Tax Project:  Based on the information provided below, complete a 2020 Form 1040 and any supporting schedules/forms for Bob and Melissa Grant. A Kentucky state income tax return is not required. You should complete this tax return manually using the forms available from the IRS website, You may not use software to assist in preparing the forms. You may find the form instructions helpful in completing this assignment. Please provide a list of assumptions you make, if any. Your project will be graded subject to any reasonable assumptions listed. You do not need to calculate AMT.  The 1040 and all supporting documents are to be typed, neat, and professional.  One hundred points are assigned to this project.

You are to work on this assignment individually. Working on this assignment or discussing it with others is not permitted.

Please include your name in the paid preparer’s box of the 1040.  Attach a cover letter summarizing the return, such as refund, tax owed, average and effective tax rates.

Bob and Melissa Grant are married and live in Lexington, Kentucky.  The Grants have four children: Robert (age 22, college student), Jared (age 17), Judy (age 12) and Alana (age 8).  The Grants would like to file a joint tax return for the year.

The following information relates to the Grant’s tax year:

  • Bob’s Social Security number is 987-45-1234
  • Melissa’s Social Security number is 494-37-4883
  • Robert’s Social Security number is 412-32-4690
  • Jared’s Social Security number is 412-32-5690
  • Judy’s Social Security number is 412-32-7690
  • Alana’s Social Security number is 412-32-8640
  • The Grants’ mailing address is 95 Hickory Road, Lexington, Kentucky 40502.
  • Robert, Jared, Judy and Alana are tax dependents for federal tax purposes.

Bob Grant received the following during the year:

EmployerGross WagesFederal Income Tax WithholdingState Income Tax Withholding
National Storage$90,000$20,000$6,200
Lexington Little League$8,50000

Melissa Grant received the following during the year:

EmployerGross WagesFederal Income Tax WithholdingState Income Tax Withholding
Jensen Photography$32,000$3,500$1,500

All applicable and appropriate payroll taxes were withheld by Grants’ respective employers.

Melissa has a small photography business.  She provided you with the following information for 2020:


Weddings and Receptions:  $15,000 in fees

Photo Restorations:  $2,500 in fees

Family Portraits:  $12,000 in fees


Photography Supplies:  $4,000

Mileage:  800 miles

Office Supplies:  $500

Props and Backgrounds:  $700

Advertising:  $200

Camera and Lenses:  $2,500

The Grants paid $12,000 to the University of Kentucky for Robert’s tuition and fees in 2020.

The Grants sold 100 shares of ExxonMobil stock on July 1, 2020.  Below is the information relating to the stock sale:

Purchase Date:  January 1, 2010

Purchase Price:  $25 per share

Selling Price:  $65 per share

Commissions and Fees:  $10 per share

The Grants also received the following during this year:

Interest Income from First Kentucky Bank                                        $2,000

Interest Income from City of Lexington, KY Bond                           $2,500

Interest Income from U.S. Treasury Bond                                         $4,500

Interest Income from Nevada State School Board Bond                   $   250

Workers’ Compensation payments to Bob                                         $7,150

Disability payments received by Bob on account of injury               $9,500

  • National Storage paid 100% of premiums the premiums on the policy and included the premium payments in Bob’s taxable wages

Melissa received the following as a result of a lawsuit for damages sustained in a car


  • Medical Expenses                 $  9,500
  • Emotional Distress                $35,000
  • Punitive Damages                 $90,000

December 12, 2020 was the Grant’s lucky day!  They won a raffle prize of a new 2021 Ford Mustang valued at $60,000.  They paid 10% in Federal and 5% in state income taxes of the value of the car.

Bob received an inheritance from his favorite uncle, James Robert, in the amount of $150,000 in cash, on November 30, 2020.

The Grant’s rent a garage apartment to Robert’s best friend, Ricky, for $2,500 a month.  The total expenses for the year were $3,500, which consisted of utilities only.  In addition, depreciation for the year on the apartment is $3,000.

Bob paid his ex-wife $25,000 in alimony in 2020.  They divorced in 2013.

Eight years ago, Melissa purchased an annuity contract for $70,000. This year, she received her first payment on the annuity.  The payment amount was $10,000.  The annuity started to pay on January 1, and she received a full first year’s payment.  It will pay her $10,000 per year for ten years (beginning with this year).  The $10,000 payment was reported to Melissa on form 1099-R for the current year (box 7 contained an entry of “7” on the form).

The Grants did not own, control or manage any foreign bank accounts nor were they a grantor or beneficiary of a foreign trust during the tax year.

The Grants paid or incurred the following expenses during the year:

Dentist/Orthodontist (unreimbursed by insurance)                            $9.000

Doctors (unreimbursed by insurance)                                                $   700

Prescriptions (unreimbursed by insurance)                                        $   400

KY state tax payment made on 4/15/20 for 2019 tax liability            $1,500

Real property taxes on residence                                                        $8,500

Vehicle property tax based upon age of vehicle                                $   250

Mortgage interest on principal residence                                         $20,500

Interest paid on borrowed money to purchase the City of

Lexington, KY municipal bonds                                            $   500

Interest paid on borrowed money to purchase

U.S. Treasury bonds                                                               $   300

Contribution to the Red Cross                                                            $5,000

Contribution to Senator Rick Taylor’s Re-election Campaign            $3,500

Contribution to First Baptist Church of Kentucky                           $20,000

Fees paid to Jones & Company, CPAs for tax preparation              $  1,500

In addition, Bob drove 8,750 miles commuting to work and Melissa drove 6,500 miles commuting to work.  Both the Grants have represented to you that they maintained careful logs to support their respective mileage.

The Grants drove 900 miles in total to receive medical treatment at hospitals and doctor offices in 2020. 

The Grants want to contribute to the Presidential Election Campaign.  The Grants would like to receive a refund (if any) of any tax they may have overpaid for the year.  Their preferred method of receiving the refund is by check.

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