52. Comprehensive Problem (Tax Return Problem). Mr. and Mrs. Sam Morris retired

Question

52. Comprehensive Problem (Tax Return Problem).

Mr. and Mrs. Sam Morris retired on February 10, 2018, and call you in for tax advice. Both Sam and his wife Sarah have worked for many years. Sam is 65 years of age and his wife is 63.

Facts:

Dependent child: Age 21

Social Security Benefits $9,900

Salaries: Sam (January 1—February 10) $7,000

Sarah (January 1—February 10) $5,500

Interest Income:

Port Authority of N.Y. Bonds $300

Interest from Bank Deposits $11,100

Corporate Bonds $900

Highway Bonds of Ohio $100

Dividend Income:

Microsoft Common Stock $4,000

General Electric Common Stock $2,000

AGA Ltd. of England $1,000

Net Rental Income $4,000

One of their tenants moved out on July 14, 2018, and Sam determines that they had damaged the stove, and therefore returned only $50 of their $150 security deposit.

The Morrises’ daughter borrowed $10,000 two years ago to purchase a new automobile. She has made payments to her parents and on September 1, 2018, only $2,500 was still outstanding on the loan. On their daughter’s birthday, they told her she no longer had to make payments.

Sam was Vice President of a very large corporation. As part of his fringe benefit package, the corporation purchased for him $50,000 of group-term life insurance. The corporation continues to pay for his life insurance even after retirement.

The Morrises’ three children gave their parents a gala retirement party. Many friends and relatives were invited. Gifts valued at over $1,000 were received by the couple.

In October, Mrs. Morris entered a contest being run by a local bank. She submitted drawings for a bank logo. Her drawing was selected and she received $500.

Many years ago, Sam purchased an annuity policy for $9,000. Starting on March 3, 2018, he began receiving lifelong monthly payments of $60.

The Morrises’ 21-year-old daughter is in college. She worked during the summer and earned $2,500. Interest on her savings accounts amounted to $500. Her parents paid for the college tuition of $4,000.

The Morrises have itemized deductions of $20,000.

Determine the Morrises’ taxable income for 2018

NOTE: *TAX YEAR 2018*

Explanation / Answer

ANSWER:

Here we have to determine the morrie's taxable income for 2018,

so we have to construct the spread sheet by using the given values in the problem,

Add the above all information,

=12,500+12,400+4,000+100+1000+500+2500+540=$33,540

Income from salary Sam salary+Sarah salary=7000+5500=$12,500 $12,500 Income from interest on bonds Add all the given bonds+interest from bank deposite=300+900+11,100+100=$12400 $12,400 Income from rent $4,000 Security amount not refunded Security deposite-returned amount=150-50=$100 $100 Gift received $1,000 Award received $500 Annuity received (60*9000)/1000=$540 $540 Daughter income $2,500 Total income

Add the above all information,

=12,500+12,400+4,000+100+1000+500+2500+540=$33,540

$33,540 Deductions $20,000 Taxable income Total income-deductions=33,540-20,000=$13,540 $13,540

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