Question

Larry K. and Cathy L. Zepp have been married 18 years. Larry is 52 years old (Social Security # 433-45-6789) while Cathy is 47 years old (Social Security # 433-45-6788). They live at 1234 elm Dr., Indianapolis, IN 46202. The Zepps have two children, a son, Zachary W. Zepp (111-33-4444, date of birth 12/1/2001), and a daughter, Jennifer A. Zepp (111-33-4445, date of birth 1/5/2006). Both children live with them the entire years. Zachary is a full-time student.

Larry is a salesperson employed by DSK Industries. This year he earned $135,400. Federal and state income taxes withheld were $17,000 and $7,000, respectively. Social Security tax withheld was $7,961 and Medicare tax withheld was $1,963.

Cathy freelances as an independent contractor in computer graphics. She use her own name as the name of her business. Her earnings received from various engagements was $12,000. Her only expenses paid during the year were for office supplies of $3,000. She paid estimated federal income taxes during the year of $1,000 ($250 on each due date). Her business uses the cash method of accounting.

Other income earned by the couple included the following:

Interest Income

$4,000 from Highland National Bank

$975 from a State of Indiana bond

Dividends

$300 from Ford Motor Company

$575 from Eastman Kodak

$125 from IBM

$1,200 from Apple

All dividends were qualifying dividends

Stock Transactions

Sold 100 shares of IBM for $10 per share on August 1st. The Zepps had paid $170 per share when they purchased the stock on July 18, 2014.
Sold 400 shares of Apple stock for $78 per share on July 20th. The Zepps had paid $35 per share on May 7, 2005.
Rental Property

The couple owns a duplex that it rents out. It is located at 111 Nowhere Ave. Indianapolis, IN. They received $12,000 in rental income this year and had the following expenses related to the duplex:

Insurance 700

Mortgage Interest 8,000

Repairs 1,500

Property taxes 600

Depreciation 2,000

The Zepps had the following expenses during the year:

Unreimbursed medical expenses 10,200

Interest on a home mortgage 11,500

Real property taxes on their home 4,000

State taxes withheld (see above)

Charitable contributions 3,500

Prepare the Zepps 2021 individual income tax return. Complete Form 1040 and Schedule 1 through 3 that go with the form 1040 as well as Schedules A, B, C, D, E and SE.

Answer 1

The question involves preparing the Zepps' 2021 individual income tax return using various forms and schedules to account for their various sources of income and deductions.

Step-by-step explanation:

The subject of this question pertains to preparing an individual income tax return for the Zepp family, factoring in employment income, freelance business income, dividends, interest income, and rental property income, as well as various expenses and stock transactions.

Larry's employment income, Cathy's freelance earnings, and the couple's additional income sources will all be reported on Form 1040 and its accompanying schedules.

Specific schedules such as Schedule B for Interest and Ordinary Dividends, Schedule C for Profit or Loss from Business, Schedule D for Capital Gains and Losses, Schedule E for Supplemental Income and Loss, and Schedule SE for Self-Employment Tax will be required in addition to the main form.

Schedule A will be used for itemized deductions including unreimbursed medical expenses, mortgage interest, real estate taxes, and charitable contributions.

Consequently, to generate an accurate tax return, comprehensive information about the Zepps' finances is utilized to fill out the relevant lines and sections on each form and schedule.

The Zepps' income, deductions, tax withholdings, and estimated payments will be calculated to determine the total tax liability or refund due for the year.