Election Campaign I Fund All members of the latly of 2018. If an overpayment res

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Election Campaign I Fund All members of the latly of 2018. If an overpayment results, it is to be refunded to them. Tax Computation my 52 logan B. Taylor is a widower whose wife, Sara, died on June 6, 2016. He lives at 468t Decision MakingDogwood lane, Springfield, MO 65801. He is employed as a paralegal by a local law Communications fim. During 2018, he had the following receipts s 80,000 Money market account at Omni Bank Savings account at Boone State Bank 4400 3,000 City of Springfield general purpose bonds Inheritance from Daniel Life insurance proceeds Amount from sale of St. Louis lot Proceeds from estate sale Federal income tax refund (for 2017 tax overpaymenth 200,000 700 Logan inberited securities worth s60,000 from his uncle, Daniel, who died in 2018 Logan also was the designated beneficiary of an insurance policy on Daniel's life with a maturity value of $200,000. The lot in St. Louis was parchased on May 2 2013, for s85,000 and held as an investment As the neighborhood has deteriorated, Logan decided to cut his losses and sold the lot on January 5, 2018for S80,0xnhe estate sale consisted largely of items belonging to Sara and Daniel te.g., camper boat, furniture, and fishing and hunting equipment). Logan estimates that the prop erty sold originally cost at least twice the $9,000 he received and has declined or stayed the same in value since Sara and Daniel died. Logan's expenditures for 2018 include the follow Medical espeses lincluding $10.500 for derital $11,500 54,200 State of Missouri income tax lincludes withholdings during 2018) Property taxes on personal residence 4.500 ,700 5,600 Interest on home mortgage (Boone State Bankl to church (paid pledges for 2018 and 2019) Logan and his dependents are covered by his employer's health insurance pol- icy for all of 2018. However, he is subject to a deductible, and dental care is not 3-55 CHAPTER 3 Formula and Tax Deermnation An Overview of Property Transactions included. The $10,500 dental charge was for Helen's implants. Helen is Logan's er, who lives with him (see below). Logan normally pledges $2,400 $200 per month) each year to his church. On December 5, 2018, upon the advice of his pastor, he prepaid his pledge for 2019 Logan's household, ail of whom he suppots, includes the following: Birth Date 08/30/1970 01/13/1948 07/18/199S 02/161996 Social Security Number Logan Taylor lage 48) Helen Taylor lage 70 Asher Taylor lage 23) 23-45-6780 123 45-6783 123-45-6784 Mia Taylor (age 22) Helen receives a modest Social Security benefit. Asher, a son, is a full-time student in dental school and earms $4.500 as a part-time dental assistant. Mia, a daughter does not work and is engaged to be married. Part 1-Tax Compridation Lsing the appropriate forms and schedules, compute Logan's income tax for 2018 Federal income tax of $4,50 was withheld from his wages. If Logan has any over payment on his income tax, he wants the refund sent to him. Assume that the amounts of Social Security and Medicare taxes were withheld. Logan does not want bute to the Presidential Election Campaign Fund Part 2-Follou-tp Adevice in early 2019, the following take place Helen decides that she wants to live with one of her daughters and moves to Arizona Asher graduates from dental school and joins an existing practice in St. Louis. Mia marries, and she and her husband move in with his parents. Using the insurance proceeds he received on Daniel's death, Logan pays off the mortgage on his personal residence Logan believes that these events may have an effect on his tax position for 2019. Write a letter to Logan explaining in general terms the changes that will occur Therefore, he requests your advice for tax purposes. Assume that Logan's salary and other factors not mentioned (e.g. property and state income taxes) will remain the same. Use the 2018 Tax Rate Sched ules and standard deduction amounts in projecting Logan's tax for 2019 Research Problems Note: Solutions to the Research Problems can be prepared by using the Thomson H Reuters Checkpoint online tax research database, which accompanies this CHE textbook. Solutions can also be prenared hiu uri THOMSON REUTERS accompanies this CHECKPOINT

Explanation / Answer

Part 1—Tax Computation

Salary $80,000

Interest income—

Omni Bank $ 300

Boone State Bank 1,100

City of Springfield bonds (Note 1)    –0–   1,400

Inheritance (Note 2)       –0–

Life insurance proceeds (Note 3)       –0–

Sale of lot held as an investment (Note 4) (3,000)

Estate sale (Note 5)       –0–

Federal income tax refund (Note 6)       –0–

Adjusted gross income (AGI) $78,400

Itemized deductions from AGI—

Medical [$11,500 (10% × $78,400)] $3,660

Taxes—

State income tax $4,200

Property tax   4,500   8,700

Interest on home mortgage   4,600

Charitable contributions (Note 7)      4,800 (21,760)

Personal and dependency exemptions (4 × $3,950) (Note 8) (15,800)

Taxable income $40,840

Tax from 2014 Tax Table (Note 9)   $5,366

Less: Withholdings   (4,500)

Net tax payable (or refund due)   $ 866

Notes

(1) Interest on state and local bonds is excluded from gross income. See Exhibit 3.1 in the text.

(2) Inheritances are excluded from gross income. See Exhibit 3.1 in the text.

(3) Life insurance proceeds are nontaxable. See Exhibit 3.1 in the text.

(4) Logan has a realized long-term capital loss of $5,000 [$80,000 (selling price) $85,000 (cost basis)] from the sale of the lot. Absent any offsetting capital gains, however, he can deduct only $3,000 against ordinary income. The $2,000 unabsorbed capital loss can be carried over to 2015. See p. 3-31 in the text.

(5) The basis of the property inherited is its fair market value on the date of the decedent's death. The basis of any other property that was sold is its cost (see Chapter 14 in the text). Consequently, the estate sale most likely resulted in a realized loss. Because the loss is personal, it cannot be recognized. Thus, the estate sale results in no income tax consequences.

(6) A Federal income tax refund is a return of a nondeductible expenditure and, therefore, is nontaxable.

(7) Charitable contributions are deductible in the year paid ($2,400 + $2,400 = $4,800).

Therefore, the year for which they were pledged is of no import.

(8) Helen and Mia meet the qualifying relative tests. Asher is a qualifying child (under age 24 and a full-time student), so he is not subject to the gross income test.

(9) Logan is a surviving spouse for filing purposes.

Part 2—Follow-Up Advice

Hoffman, Maloney, Raabe, & Young, CPAs

5191 Natorp Boulevard

Mason, OH 45040

February 28, 2018

Logan B. Taylor

4680 Dogwood Lane

Springfield, MO 65801

Dear Mr. Taylor:

In response to your inquiry regarding the Federal income tax situation for 2018, the news is not good. The following developments will cause an increase in your taxes:

Based on last year's data, an estimate of your Federal income tax liability for 2018 is $12,719* (or $7,353 more than the $5,366 for 2017).

If I can be of further assistance to you in this matter, please do not hesitate to contact me.

Sincerely,

Charles Spain

Partner

*$81,400 (AGI without $3,000 capital loss deduction $2,000 (capital loss carryover) = $79,400 (AGI) $7,700 (itemized deductions; greater than the $6,300 standard deduction) $4,000 (personal exemption) = $67,700 (taxable income). Tax is $12,718.75 [$5,156.25 + 25%($67,700 $37,450)] under the 2018 Tax Rate Schedules for single taxpayers.

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