Question

Cecil C. Seymour is a 64-year-old widower. He had income for 2020 as follows:

Pension from former employer $39,850

Interest income from Alto National Bank $5,500

Interest income on City of Alto bonds $4,500

Dividends received from IBM stock held for over one year $2,000

Collections on annuity contract he purchased from Great Life Insurance $5,400

Social Security benefits $14,000

Rent income on townhouse $9,000

The cost of the annuity was $46,800, and Cecil was expected to receive a total of 260 monthly payments of $450. Cecil has received 22 payments through 2020. Cecil's 40-year-old daughter, Sarah C. Seymour, borrowed $60,000 from cecil on January 2, 2020. She used the money to start a new business. Cecil does not charge her interest because she could not afford to pay it, but he does expect to collect the principal eventually. Sarah is living with Cecil until the business becomes profitable. Except for housing, Sarah provides her own support from her business and $1,600 in dividends on stocks that she inherited from her mother. Other relevant information is presented below.

Expenses on rental townhouse: Utilities $2,800; Maintenance $1,000; Depreciation $2,000; Real estate taxes $750; Insurance $700

State income taxes paid $3,500

County personal property taxes paid $3,100

Payments on estimated 2020 Federal income taxes $5,900

Charitable contributions of cash to Alto Baptist Church $7,400

Federal interest rate 6%

Sales taxes paid $912

Compute Cecil's 2020 Federal income tax payable (or refund due).

Answer 1

Solution

The following are the Cecil C Seymur's Income Tax statement and Working notes.

Cecil C. Seymur's Federal Income Tax Statement
Particulors
Gross Income
Pension Received	39850
Interest Income	5500
Divident INCOME	2000
Annuity Income	3240
Social security Benefit	11900
Interest on Gift Loan	1600
Net Rental Income	1750
Gross Income		65840
Deduction from AG	0
AGI		65840
Less Personal Exemption	3950
Less Itemised Deductions	13000
Total Deduction		16950
Taxable Income		48890
Tax Liability	6676
Less estimated Tax payment	5900
Net Tax Payable or Refund		776

Working Note

1. Annuity Income Cost of Annuity $46800 Monthly Payment $450 Number of monthly payment $260 Exclusion % of annuity 40% Annuity received from Group Insurance (46800/450*260) Annual exclusion on Annuity (Annuity received "exclusion % - 5400*40%) Annuity payment included in gross income (5400-2160)- $5400 $2160 $3240 2. Amount of Social security benefit 14000*85% $11900 $9000 3. Net Rental Income from Town Rent income Utilities $2800 Maintenance $1000 Real estate tax $750 Insurance $700 Depreciation $2000 Net Rental Income 1750 4. Calculation of Tax liability Qualified Widow 10% upto 18150 15% - 18151 to 73800 (48890-18151)*15% 18150 *10% = 1815 Taxable income Tax Liability Add tax on dividend $4611 $6426 $250 (2000*5%0) Tax Liability - 6676 5. Cecil does not qualify for dependence because her daughter is independent.