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Required information Comprehensive Problem 5-75 (LO 5-1, LO 5-2, LO 5-3) (Somewhat) [The following information applies to the questions displayed below.] Ken is 63 years old and unmarried. He retired at age 55 when he sold his business, Understock.com. Though Ken is retired, he is still very active. Ken reported the following financial information this year. Assume Ken files as a single taxpayer. a. Ken won $1,380 in an illegal game of poker (the game was played in Utah, where gambling is illegal). b. Ken sold 1,180 shares of stock for $32 a share. He inherited the stock two years ago. His tax basis (or investment) in the stock was $31 per share. c. Ken received $26,800 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually for 20 years, for $225,120. d. Ken received $13,450 in disability benefits for the year. He purchased the disability insurance policy last year. e. Ken decided to go back to school to learn about European history. He is enrolled in an academic program leading to a degree and received a $680 cash scholarship for the program. He used $390 to pay for his books and tuition, and he applied the rest toward his new car payment f. Ken's son, Mike, instructed his employer to make half of his final paycheck of the year payable to Ken as a gift from Mike to Ken. Ken received the check on December 30 in the amount of $1,370. g. Ken received a $700 refund of the $3,780 in state income taxes his employer withheld from his pay last year. Ken claimed $14,830 in itemized deductions last year (the standard deduction for a single filer was $14,600). He was able to deduct the full amount of his state income taxes last year as part of his itemized deductions. h. Ken received $31,800 of interest from corporate bonds and money market accounts. Comprehensive Problem 5-75 Part 2 (Algo) 2. Complete page 1 of Form 1040 through line 9 and Schedule 1 for Ken.

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Required information Comprehensive Problem 5-75 (LO 5-1, LO 5-2, LO 5-3) (Somewhat) [The following information applies to the questions displayed below.] Ken is 63 years old and unmarried. He retired at age 55 when he sold his business, Understock.com. Though Ken is retired, he is still very active. Ken reported the following financial information this year. Assume Ken files as a single taxpayer. a. Ken won $1,380 in an illegal game of poker (the game was played in Utah, where gambling is illegal). b. Ken sold 1,180 shares of stock for $32 a share. He inherited the stock two years ago. His tax basis (or investment) in the stock was $31 per share. c. Ken received $26,800 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually for 20 years, for $225,120. d. Ken received $13,450 in disability benefits for the year. He purchased the disability insurance policy last year. e. Ken decided to go back to school to learn about European history. He is enrolled in an academic program leading to a degree and received a $680 cash scholarship for the program. He used $390 to pay for his books and tuition, and he applied the rest toward his new car payment f. Ken's son, Mike, instructed his employer to make half of his final paycheck of the year payable to Ken as a gift from Mike to Ken. Ken received the check on December 30 in the amount of $1,370. g. Ken received a $700 refund of the $3,780 in state income taxes his employer withheld from his pay last year. Ken claimed $14,830 in itemized deductions last year (the standard deduction for a single filer was $14,600). He was able to deduct the full amount of his state income taxes last year as part of his itemized deductions. h. Ken received $31,800 of interest from corporate bonds and money market accounts. Comprehensive Problem 5-75 Part 2 (Algo) 2. Complete page 1 of Form 1040 through line 9 and Schedule 1 for Ken.

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Asked by: Aman Kori
Created at: 2025-10-13 09:14:31

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# Ken's 2023 Federal Tax Return: Form 104 (Page 1) and Schedule 1 Below is a structured breakdown of Ken's income and the calculation steps using the information provided. This answer covers **Form 104 (Page 1, Lines 1–9)** and **Schedule 1 (Additional Income)** for Ken, a single filer. --- ## Step 1: Income Analysis ### a. Illegal Gambling Winnings - **Amount:** $1,380 - **Taxable:** Yes. Gambling winnings are taxable, even if illegal. - **Report on:** Schedule 1, Line 8b ("Other income") ### b. Sale of Inherited Stock - **Shares Sold:** 1,180 - **Sale Price:** $32/share - **Basis:** $31/share - **Proceeds:** $32 × 1,180 = $37,760 - **Basis:** $31 × 1,180 = $36,580 - **Long-term Capital Gain:** $37,760 - $36,580 = **$1,180** - **Report on:** Schedule D and Form 104, Line 7 (Capital gain) ### c. Annuity Income - **Total Received:** $26,800 - **Exclusion Ratio:** - Cost: $225,120 - Total Expected Return: 20 years × $26,800 = $536,000 - Exclusion Ratio: $225,120 / $536,000 = 42% - **Taxable Portion:** 58% × $26,800 = **$15,544** - **Report on:** Schedule 1, Line 8b ("Other income") ### d. Disability Benefits - **Amount:** $13,450 - **Taxable:** Not taxable if paid for by taxpayer with after-tax dollars. Ken purchased the policy himself. - **Include?:** **No** ### e. Scholarship - **Amount:** $680 - **Used for Qualified Expenses:** $390 (books and tuition) - **Taxable Portion:** $680 - $390 = **$290** - **Report on:** Schedule 1, Line 8b ("Other income") ### f. Gift from Son's Paycheck - **Amount:** $1,370 - **Taxable?:** No; gifts are not income to the recipient. - **Include?:** **No** ### g. State Income Tax Refund - **Amount:** $700 - **Standard Deduction Last Year:** $14,600 - **Itemized Last Year:** $14,830 (greater than standard, so refund may be taxable) - **Refund Taxable Portion:** Lesser of state tax refund or itemized deductions in excess of standard deduction: - $14,830 (itemized) - $14,600 (standard) = $230 - **Taxable Refund:** $230 (not the full $700) - **Report on:** Schedule 1, Line 1 ### h. Interest Income - **Amount:** $31,800 - **Taxable:** Yes. - **Report on:** Form 104, Line 2b --- ## Step 2: Form 104 and Schedule 1 Entries ### Schedule 1 (Additional Income) | Line | Description | Amount | |------|----------------------------|---------| | 1 | Taxable refunds (state) | $230 | | 8b | Other income (gambling) | $1,380 | | 8b | Other income (annuity) | $15,544 | | 8b | Other income (scholarship) | $290 | | | **Total Additional Income**| $17,444 | ### Form 104 (Page 1) | Line | Description | Amount | |------|------------------------------|----------| | 1 | Wages, salaries, tips | $ | | 2b | Taxable interest | $31,800 | | 3b | Ordinary dividends | $ | | 6 | Social Security benefits | $ | | 7 | Capital gain/loss | $1,180 | | 8 | Other income (Sched 1, line 10)| $17,444 | | 9 | **Total income** | $50,424 | --- ## Step 3: Calculations and Notes - **Total Income (Line 9):** - $31,800 (Interest) - $1,180 (Capital gain) - $17,444 (Schedule 1: $230 + $1,380 + $15,544 + $290) - **Total:** $50,424 --- ## Step 4: Form 104 & Schedule 1 Snapshot ### Form 104 (2023) – Page 1 (Lines 1–9) | Line | Description | Amount | |------|----------------------------------------|-----------| | 1 | Wages, salaries, tips | $ | | 2b | Taxable interest | $31,800 | | 3b | Ordinary dividends | $ | | 6 | Social Security benefits | $ | | 7 | Capital gain or (loss) | $1,180 | | 8 | Other income (Sched 1, line 10) | $17,444 | | 9 | **Total income** | $50,424 | ### Schedule 1 (2023) – Additional Income | Line | Description | Amount | |------|--------------------------------|----------| | 1 | Taxable refunds, credits, offsets| $230 | | 8b | Other income: Gambling winnings | $1,380 | | 8b | Other income: Taxable annuity | $15,544 | | 8b | Other income: Taxable scholarship| $290 | | 10 | **Total Additional Income** | $17,444 | --- ## Summary Table | Source | Taxable Amount | Form/Line | |-----------------------------|---------------|-------------------------| | Illegal gambling winnings | $1,380 | Sched 1, Line 8b | | Capital gain (stock sale) | $1,180 | 104, Line 7 | | Annuity income (taxable) | $15,544 | Sched 1, Line 8b | | Disability benefits | $ | N/A | | Scholarship (taxable part) | $290 | Sched 1, Line 8b | | Gift from son | $ | N/A | | State tax refund (taxable) | $230 | Sched 1, Line 1 | | Interest income | $31,800 | 104, Line 2b | | **Total Income** | **$50,424** | 104, Line 9 | --- ## Additional Notes - No wages, Social Security, or dividend income. - No adjustments to income are mentioned, so AGI equals total income. - Deductions, credits, and tax calculation are not requested here. --- ## Image Example ![Form 104 2023 Example: Lines 1-9 filled for Ken's scenario](https://www.irs.gov/pub/irs-pdf/f104.pdf) *Alt text: Portion of IRS Form 104 (2023), lines 1-9, showing income types and totals for a single filer.* --- **If you need a filled PDF or a more detailed worksheet, let me know!**

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