Question

Meredith Grey and Derek Shepherd had a lot going on in 2020. Working as doctors at Seattle Grace Hospital, the married couple earned $231,000 each in salary. The only other person in their household is one, adopted daughter, Zola Grey Shepherd, age 8.

At the beginning of the year, Meredith’s mother Ellis Grey passed away. From this, Meredith received $250,000 in inheritance and $100,000 from a lump sum payment of life insurance proceeds. Meredith made two different investments with the inheritance and life insurance proceeds. She invested $150,000 of the total $350,000 above in a portfolio of stocks and bonds (none of which were municipal bonds) to save for her and Derek’s future retirement. The portfolio of stocks and bonds increases in value by $15,000 over the year but Meredith and Derrick do not sell any of these investments during the year. Finally, Derek and Meredith received an award worth $25,000 based on medical research they had done during the year. They kept the award money (did not donate it) and used it in 2020 for personal expenditures. It required no additional service. At the end of the year, assume that Derek and Meredith did not have any itemized deductions, credits, or prepayments for the year. Based on the above information, determine the following:

1. What was the amount of realizable income for Meredith and Derek in 2020?
   (6 points)
   
2. What will be included in Meredith and Derek’s gross income for 2020 (i.e. what amount is recognizable)? (6 points)
   
3. What is the best filing status Derrick and Meredith can use (4 points)?
   
4. Regardless of your answer in a. – c., assume that Meredith and Derek’s total gross income for 2020 is $428,000 and they used Married filing jointly as their filing status. Use the individual tax formula and the appropriate Federal Tax Schedule and other values in Appendix D to calculate Meredith and Derek’s 2020 tax due at the end of the year. (6 points)
   

Answer 1

a) Amount of realizable income for Derrick & Meredith are: Total salary of both+award received for medical research.

i.e. 462000+25000 i.e. $ 487000

b) Derrick & meredith , both person salaries are included in the gross income plus the award money of $ 25000 received during the year are included in the gross income of the couple.

c) Best Filing status is Derrick & Meredith is married filing jointly.

d) Total gross income is $ 428000

standard deduction is $ 24400 since they are filing as a married couple filing jointly

taxable income = 428000-24400 = $ 403600

tax due = 32% FOR INCOMES ABOVE $326600

TAX DUE IS 32% OF 403600 i.e. $ 129152