Question

Imagine that you are preparing taxes for a local tax service provider. A married couple named Judy and Walter Townson has come to you to seeking assistance with their federal income taxes. During your meeting with the Townsons, you gather the following information: They are both 55 years of age. They have two daughters and one son. One daughter (age 25) is married with children. One daughter (age 20) is living at home and attending college. Their son (age 16) is a junior in high school. They are currently paying for their college-student daughter to attend school full time. Judy is employed as a teacher and makes $60,000 a year. She used $500 of her personal funds to purchase books and other supplies for her classroom. Walter is employed as a CPA and makes $100,000 a year. They provided you a 1099-INT which reported $4,500 in interest, of which $500 was savings bond interest. They provided you a 1099-DIV which reported $300 in dividends. They received a state tax refund last year of $385.

• They provided you a list of expenses including:
  • Doctor’s bills, $800
  • Prescriptions, $400
  • New glasses, $2,000
  • Dental bills, $560
  • Braces, $5,000
  • Property taxes for their two cars of $800, which included $50 in decal fees
  • Real estate taxes of $4,500
  • Mortgage interest of $12,000
  • Gifts to charities, $1,000
  • GoFundMe contribution to a local family in need, $100
  • Tax preparation fees for last year’s taxes, $400

Consider the most beneficial way for Judy and Walter to file their federal income tax return. Prepare a brief written summary that addresses the following: Estimated taxable income for Judy and Walter (please show computations). Summary of tax return, including any suggestions or tax planning considerations. Explain how you determined the filing status, dependents, and use of standard/itemized deduction.

Answer 1

Answer :

Estimated Taxable income :

Annual income of Judy : 60,000

Less : Expenses on books and others : 500

Annual income of Walter : 1,00,000

Add: Interest 4500

Less : Saving bonds in (Exempt) 500 : 4,000

Dividend (Exempt)

Less : Doctors bill : 800

Prescription : 400

New glasses : 2,000

Dentist bills :560

Braces :5000

Property tax : 800

Real estate taxes : 4,500

Mortgage int : 12000

Gift of charities : 1,000

Tax preparation fees 400

Total taxable income : 1,36,040

(a). Since, interest on saving bonds and dividend received is exempt so the same is not considered as income.

(b). Gifts for charities are allowed deductions.

(c). Contributions to go fund me is not allowed as deductions, the same has not been deducted and makes part of income.

Suggestions :

1. They must invest in saving bonds more to exempt income

2. Contributions must be made in some recognized relief funds

3. Must invest in more shares for dividend exemption.