Question

Keith Hamilton is employed as an airline pilot for Flyby Airlines in Las Vegas, Nevada. Jennifer is employed as a teacher’s assistant at Small World Elementary School, in Henderson, Nevada. Keith and Jennifer live in a home they purchased this year. Keith and Jennifer have three children who lived with them all year, Joshua (17), Danielle (14), and Sara (10). Keith and Jennifer provided the following personal information: Keith and Jennifer do not want to contribute to the presidential election campaign. Keith and Jennifer do not claim itemized deductions. Keith and Jennifer live at 3678 Blue Sky Drive, Henderson, Nevada 89052. Keith’s birthday is 10/12/1970 and his Social Security number is 535-22-4466. Jennifer’s birthday is 7/16/1973 and her Social Security number is 535-44-2255. Joshua’s birthday is 6/30/1998 and his Social Security number is 454-54-5454. Danielle’s birthday is 8/12/2001 and her Social Security number is 343-43-4343. Sara’s birthday is 5/13/2005 and her Social Security number is 232-32-3232. Page C-1 Keith received the following Form W-2 for 2015 from Flyby Airlines.

During 2015, Keith and Jennifer received $550 in interest from Las Vegas municipal bonds, $1,070 interest from U.S. Treasury bonds, and $65 from their savings account at SCD Credit Union. Keith and Jennifer are joint owners of the Las Vegas city bonds and the U.S. Treasury bonds. They have a joint savings account at SCD Credit Union. Page C-2 On January 21, 2015, Jennifer was involved in a car accident. Because the other driver was at fault, the other driver’s insurance company paid Jennifer $1,350 for medical expenses relating to her injuries from the accident and $300 for emotional distress from the accident. She received payment on March 15, 2015. Keith’s father died on November 15, 2014. Keith received a $100,000 death benefit from his father’s life insurance policy on February 8, 2015. On February 15, 2015, Keith hurt his arm on a family skiing trip in Utah and was unable to fly for two weeks. He received $4,000 for disability pay from his disability insurance policy. He received the check on March 2, 2015. Flyby Airlines paid $600 in premiums on this policy during 2015. The disability insurance policy premiums are paid for by Flyby Airlines as a fully taxable fringe benefit to Keith (the premiums paid on his behalf are included in Keith’s compensation amount on his W-2). Jennifer’s grandmother died on March 10, 2015, leaving Jennifer with an inheritance of $30,000. (She received the inheritance on May 12, 2015.) Flyby Airlines had space available on its Long Island, New York, flight and provided Keith, Jennifer, and their three children with free flights so they could attend the funeral. The value of the ticket for each passenger was $600. On April 1, 2015, Jennifer slipped in the Small World Elementary lunchroom and injured her back. Jennifer received $1,200 in worker’s compensation benefits because her work-related injury caused her to miss two weeks of work. She also received a $2,645 reimbursement for medical expenses from the health insurance company. Small World Elementary pays the premiums for Jennifer’s health insurance policy as a nontaxable fringe benefit. On May 17, 2015, Keith and Jennifer received a federal income tax refund of $975 from their 2014 federal income tax return. On June 5, 2015, Keith and Jennifer sold their home in Henderson, Nevada, for $510,000 (net of commissions). Keith and Jennifer purchased the home 11 years ago for $470,000. On July 12, 2015, they bought a new home for $675,000. On July 25, 2015, Keith’s aunt Beatrice gave Keith $18,000 because she wanted to let everyone know that Keith is her favorite nephew. On September 29, 2015, Jennifer won an iPad valued at $500 in a raffle at the annual fair held at Joshua’s high school. Keith and Jennifer have qualifying insurance for purposes of the the Affordable Care Act (ACA).

What would line 42 (exemptions) be on the Form 1040? Where do I record retirement contributions from W-2? Thanks!

Answer 1

Please note that proceeds from a third party insurance in case of a car accident is taxable in some ways. Here, Jennifer got involved in a car accident and got compensation in the way of medical bills and emotional distress caused out of this accident. Therefore, only the compensation for medical bills is a taxable income but the compensation for emotional distress is exempt.

If Jennifer's father took out a life insurance policy and on the event of demise of the insured and the proceeds forwarded to Jennifer, it is not taxable in Jennifer's hands and there is no requirement to report them. But in case of receipt of an interest therefrom these becomes taxable.

Disability insurance policy maintained by the employer is to be included as fringe benefits and hence becomes taxable. Any proceedsarising out of this policy also becomes taxable.

In case of an inheritance, we have to look firstly whether the individual has sold the proeprty or not and before that determination of the taxable basis of the property is necessary. Here Jennifer got an inherited property from her grandmother worth of $30000. Fair market value of the property stands to $30000 and she did not disposed of this causing her any taxable capital gain. So, there's no taxable event tht follows.

Employer provided free flight tickets to Keith and his family all comes up under fringe benefits and hence taxable. Here the value of taxable benefits is going to be $600 x 5 persons = $3000

If an individual gets benefits from Workmen's compensation benefits under the act in case of disability these should not come under the taxable benefits. Besides, medical reimbursements received from an insurance policy for which the employer pays premiums as non-fringe benefits, the proceeds are exempted from taxation.

Since the property was held for more than a year by Keith and Jennifer, any gain arising out of disposal of the property brings capital gain. Here, the property was originally purchased for $470000. At the time of disposal the proceeds net of commission comes to $510000. So, the capital gain arising out of disposal: $510000 - $470000 = $40000

Retirement contributions from W2 can be recorded in Form 8853 and Form 8889.