Use the following information to complete a 1040 for Kyle and Ariana Bruney for 2023

Question

Use the following information to complete a 1040 for Kyle and Ariana Bruney for 2023. forms are available at www.irs.gov. Show the 1040 and any supporting schedules and forms. You do not need to complete the State tax return or any tax returns for dependents. You do not need to create W-2, 1099-DIVs.

Kyle and Ariana live at 7043 carrion BLVD, Cook County, Illinois 60018. Kyle is employed as a supervisor by a local insurance firm, Slate Pharm. Ariana is a substitute teacher at Parkside Elementary. During the current year, the Bruney’s had the following receipts:

Salary: 126,000

Interest income from a money market account (reported on a 1099-INT

from 1st National Bank): 1,400

Interest income from City of Denver bonds: 3,000

Dividends (ordinary): 425

Proceeds from sale of developed land: 75,000

Kyle sold the developed land on June 1. He originally paid $68,000 for the land on March 10 ofthis year.

The Burney’s household, all of whom Kyle and Ariana support, includes the following:

Kyle Burney (age 50) 123-45-6787 8/30/1972

Ariana Burney (age 48) 123-45-2020 10/20/1973

Sara Burney (age 71) 123-45-6780 1/13/1950

Bob Burney (age 23) 123-45-6767 11/17/1998

Kelsey Burney (age 21) 123-45-6783 4/16/2001

Maddy Burney (age 15) 123-45-6784 5/14/2006

Kyle and Ariana’s expenses for the year include the following:

Medical expenses: 5,890

Dental expenses for Sara: 5,000

Taxes: State of Illinois income tax: 6,235

Taxes: Property taxes on personal residence: 4,900

Interest on home mortgage: 4,600

Cash contributions to local charities: 13,200

Tuition paid to Illinois State University for Kelsey: 9000

Student loan interest paid 1,800

IRA contributions 5,500

The Burney family is covered by Kyle’s employer’s health insurance policy. However, they are subject to a deductible, and dental care is not included. The dental expenses listed above include dental charges for Sara, Kyle’s widowed mother, who lives with them. Ariana contributes $5,500 to an IRA. She is not covered by a retirement plan as a substitute teacher. Sara’s only source of income is her Social Security benefits.

Bob is completing his degree at WIU as a full-time student after serving overseas in the Army for four years following high school graduation.

Kelsey is a full-time student at WIU and earns $4,500 at her part-time job on campus.

Maddy worked at Carl’s in the summer and made $2,600.

Kyle and Ariana had $7,500 withheld for Federal income tax for the year.

Answer 1

The First Step in the Preparation of an Income Tax Return

The first step is to determine the filing status and dependents.

 Since this is the return for Kyle and Ariana, 

we assume they are married and will file jointly.

Next, we identify the dependents. 

As a general rule: If you can be claimed as a dependent by another taxpayer, you can’t

claim anyone else as a dependent in your tax return

Rules that a person needs to meet to be claimed as a dependent:

The initial test a person must pass to be considered a dependent is the 

support test, where the taxpayer must provide more than half of the support for the dependent.

 According to the exercise, Kyle and Ariana "support" the other four members of the family,

 so this test is met for all four family members.

Then we analyze other tests the individuals must meet to qualify as dependents. We consider the two 

subcategories of dependents: Qualified Child (QC) and Qualified Relative (QR).

First, we check if they qualify as QC: Bob, Kelsey, and Maddy qualify as dependents because 

they meet the criteria for Qualified Children.

A qualified child is a child who is a close relative, younger than you and

 your spouse, has lived with you for more than half of the year, and meets the "Age Test":

Age Test:

 -under 19 years old as of 12/31/23 or under 24 years old and a full-time student,

-or a child that was permanently and totally disabled at any time during the year

Exceptions to the half- year living rule include temporary absences for military service, vacations, studies, illness, or detention in a juvenile facility.

Additionally, there is the joint return test, which applies when the 

child is married. This test isn't relevant in this exercise.

Although Sara, Kyle's mother, does not qualify as a QC due to her age,

we need to see if she qualifies as a Qualified Relative (QR) to be a

 dependent on this income tax return. A Qualified Relative is a person

 related to you who does not qualify as your QC or as a QC for any person. This includes close relatives

 (children, parents, etc.) or a person who is not a close relative but lived in your home for the entire year.

 Exceptions to the full year living rule include temporary absences for reasons such 

 as military service, vacations, study, illness, or juvenile detention

Unlike a QC, a person must meet certain income limits to qualify as a QR. 

This is known as the Gross Income Test. The Gross Income to qualify as a QR cannot exceed 

$4,700 annually for the year 2023 For this test, 

Gross Income refers to the taxable income of the possible QR. Since the 

only income Sara, Kyle's mother, has is Social Security, her income is not taxable, so we consider Sara Gross Income as zero. Since Sara meets the criteria, she

 qualifies as a QR and thus as a dependent.