback for Assessment 4.
Preparation
This assessment will require significant research and critical thinking to complete each required form successfully. An incorrect entry on one form will create incorrect entries in other forms.
There are two parts to this assessment. Be sure to complete both parts and submit the necessary materials.
- Part 1: Determine eligible tax credits by completing official worksheets.
- Part 2: Complete Schedule A and the 1040.
Scenario
Jacob and Taylor Weaver, ages 45 and 42 respectively, are married and are filing jointly in 2021.
- They have three children, Ashley, age 9; Patrick, age 6; and John, age 17.
- Social Security numbers are: Jacob, 222-33-4444; Taylor, 555-66-7777; Ashley, 888-99-1234; Patrick, 789-56-4321; John, 123-45-6789.
- Taylor works part-time as a paralegal.
- She earned $31,000 in 2021.
- Income Taxes: $4,200 withheld.
- Interest received from Local Bank: $6,575.
- Estimated tax payments: $25,000.
- $350 paid with their 2020 state tax return.
- Jacob and Taylor bought their first house in 2021.
- Home mortgage interest: $12,246.
- Property tax: $12,230.
- Federal income withholding: $2,350.
- Charities: $4,500.
- $435 to rent a moving truck.
- $8,000 to put new siding on the house.
- $11,600 for child care expenses ($5,800 for each child).
- It was paid to Lil Tigers Daycare, 1115 S. Garrison St., Muncie, IN 47305 (EIN 98-7654321).
- Taylor is a part-time student at Ball State University in Muncie.
- She received a 1098-T indicating tuition and fees for 2021 in the amount of $6,011.
- Health insurance for the family, through Taylor’s job, cost $7,500 for all 12 months of 2021.
- They paid deductibles and co-payments of $2,550.
Instructions
- Read the information provided in the scenario above.
- Download the following tax forms and instructions from IRS.gov:
- 1040.
- Schedule A.
- Schedule 1.
- Schedule 3.
- 2441.
- 8863.
Part 1
Use the information in the scenario, on IRS.gov, and in the interactive IRS tools to interpret official rules and instructions to determine available tax credits.
- Complete an official worksheet for each tax credit to demonstrate eligibility.
- Submit each tax credit worksheet.
Part 2
Use the information in the scenario, on IRS.gov, and in the interactive IRS tools to Interpret official rules and instructions to complete the following:
- Complete Schedule A.
- Enter data from Schedule A into the 1040.
- Apply the rules and tax tables to calculate the tax owed and the amount of any refund.
- Submit Schedule A and the completed 1040.
Competencies Measured
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
- Competency 1: Analyze the background of the federal income tax system.
- Interpret official rules and instructions to record correct entries on tax forms.
- Competency 2: Analyze the basics of individual income tax return preparation.
- Analyze tax rules to complete tax credit worksheets to prove eligibility.
- Apply laws and rules to correctly enter data on Schedule A.
- Apply rules and tax tables to record the correct tax owed on the 1040.
- Calculate the amount of a refund on the 1040.
