Question

Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local Chamber of Commerce, and Wanda is employed part-time as a paralegal for a law firm. During 2019, the Deans had the following receipts: Salaries ($60,000 for Lance, $41,000 for Wanda) $101,000 Interest income— City of Albuquerque general purpose bonds $1,000 Ford Motor company bonds 1,100 Ally Bank certificate of deposit 400 2,500 Child support payments from John Allen 7,200 Annual gifts from parents 26,000 Settlement from Roadrunner Touring Company 90,000 Lottery winnings 600 Federal income tax refund (for tax year 2018) 400 Wanda was previously married to John Allen. When they divorced several years ago, Wanda was awarded custody of their two children, Penny and Kyle. (Note: Wanda has never issued a Form 8332 waiver.) Under the divorce decree, John was obligated to pay alimony and child support—the alimony payments were to terminate if Wanda remarried. In July, while going to lunch in downtown Santa Fe, Wanda was injured by a tour bus. Because the driver was clearly at fault, the owner of the bus, Roadrunner Touring Company, paid her medical expenses (including a one-week stay in a hospital). To avoid a lawsuit, Roadrunner also transferred $90,000 to her in settlement of the personal injuries she sustained. The Deans had the following expenditures for 2019: Medical expenses (not covered by insurance) $7,200 Taxes— Property taxes on personal residence $3,600 State of New Mexico income tax (includes amount withheld from wages during 2019) 4,200 7,800 Interest on home mortgage (First National Bank) 6,000 Charitable contributions 3,600 Life insurance premiums (policy on Lance's life) 1,200 Contribution to traditional IRA (on Wanda's behalf) 5,000 Traffic fines 300 Contribution to the reelection campaign fund of the mayor of Santa Fe 500 Funeral expenses for Wayne Boyle 6,300 The life insurance policy was taken out by Lance several years ago and designates Wanda as the beneficiary. As a part-time employee, Wanda is excluded from coverage under her employer's pension plan. Consequently, she provides for her own retirement with a traditional IRA obtained at a local trust company. Because the mayor is a member of the local Chamber of Commerce, Lance felt compelled to make the political contribution. The Deans' household includes the following, for whom they provide more than half of the support: Social Security Number Birth Date Lance Dean (age 42) 123-45-6786 12/16/1977 Wanda Dean (age 40) 123-45-6787 08/08/1979 Penny Allen (age 19) 123-45-6788 10/09/2000 Kyle Allen (age 17) 123-45-6780 05/03/2003 Wayne Boyle (age 75) 123-45-6785 06/15/1944 Penny graduated from high school on May 9, 2019, and is undecided about college. During 2019, she earned $8,500 (placed in a savings account) playing a harp in the lobby of a local hotel. Wayne is Wanda's widower father who died on December 20, 2019. For the past few years, Wayne qualified as a dependent of the Deans. Federal income tax withheld is $3,900 (Lance) and $1,800 (Wanda). The proper amount of Social Security and Medicare tax was withheld.

Answer 1

:: Solution ::

Computation of the Taxable Income of Joint retum of LH and WB for the year 2014 is shown below: Amount (S) $101,000 $1,100 $400 0 0 0 $600 0 ($5.000) $98,100 Particulars Salaries Interest Income from bonds issued by Ford Motor Co Interest on CD issued by Ally Bank Child Support Payments received Gift from Parents Settlement from Roadrunner Touring Company Lottery Winnings Refund for federal income tax Less: Deductions for adjusted gross income - IRA Contribution Adjusted gross income Medical Expense more than 10% of gross income Personal property and state taxes Interest on house mortgage Church Pledge Total Itemized deductions Less: The greater of total Itemized deductions ($17.400) or standard deduction for a married filing jointly ($11.900) Personal and dependency exemption (5x $3.950) Taxable income Tax from tax table of 2014 Tax withheld Tax Payable $7.800 $6.000 $3,600 $17.400 ($17.400) ($19,750) $60.950 $8.329 ($$8.300) (561) Hence, it is ascertained that the net tax refund accounts for $61

Notes (1) Interest levied on local and state bonds is provided with gross income exclusion. (2) Exclusion is available for child support from gross income; however exclusion is not available for alimony. The payment made by J amounting to $7.200 clearly states that it has been made for child support because any obligation pertaining to alimony would be terminated when W would be remarried. (3) Exclusion is available for gifts from gross income. (4) Damages pertaining to personal injury are provided with exclusions underlying the gross income, unless the damages for injury must be punitive in nature. There exist no reasons to consider that the settlement amounting to $90,000 is punitive in nature because the matter was never highlighted in the court. (5) Winnings from lottery are included underlying the gross income, therefore, losses can be claimed to the extent of gains. If the taxpayer has substantiation. (6) Refund pertaining to Federal income tax is a retum pertaining to expenditure that are nondeductible due to which they are non taxable. (7) Contribution made towards traditional IRA is entitle for deduction underlying adjusted gross income (8) Since, the itemized deduction is more than $12,400, it would be not feasible to advise for the standard deduction. (9) Political contributions, Life insurance premiums and traffic fines and cost incurred for funeral are not available for deduction.