Question

Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 2013. Alfred and Beulah will file a joint return for 2015. Alfred's Social Security number is 111-11-1112. Beulah's Social Security number is 123-45-6789, and she adopted "Old" as her married name. They live at 211 Brickstone Drive, Atlanta, GA 30304.

Alfred was divorced from Sarah Old in March 2013. Under the divorce agreement, Alfred is to pay Sarah $1,250 per month for the next 10 years or until Sarah's death, whichever occurs first. Alfred pays Sarah $15,000 in 2015. In addition, in January 2015, Alfred pays Sarah $50,000, which is designated as being for her share of the marital property. Also, Alfred is responsible for all prior years' income taxes. Sarah's Social Security number is 123-45-6788.

Alfred's salary for 2015 is $150,000, and his employer, Cherry, Inc. (Federal I.D. No. 98-7654321), provides him with group term life insurance equal to twice his annual salary. His employer withheld $24,900 for Federal income taxes and $8,000 for state income taxes. The proper amounts were withheld for FICA taxes.

Beulah recently graduated from law school and is employed by Legal Aid Society, Inc. (Federal I.D. No. 11-1111111), as a public defender. She receives a salary of $40,000 in 2015. Her employer withheld $7,500 for Federal income taxes and $2,400 for state income taxes. The proper amounts were withheld for FICA taxes.

Beulah has $2,500 in qualified dividends on Yellow Corporation stock she inherited. Alfred and Beulah receive a $1,900 refund on their 2014 state income taxes. They itemized deductions on their 2014 Federal income tax return (total of $15,000). Alfred and Beulah pay $4,500 interest and $1,450 property taxes on their personal residence in 2015. Their charitable contributions total $2,400 (all to their church). They paid sales taxes of $1,400, for which they maintain the receipts. Both spouses had health insurance for all months of 2015 and do not want to contribute to the Presidential Election Campaign.

Required:

Compute the Olds' net tax payable (or refund due) for 2015. Use Form 1040 and Schedule A, Schedule B and the Qualified Dividends and Capital Gain Tax Worksheet to complete this tax return.

It may be necessary to complete the tax schedules before completing Form 1040.

Enter all amounts as positive numbers.

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

Make realistic assumptions about any missing data.

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

2015 Tax Rate Schedules
Single—Schedule X											Head of household—Schedule Z
If taxable income is: Over—		But not over—		The tax is:				of the amount over—			If taxable income is: Over—		But not over—		The tax is:				of the amount over—
$0		$9,225		. . . . . .		10%		$0			$0		$13,150		. . . . . .		10%		$0
9,225		37,450		$922.50	+	15%		9,225			13,150		50,200		$1,315.00	+	15%		13,150
37,450		90,750		5,156.25	+	25%		37,450			50,200		129,600		6,872.50	+	25%		50,200
90,750		189,300		18,481.25	+	28%		90,750			129,600		209,850		26,722.50	+	28%		129,600
189,300		411,500		46,075.25	+	33%		189,300			209,850		411,500		49,192.50	+	33%		209,850
411,500		413,200		119,401.25	+	35%		411,500			411,500		439,000		115,737.00	+	35%		411,500
413,200		. . . . . .		119,996.25	+	39.6%		413,200			439,000		. . . . . .		125,362.00	+	39.6%		439,000
Married filing jointly or Qualifying widow(er)—Schedule Y-1											Married filing separately—Schedule Y-2
If taxable income is: Over—		But not over—		The tax is:				of the amount over—			If taxable income is: Over—		But not over—		The tax is:				of the amount over—
$0		$18,450		. . . . . .		10%		$0			$0		$9,225		. . . . . .		10%		$0
18,450		74,900		$1,845.00	+	15%		18,450			9,225		37,450		$922.50	+	15%		9,225
74,900		151,200		10,312.50	+	25%		74,900			37,450		75,600		5,156.25	+	25%		37,450
151,200		230,450		29,387.50	+	28%		151,200			75,600		115,225		14,693.75	+	28%		75,600
230,450		411,500		51,577.50	+	33%		230,450			115,225		205,750		25,788.75	+	33%		115,225
411,500		464,850		111,324.00	+	35%		411,500			205,750		232,425		55,662.00	+	35%		205,750
464,850		. . . . . .		129,996.50	+	39.6%		464,850			232,425		. . . . . .		64,998.25	+	39.6%		232,425

Answer 1

Solution:

Calculation of the Olds' net tax payable (or refund due) for 2015:

Particulars	Amount	Amount	Explanation
Gross Income:
Salary	$190,000		($150,000 + $40,000)
Group Term life Insurance	$300		Note 1
Dividend Income	$2,500
State Tax Return	$1,900		Note 2
Gross Income		$194,700
Less: For AGI Deduction
Alimony Paid		($15,000)	Note 3
Adjusted Gross Income (AGI)		$179,700
Less: From AGI Deduction
Personal and Dependancy Excemption Deduction	($7,800)		Note 4
Itemized Deductions	($18,750)		Note 5
Total from AGI Deductions		$26,550
Taxable Income		$153,150
Tax Liability		$29,625	Note 6
Less: Tax Withheld		($32,400)	Note 7
Refund Due to 2015		($2,775)

Note: 1

Note: 2

Under the Section 111 tax benefit rule, Alfred and Beulah must include the $1,900 state tax refund in their gross income. They received a tax benefit from the deduction in 2015.

Note: 3

The $15,000 is deductible Amount which is Paid to Sarah (Old Wife) by Alfred and is Deducted as Alimony Paid. The $50,000 payment is a property settlement and is not deductible by Alfred.

Note: 4

Note: 5

Particulars	Amount	Amount
State Income taxes ($8,000 + $2,400)	$10,400
Home mortgage Interest	$4,500
Real Estate Taxes	$1,450
Cash Contributions	$2,400
Itemized Deductions		$18,750

Note: 6

Note: 7