Question

Note: This problem is for the 2018 tax year 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, while Wanda is employed part-time as a paralegal for a law firm. During 2018, the Deans had the following receipts: Salaries ($60,000 for Lance, $41,000 for Wanda) Interest income City of Albuquerque general purpose bonds $101,000 $1,000 1,100 Ford Motor company bonds 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 Lottery winnings Federal income tax refund (for tax year 2017) 90,000 600 400 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. As the driver was clearly at fault, the owner of In July, while going to lunch in downtown Santa Fe, Wanda was injured by a tour bus. As 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 2018: Medical expenses (not covered by insurance) $7,200 Taxes $3,600 Property taxes on personal residence State of New Mexico income tax (includes amount withheld 4,200 from wages during 2018) 7,800 Interest on home mortgage (First National Bank) 6,000 Charitable contributions 3,600 Life insurance premiums (policy on Lance's life) Contribution to traditional IRA (on Wanda's behalf) Traffic fines 1,200 5,000 300 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) 12/16/1976 123-45-6786 Wanda Dean (age 40) 123-45-6787 08/08/1978 10/09/1999 Penny Allen (age 19) 123-45-6788 Kyle Allen (age 16) 123-45-6789 05/03/2002 Wayne Boyle (age 75) 123-45-6785 06/15/1943 Penny graduated from high school on May 9, 2018, and is undecided about college. During 2018, 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 January 20, 2018. For the past few years, Wayne qualified as a dependent of the Deans. Federal income tax withheld is $4,200 (Lance) and $2,100 (Wanda). The proper amount of Social Security and Medicare tax was withheld. Required: Determine the Federal income tax for 2018 for the Deans on a joint return by providing the following information that would appear on Form 1040 and Schedule A. They do not want to contribute to the Presidential Election Campaign Fund. All members of the family had health care coverage for all of 2018. If an overpayment results, it is to be refunded to them. Make realistic assumptions about any missing data. Enter all amounts as positive numbers. If an amount box does not require an entry or the answer is zero, enter "O" When computing the tax liability, do not round your immediate calculations. If required round your final answers to the nearest dollar 8. Calculate the total tax credits available. 4,000 X 9 Calculate total withholding and tax payments 8,144 X 10. Calculate the amount overpaid (refund): 603 X

Answer 1

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Solution:

Lance H. and Wanda B. Dean are married now,John Allen and Wanda B are married previously now divorced.

Penny and Kyle are two child of Wanda B and john Allen but after divorced custody of child with Wanda B.

Salaries. = 101000

Interest(after tds) = 1550

Dividend(after tds) = 950

Gift from parents. = exempt

Compensation from road

Runner company. = 90000

Lottery( after 30% t d s) = 420

It refund. =400

Total. =194320

Deduction:

Interest on home mortgage. =(6000)

Chruch pledge. =(3600)

Life insurance premium. =(1200)

Contribution to ira. =(5000)

Contribution to reelection fund=(500)

Net income. =178020

Note:

• withheld tax should be deducted from tax payable determind.
• penny income from her ability so it should not be clubbed with her parents income.

1040 (99) Department of the Treasury-Intemal Revenue Service 2016 U.S. Individual Income Tax Return OMB No. 1545-0074 IRS Use Only-D not write or staple in this space. See separate instructions For the vear Jan, 1-Dec. 31, 2016, or other tax year beginning 2016, ending 20 Your first name and initial Last name Your social security number 1 2 3 4 5 6 7 8 6 Dean ance H Spouse's social security number f a joint retum, spouse's first name and initial Last name 1 2 34 5 67 8 7 AMake suro the SSN(s) abovo Wanda B Dean Home address (number and street), If vou have a P.O, box, see instructions. Apt. no. and on line 6c are correct. 431 Yucca Drive, Santa Fe, NM 87501 City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below (see instructions). Presidential Election Campaign Check here fyou, or your spouse if fing Santa Fe Foreign country name Foreign postalcodeny, want $3 to go to this fund. Chacking Foreign province/state/county You Spouse refund. New Mexico 87501 New Mexic 1 Single Head of household (with qualifying person). (See instructions.) If 4 Filing Status 2 Married filing jointly (even if only one had income) the qualifying person is a child but not your dopendent, ontor this Check only one child's name here. Married filing separately. Enter spouse's SSN above and full name here. 3 Qualifying widow(er) with dependent child Ox 5 Boxos checked on 6a and 6b Yourself. If someone can claim you as a dependent, do not check box 6a 6a Exemptions Spouse On ehidren livod with you (4)it child under age 17 qualitying for child tax credit - ... Dependents: ) First name oy Allen шу Denendent's social security number relationship to you ctions) Last name (see you due to divorce 1 2 34 5 6 7 88 Children 1 2 314 56 7 8 9 1 2 34 56 7 8 5 eaeinstructions) more than four Kyle Allen Children dependents, see nstructions and Dependents on 6c not entered above Father Wayne Boyle check here Add numbers on lines above Total number of exemptions claimed ... . .. 7 7 Wages, salaries, tips, etc. Attach Form(s) W-2 101000 Income 8a Taxable interest, Attach Schedule B if required 2500 8a Tax-exempt interest. Do not include on line 8a 8ь Attach Form(s) w-2 here. Also attach Forms 9a Ordinary dividends. Attach Schedule B if required 9a Qualified dividends 9b -2G and 10 Taxable refunds, credits, or offsets of state and local income taxes. 10 400 1099-R if tax Alimony received.. ..- 11 11 was withheld. 12 Business income or (loss). Attach Schedule C or C-EZ 12 13 Capital gain or (loss). Attach Schedule D if required. If not required, check here 13 f you did not 14 Other gains or (losses). Attach Form 4797 14 e instructions. IRA distributions 15a b Taxable amount b Taxable amount 15a 15b Pensions and annuities 16a 16a 16b 17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17 -6000 Farm income or (loss), Attach Schedule F 18 18 Unemployment compensation 20a 19 19 Social security benefits b Taxable amount 20b 20a 21 Other income. List type and amount Combine the amounts in the far right column for lines 7 through 21. This is your total income 21 99100 22 22 197000 Educator expenses 23 23 Adjusted Gross Income 24 Certain business expenses fee-basis government officials. Attach Form 2106 or 2106-EZ reservists, performing artists, and 24 25 Health savings account deduction. Attach Form 8889 25 26 Moving expenses. Attach Form 3903 Deductible part of self-employment tax. Attach Schedule SE 26 27 27 28 Self-employed SEP, SIMPLE, and qualifled plans 28 29 Self-employed health insurance deduction 29 30 Penalty on early withdrawal of savings 30 31a Alin Re 31a y p IRA deduction. . 32 32 33 Student loan interest deduction 33 34 Tuition and fees. Attach Form 8917 34 35 Domestic production activities deduction. Attach Form 8903 35 зе Add lines 23 through 35 36 37 Subtract line 36 from line 22. This i your adjusted gross income 37 197000

38 Amount from line 37 (adjusted gross income) Check You were bom before January 2, 1952, 197000 38 Blind. Total boxes 39a Tax and Spouse was bom before January 2, 1952 f your spouse itemizes on a separate retun or you were a dual-status allen, check here39b Blind. checked 39a if: Credits b 40 40 Itemized deductions (from Schedule A) or your standard deduction (see left margin) Standard Deduction for- People who check any box on line 39a or 39b or who can be claimed as a dependent, see instructions. All others: Single or Married filing separately, $6,300 Married filing jointly or Qualifying widowler), $12,600 10300 41 Subtract line 40 from line 38 41 186700 42 Exemptions. I ine 38 is $155,650 or less, multiply $4,050 by the number on line 6d. Otherwise, see instructions Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter-0- Tax (see instructions). Check if any from: a Form(s) 8814 bForm 4972 c 42 43 43 186700 39262 44 44 45 Alternative minimum tax (see instructions). Attach Form 6251 45 46 Excess advance premium tax credit repayment. Attach Form 8962 46 47 Add lines 44, 45, and 46 47 Forelgn tax credit. Attach Form 1116 if required 48 48 49 Credit for child and dependent care expenses. Attach Fom 2441 49 50 Education credits from Form 8863, lIne 19 50 51 Retirement savings contributions credit. Attach Form 8880 Child tax credit. Attach Schedule 8812, if required 51 52 52 53 Residential energy credits. Attach Form 5695 53 Other credits from Form: a3800 b 8801 54 C 54 Head of household, $9,300 c 55 Add lines 48 through 54. These are your total credits Subtract line 55 from line 47, If line 55 is more than line 47, enter -0- Self-employment tax. Attach Schedule SE Unreported social security and Medicare tax from Form: a4137 55 56 56 39262 57 57 b 8919 58 58 Other Taxes 59 Additional tax on IRAS, other qualified retirement plans, etc. Attach Form 5329 if required 60a Household employment taxes from Schedule H b First-time homebuyer credit repayment. Attach Form 5405 if required Health care: individual responsibility (see instructions) Full-year coverage Taxes from: aForm 8959 bForm 8960 cInstructions; enter code(s) Add lines 56 through 62. This is your total tax 59 60a 60b 61 61 62 62 39262 63 63 8300 Payments 64 Federal income tax withheld from Forms W-2 and 1099 64 65 65 2016 estimated tax payments and amount applied from 2015 retun If you have a qualifying child, attach Schedule EIC. Earned income credit (EIC) 66a 66a 66b Nontaxable combat pay election b 67 Additional child tax credit. Attach Schedule 8812 67 68 68 American opportunity credit from Form 8863, line 8 Net premium tax credit. Attach Form 8962 69 69 70 Amount paid with request for extension to file 70 71 Excess social security and tier 1 RRTA tax withheld 71 72 Credit for federal tax on fuels. Attach Form 4136 72 Credits from Form: a2439 b Resarved 8885 d Add lines 64, 65, 66a, and 67 through 73. These are your total payments 73 73 74 74 8300 Refund 30962 75 If line 74 is more than line 63, subtract line 63 from line 74. This is the amount you overpaid 75 76a Amount of line 75 you want refunded to you. If Form 888s is attached, check here 76a b Routing number dAccount number Amount of line 75 you want applied to your 2017 estimated tax 77 Amount you owe. Subtract line 74 from line 63. For details on how to pay, see instructions 79 Estimated tax penalty (see instructions) Do you want to allow another person to discuss this return with the IRS (see instructions)? Type:CheckingSavings Direct deposit? Seo instructions 77 Amount 78 78 You Owe Third Party Designee Sign Yes. Complete below. No Designee's name Phone Personal identification number (PIN) no. Under penalties of perjury, I declare that I have examined this raturn and accompanying schedules and statoments, and to the best of my knowledga and belief, they are true, corect, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledga. Your signature Here Your occupation Date Daytime phone number Joint return? Se0 instructions. Keep a copy for your records Spouse's signature. If a joint retum, both must sign. Date Spouse's occupation If the IRS sent you an Identity Protection PIN, anter here (see inst) Print/Type preparer's name Preparer's signature Date PTIN Check if self-employed Paid Preparer Use Only Firm's name Firm's EIN Firm's addren0 Phone no. T9