Question

Michelle J. and Fred M. Smith are married taxpayers who file a joint return. Their Social Security numbers are 123-45-6789 and 111-11-1112, respectively. Michelle’s birthday is September 21, 1971, and Fred’s is June 27, 1970. They live at 473 Revere Avenue, Stony Brook, 01850. Michelle is the office manager for Stony Brook Dental Clinic, 433 Broad Street, Stony Brook, NY 01850 (employer identification number 98-7654321). Fred is the manager of a Super Burgers fast-food outlet owned and operated by Plymouth Corporation, 1247 Central Avenue, Hauppauge, NY 11788 (employer identification number 11-1111111).


The following information is shown on their Wage and Tax Statements (Form W–2) for 2018.

Line	Description	Michelle	Fred
1	Wages, tips, other compensation	$58,000	$62,100
2	Federal income tax withheld	4,500	5,300
3	Social Security wages	58,000	62,100
4	Social Security tax withheld	3,596	3,850
5	Medicare wages and tips	58,000	62,100
6	Medicare tax withheld	841	900
15	State	New York	New York
16	State wages, tips, etc.	58,000	62,100
17	State income tax withheld	2,950	3,100

The Smiths provide over half of the support of their two children, Cynthia (born January 25, 1994, Social Security number 123-45-6788) and John (born February 7, 1998, Social Security number 123-45-6786). Both children are full-time students and live with the Smiths except when they are away at college. Cynthia earned $6,200 from a summer internship in 2018, and John earned $3,800 from a part-time job.


During 2018, the Smiths provided 60% of the total support of Fred’s widower father, Sam Smith (born March 6, 1942, Social Security number 123-45-6787). Sam lived alone and covered the rest of his support with his Social Security benefits. Sam died in November, and Fred, the beneficiary of a policy on Sam’s life, received life insurance proceeds of $1,600,000 on December 28.


The Smiths had the following expenses relating to their personal residence during 2018:

Property taxes	$5,000
Qualified interest on home mortgage (acquisition indebtedness)	8,700
Repairs to roof	5,750
Utilities	4,100
Fire and theft insurance	1,900
The Smiths had the following medical expenses for 2018:
Medical insurance premiums	$4,500
Doctor bill for Sam incurred in 2017 and not paid until 2018	7,600
Operation for Sam	8,500
Prescription medicines for Sam	900
Hospital expenses for Sam	3,500
Reimbursement from insurance company, received in 2018	3,600
The medical expenses for Sam represent most of the 60% that Fred contributed toward his father’s support. Other relevant information follows:

•                    When they filed their 2017 state return in 2018, the Smiths paid additional state income tax of $900.

•                    During 2018, Michelle and Fred attended a dinner dance sponsored by the Stony Brook Police Disability Association (a qualified charitable organization). The Smiths paid $300 for the tickets. The cost of comparable entertainment would normally be $50.

•                     The Smiths contributed $5,000 to Stony Brook Presbyterian Church and gave used clothing (cost of $1,200 and fair market value of $350) to the Salvation Army. All donations are supported by receipts, and the clothing is in very good condition.

•                     Via a crowdfunding site (gofundme.com), Michelle and Fred made a gift to a needy family who lost their home in a fire ($400). In addition, they made several cash gifts to homeless individuals downtown (estimatedto be $65).

•                     In 2018, the Smiths received interest income of $2,750, which was reported on a Form 1099–INT from Second National Bank, 125 Oak Street, Stony Brook, NY 01850 (Employer Identification Number 98-7654322).

•                     The home mortgage interest was reported on Form 1098 by Stony Brook Commercial Bank, P.O. Box 1000, Stony Brook, NY 01850 (Employer Identification Number 98-7654323). The mortgage (outstanding balance of $425,000 as of January 1, 2018) was taken out by the Smiths on May 1, 2014.

•                    Michelle’s employer requires that all employeeswear uniforms to work. During 2018, Michelle spent $850 on new uniforms and $566 on laundry charges.

•                     Fred paid $400 for an annual subscription to the Journal of Franchise Managementand $741 for annual membership dues to his professional association.

•                    Neither Michelle’s nor Fred’s employer reimburses for employee expenses.

•                     The Smiths do not keep the receipts for the sales taxes they paid and had no major purchases subject to sales tax.

•                     All members of the Smith family had health insurance coverage for all of 2018.

•                     This year the Smiths gave each of their children $2,000, which was then deposited into their Roth IRAs.

•                    Michelle and Fred paid no estimated Federal income tax. Neither Michelle nor Fred wants to designate $3 to the Presidential Election Campaign Fund.

REQUIRED: Tax Computation


Prepare their Federal and NYS tax returns. Compute net tax payable or refund due for Michelle and Fred Smith for 2018. If they have overpaid, they want the amount to be refunded to them. If you use tax forms for your computations, you will need Forms 1040 and Schedules A and B.


You must prepare Form 1040, Schedules A & B and any other appropriate forms and schedules.  You may use tax software such as ProConnect or TurboTax, or manually prepare their tax returns.

Prepare their Federal and NYS income tax returns. Assume they were NYS residents for the entire year

Answer 1