Tim and Monica Nelson are married, file a joint return, and are your newest tax

Question

Tim and Monica Nelson are married, file a joint return, and are your newest tax clients.
They provide you with the following information relating to their 2015 tax return:
1. Tim works as a pediatrician for the county hospital. The W-2 form he received from
the hospital shows wages of $150,000 and state income tax withheld of $8,500.
2. Monica spends much of her time volunteering, but also works as a substitute teacher
for the local schools. During the year, she spent 900 hours volunteering. When she
doesn’t volunteer, she earns $8.00 per hour working as a substitute. The W-2 form she
received from the school district shows total wages of $3,888 and state income tax
withheld of $85.
3. On April 13, the couple paid $250 in state taxes with their 2014 state income tax
return. The Nelson’s state and local sales taxes in 2015 were $5,500.
4. On December 18, the Nelsons donated a small building to the Boy Scouts of America.
They purchased the building three years ago for $80,000. A professional appraiser
determined the fair market value of the home was $96,000 on December 12.
5. Tim and Monica both received corrective eye surgery, at a total cost of $3,000. They
also paid $1,900 in health insurance premiums.
6. On June 1, the couple bought a car for $30,000, paying $18,000 down and borrowing $12,000. They paid $750 total interest on the loan in 2015.
7. On June 10, the Nelsons took out a home equity loan of $20,000 to expand their
home. They paid a total of $850 interest with their monthly payments on the loan.
8. The Nelsons paid a total of $2,300 interest on their original home loan.
9. They sold stock in Cabinets, Inc. for $5,200, which they purchased for $7,900 in
March of the current year. They also sold stock in The Outdoor Corporation for
$12,500, which they purchased several years ago for $8,600.
10. Tim incurred the following expenses related to his profession, none of which were
reimbursed by his employer:
Item Amount
Subscriptions to medical journals $400
American Medical Association (AMA) annual membership fee 250
11. During the year, the couple paid their former tax advisor $700 to prepare their prior
year tax return.
12. The Nelsons do not have children, and they do not provide significant financial support to any family members.
Required: Compute the Nelson’s taxable income for 2015.

Explanation / Answer

Taxable income to be $100,377.

Their net income is comprised of their wages of $153,888 plus their net capital gains of $17,200 including the gain on the real estate they donated. Total is $171,088. Their itemized deductions are $63,311. This is the total of their state income tax, interest from their home loan, home equity loan, and $51,326 charitable donation of the real estate. The donation is limited to 30% of their AGI. The remainder is carried forward.

Their income is too high for them to deduct medical job expenses.

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