Question

Note: This problem is for the 2018 tax year.

Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2016. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. During 2018, he had the following receipts:

Salary				$ 80,000
Interest income—
Money market account at Omni Bank		$300
Savings account at Boone State Bank		1,100
City of Springfield general purpose bonds		3,000		4,400
Inheritance from Daniel				60,000
Life insurance proceeds				200,000
Amount from sale of St. Louis lot				80,000
Proceeds from estate sale				9,000
Federal income tax refund (for 2017 tax overpayment)				700

Logan inherited securities worth $60,000 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 purchased on May 2, 2013, for $85,000 and held as an investment. As the neighborhood has deteriorated, Logan decided to cut his losses and sold the lot on January 5, 2018, for $80,000. The estate sale consisted largely of items belonging to Sara and Daniel (e.g., camper, boat, furniture, and fishing and hunting equipment). Logan estimates that the property 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 following:

Medical expenses (including $10,500 for dental)				$11,500
Taxes—
State of Missouri income tax (includes withholdings during 2018)		$4,200
Property taxes on personal residence		4,500		8,700
Interest on home mortgage (Boone State Bank)				5,600
Contribution to church (paid pledges for 2018 and 2019)				4,800

Logan and his dependents are covered by his employer's health insurance policy for all of 2018. However, he is subject to a deductible, and dental care is not included. The $10,500 dental charge was for Helen's implants. Helen is Logan's widowed mother, 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, all of whom he supports, includes the following:

	Social Security Number	Birth Date
Logan Taylor (age 48)	123-45-6787	08/30/1970
Helen Taylor (age 70)	123-45-6780	01/13/1948
Asher Taylor (age 23)	123-45-6783	07/18/1995
Mia Taylor (age 22)	123-45-6784	02/16/1996

Helen receives a modest Social Security benefit. Asher, a son, is a full-time student in dental school and earns $4,500 as a part-time dental assistant. Mia, a daughter, does not work and is engaged to be married.

Federal income tax of $4,500 was withheld from Logan's wages.

Required:
Determine the Federal income tax for 2018 for Logan by providing the following information that be reported on Form 1040, Schedule A Schedule D, and Form 8849. Complete the tax advice letter.

Make realistic assumptions about any missing data.

If Logan has any overpayment on his income tax, he wants the refund sent to him.

Assume that the proper amounts of Social Security and Medicare taxes were withheld.

Enter all amounts as positive numbers.

If an amount box does not require an entry or the answer is zero, enter "0".

When computing the tax liability, do not round your immediate calculations. If required round your final answers to the nearest dollar.

2. Calculate taxable gross income.
$

3. Calculate the total adjustments for AGI.
$

4. Calculate adjusted gross income.
$

5. Calculate the greater of the standard deduction or itemized deductions.
$

6. Calculate total taxable income.
$

7. Calculate the income tax liability.
$

8. Calculate the total tax credits available.
$

9. Calculate total withholding and tax payments.
$

10. Calculate the amount overpaid (refund):
$

11. Calculate the amount of taxes owed:
$

Answer 1

Filing Status - Head of the household
Gross Income
Salary		80,000
Interest income—
Money market account at Omni Bank	300
Savings account at Boone State Bank	1,100
City of Springfield general purpose bonds	-	1,400
Inheritance from Daniel		-
Life insurance proceeds		-
Amount from sale of St. Louis lot	80,000
Cost	85,000
Capital Gains (Losses)	(5,000)	(3,000)
Proceeds from estate sale	9,000
Cost	9,000
Capital Gains (Losses)	-	-
Federal income tax refund (for 2017 tax overpayment)		700
Gross Income		79,100
Less: Deductions for AGI		-
Adjusted Gross Income		79,100
Less: Deductions from AGI
Medical expenses incurred	11,500
7.5% of AGI	5,933
Deduction allowed	5,568
Taxes paid - State of Missouri income tax (includes withholdings during 2018)	4,200
Taxes paid - Property taxes on personal residence	4,500
Interest on home mortgage (Boone State Bank)	5,600
Contribution to church (paid pledges for 2018 and 2019)	4,800
Total Itemised deductions		24,668
Less: Personal and Dependancy Exemptions
Personal exemption	4,050
Mother - Qualifying relative	4,050
Son - aged 23, full time student	-
Daughter - Aged 22	-
Less: Total exemptions		8,100
Taxable Income		46,333
Tax on taxable Income		8,833
Less: Federal Witholding		4,500
Tax Payable		4,333

Notes:

1.

Income Tax Brackets and Rates
Rate	For Heads of Households, Taxable Income Over	Tax Amount
12%	$13,600	1,632.00
22%	$51,800	7,201.15
24%	$82,500
32%	$157,500
Tax on Taxable income		8,833.15

2. Capital losses allowed only upto 3,000

3. Medical expenses deduction is allowed for amount paid in excess of 7.5% of AGI

4. Qualifying child exemption - not taken per the new amendments

5. Inheritance, life insurance proceeds and interest from municipal bonds are not taxable