Question

This problem is for the 2018 tax year. Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2016. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. During 2018, he had the following receipts: Salary $ 80,000 Interest income— Money market account at Omni Bank $300 Savings account at Boone State Bank 1,100 City of Springfield general purpose bonds 3,000 4,400 Inheritance from Daniel 60,000 Life insurance proceeds 200,000 Amount from sale of St. Louis lot 80,000 Proceeds from estate sale 9,000 Federal income tax refund (for 2017 tax overpayment) 700 Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2018. Logan also was the designated beneficiary of an insurance policy on Daniel's life with a maturity value of $200,000. The lot in St. Louis was purchased on May 2, 2013, for $85,000 and held as an investment. As the neighborhood has deteriorated, Logan decided to cut his losses and sold the lot on January 5, 2018, for $80,000. The estate sale consisted largely of items belonging to Sara and Daniel (e.g., camper, boat, furniture, and fishing and hunting equipment). Logan estimates that the property sold originally cost at least twice the $9,000 he received and has declined or stayed the same in value since Sara and Daniel died. Logan's expenditures for 2018 include the following: Medical expenses (including $10,500 for dental) $11,500 Taxes— State of Missouri income tax (includes withholdings during 2018) $4,200 Property taxes on personal residence 4,500 8,700 Interest on home mortgage (Boone State Bank) 5,600 Contribution to church (paid pledges for 2018 and 2019) 4,800 Logan and his dependents are covered by his employer's health insurance policy for all of 2018. However, he is subject to a deductible, and dental care is not included. The $10,500 dental charge was for Helen's implants. Helen is Logan's widowed mother, who lives with him (see below). Logan normally pledges $2,400 ($200 per month) each year to his church. On December 5, 2018, upon the advice of his pastor, he prepaid his pledge for 2019. Logan's household, all of whom he supports, includes the following: Social Security Number Birth Date Logan Taylor (age 48) 123-45-6787 08/30/1970 Helen Taylor (age 70) 123-45-6780 01/13/1948 Asher Taylor (age 23) 123-45-6783 07/18/1995 Mia Taylor (age 22) 123-45-6784 02/16/1996 Helen receives a modest Social Security benefit. Asher, a son, is a full-time student in dental school and earns $4,500 as a part-time dental assistant. Mia, a daughter, does not work and is engaged to be married. Federal income tax of $4,500 was withheld from Logan's wages. Required: Determine the Federal income tax for 2018 for Logan by providing the following information that be reported on Form 1040, Schedule A Schedule D, and Form 8849. Complete the tax advice letter. Make realistic assumptions about any missing data. If Logan has any overpayment on his income tax, he wants the refund sent to him. Assume that the proper amounts of Social Security and Medicare taxes were withheld. Enter all amounts as positive numbers. If an amount box does not require an entry or the answer is zero, enter "0". When computing the tax liability, do not round your immediate calculations. If required round your final answers to the nearest dollar.

Answer 1

Given the events that took place in 2015 the following changes happen to your tax return:

1. Helen moved to Arizona to live with one of her daughters. More than One-half of the support is provided by the daughter. So you will not be able to claim her as daughter for 2015.
2. Asher graduates from dental school and joined in an existing practice. So he will be able to more than one-half of the support. He is also not eligible to be claimed as dependent in 2015.
3. Mia married and moved out in 2015. So you will not be able to claim her also as dependent in 2015.

As you will not be able to claim anyone as dependent and not married in 2015, your filing status for 2015 will be Single which will increase your tax liability.

Life Insurance proceeds received are used to pay off the mortgage on April 1^st, 2015. As the amount of interest paid through Mar 31 is not given, I will assume as 25% (for 3 months) of interest given above. So it will be $1,150 * .25 = $288 (rounded off)

Keeping in view of the above facts, there will not be any change in the AGI. So AGI is $78,400

There will be reduction in itemized deduction, as there is a reduction in the mortgage interest paid.

So Itemized deductions will be $ 3,660 + $7,700 + $288 = $ 11,648.

After taking personal exemption of $4,000, taxable income is $ 78,400 - $11,648 - $4,000 = $62,752

Your Tax on $62,752 will be 11,488 (Rounded Off).

You will require to pay estimated taxes, to avoid under estimated taxes penalty, as the federal income tax withheld is only $5,500