Question

Reba Dixon is a fifth-grade school teacher who earned a salary of $38,300 in 2018. She is 45 years old and has been divorced for four years. She receives $1,255 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,400 of rental payments from tenants and she incurred $19,656 of expenses associated with the rental.

Reba and her daughter Heather (20 years old at the end of the year) moved to Georgia in January of this year. Reba provides more than one-half of Heather’s support. They had been living in Colorado for the past 15 years, but ever since her divorce, Reba has been wanting to move back to Georgia to be closer to her family. Luckily, last December, a teaching position opened up and Reba and Heather decided to make the move. Reba paid a moving company $2,120 to move their personal belongings, and she and Heather spent two days driving the 1,448 miles to Georgia.

Reba rented a home in Georgia. Heather decided to continue living at home with her mom, but she started attending school full-time in January at a nearby university. She was awarded a $3,110 partial tuition scholarship this year, and Reba helped out by paying the remaining $500 tuition cost. If possible, Reba thought it would be best to claim the education credit for these expenses.

Reba wasn't sure if she would have enough items to help her benefit from itemizing on her tax return. However, she kept track of several expenses this year that she thought might qualify if she was able to itemize. Reba paid $5,910 in state income taxes and $12,610 in charitable contributions during the year. She also paid the following medical-related expenses for herself and Heather:

Insurance premiums	$	5,905
Medical care expenses	$	1,210
Prescription medicine	$	460
Nonprescription medicine	$	210
New contact lenses for Heather	$	310

Shortly after the move, Reba got distracted while driving and she ran into a street sign. The accident caused $1,010 in damage to the car and gave her whiplash. Because the repairs were less than her insurance deductible, she paid the entire cost of the repairs. Reba wasn’t able to work for two months after the accident. Fortunately, she received $2,110 from her disability insurance. Her employer, the Central Georgia School District, paid 60% of the premiums on the policy as a nontaxable fringe benefit and Reba paid the remaining 40% portion.

A few years ago, Reba acquired several investments with her portion of the divorce settlement. This year she reported the following income from her investments: $2,310 of interest income from corporate bonds and $1,610 interest income from the City of Denver municipal bonds. Overall, Reba’s stock portfolio appreciated by $12,110 but she did not sell any of her stocks.

Heather reported $6,420 of interest income from corporate bonds she received as gifts from her father over the last several years. This was Heather’s only source of income for the year.

Reba had $10,000 of federal income taxes withheld by her employer. Heather made $1,000 of estimated tax payments during the year. Reba did not make any estimated payments. Reba had qualifying insurance for purposes of the Affordable Care Act (ACA).

Required:

Is Reba allowed to file as a head of household or single?

Determine the amount of FICA taxes Reba was required to pay on her salary. (Round your final answer to the nearest whole dollar amount.)

Determine Heather’s federal income taxes due or payable. Use Tax Rate Schedule, Dividends and Capital Gains Tax Rates, Estates and Trusts for reference. (Round your intermediate computations and final answer to the nearest whole dollar amount.)

Answer 1

	Description	Amount
	Gross income:
	Salary	38300
	Alimony received (1255*12)	15060
	Rental receipts	50400
	Gift from mother	0
	Disability insurance payments (2110*60%)	1266
	Interest income from corporate bonds	2310
	Interest income from municipal bonds	0
1.	Gross income	107336
	Deductions for AGI:
	Expenses for rental property	19656
	Moving expenses (2120+(1448*0.18))	2381
2.	Total for AGI deductions	22037
3.	AGI	85299
	From AGI deductions:
	Medical expenses ((5905+1210+460+310)-(10%*85299))	0 (negative amount not possible)
	State income taxes	5910
	Charitable contributions	12610
	Casualty loss deduction ((1010-210)*-(3%*85299))	0
4.	Total itemized deductions	18520
5.	Standard deduction	18000 (Head of household status)
6.	Greater of itemized deductions or standard deduction	18520
7.	Taxable income	66779
8.	Tax on taxable income	9239 (5944+(22%*(66779-51800)))
9.	Credits	1000
10.	Tax prepayments	10000
	Tax refund	1761

Part 1

Reba is allowed to file as a head of household because she is divorced and single for a tax year. Moreover, Heather qualify as Reba’s dependent as she is her daughter, under age 24 years and a full-time student. Heather stays with Reba and she is unable to provide more than half of her own support.

Part 2

the amount of FICA taxes Reba was required to pay on her salary = $9239 (calculated above)

Part 3

Heather’s federal income taxes due = $1761 (calculated above)

Dear Student,

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