Question

Imagine that you are preparing taxes for a local tax service provider. A married couple named Judy and Walter Townson have come to you to seeking assistance with their federal income taxes. During your meeting with the Townsons, you gather the following information:

• They are both 55 years of age.
• They have two daughters and one son. One daughter (age 25) is married with children. One daughter (age 20) is living at home and attending college. Their son (age 16) is a junior in high school.
• They are currently paying for their college-student daughter to attend school full time.
• Judy is employed as a teacher and makes $60,000 a year. She used $500 of her personal funds to purchase books and other supplies for her classroom.
• Walter is employed as a CPA and makes $100,000 a year.
• They provided you a 1099-INT which reported $4,500 in interest, of which $500 was savings bond interest.
• They provided you a 1099-DIV which reported $300 in dividends.
• They received a state tax refund last year of $385.
• They provided you a list of expenses including:
  • Doctor’s bills, $800
  • Prescriptions, $400
  • New glasses, $2,000
  • Dental bills, $560
  • Braces, $5,000
  • Property taxes for their two cars of $800, which included $50 in decal fees
  • Real estate taxes of $4,500
  • Mortgage interest of $12,000
  • Gifts to charities, $1,000
  • GoFundMe contribution to local family in need, $100
  • Tax preparation fees for last year’s taxes, $400

Consider the most beneficial way for Judy and Walter to file their federal income tax return. Prepare a brief written summary that addresses the following:

1. Estimated taxable income for Judy and Walter (please show computations).
2. Summary of tax return, including any suggestions or tax planning considerations.
3. Explain how you determined the filing status, dependents, and use of standard/itemized deduction.

Answer 1

Solution:

A. Estimated taxable income

Annual income of Juddy $60,000

Less: Expenses for purchase of books and other supplies ($500) $59,500

Annual income of Walter    $100,000

Add: Interest Income $4,500

Exempt interest on savings bonds    ( $500) $4,000

Dividend income is exempt -

Less: Doctors Bill ($800)

Prescriptions ($400)

New glasses ($2,000)

Dentist's Bill ($560)

Braces ($5,000)

Property Taxes on cars ($800)

Real estate taxes ($4,500)

Mortgage interest ($12,000)

Gift for charities ($1,000)

Tax preparation fees for last year ($400) $76,540

Total Taxable Income $136,040

Notes: No deduction is available for Gofundme to local family in need , same is included in income.

B. They should increase their investment in savings bonds for more exmption.

They should also increase investment in shares for exmption of dividends

They should need to contrybute  more often in recognized relief funds.

C.Determining Filing status means determination of tax rate on income, taxpayer generally choose for filing status which reduces his tax laibility and provides maximum deductions.

Determining Dependent Child - The child should be less than 19 years old at the end of the year in which tax needs to be paid.

Mostly Taxpayers prefer standard deduction / itemized deductions which results in lower tax liability on their part.

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