Question

Bert and Brenda Longfelt support in nursing homes both Bert's parents and Barbara's parents in 2016. Bert's parents are 70 and 68 years of age respectively and have no income except for the $3,600 in Social Security they receive annually. Barbara's parents, both 72 years of age, have the following sources of income:

Social Security $9,800

Interest Income $2,600

Dividend Income $900

Bert's annual salary is $45,000 and his wife's annual salary is $55,000.

They have two small children who live at home. Also, they own an apartment house from which they derive $6,000 net rental income. Two items from their rental property confused them so they did not include them in their rental income:

Security deposits received and to be used against final month's rent $500

Two tenants paid rent in advance in December 2016. The rent was due January 1, 2017 $600

Barbara owned stock prior to her marriage to Bert and received the following cash dividends:

General Corp. nonqualified common stock dividend (US Corporation) $300

Live Forever Life Insurance Co. (dividends on life insurance policy) $100

Bert and Barbara have several sources of interest income:

Interest income from savings accounts $850

Interest income from State of Tennessee Highway Bonds $400

Barbara entered the local area bake-off, won first place for her cherry pie, and received $1,000 cash prize

Bert, who is an accountant, made an arrangement with Harold the dentist. Bert would do Harold's tax work if Harold would take care of Bert and his family's dental work. During the year, Bert extimated that the value of his services to Harold was $500 and that Harold gave Bert and his family $600 worth of dental services. In December, Bert did a consulting assignment on a weekend and received $700. No social Security or taxes were withheld.

During the year, they had $15,000 withheld for federal taxes.

During 2016, Bert and Barbara have $14,000 of itemized deductions. Compute Bert and Barbara's net tax due, including self-employment tax. Assume dividends are taxed at ordinary rates.

Answer 1

Statement showing taxable income and total taxes of Bert and Barbara Longfelt Particulars Amount Salary Bert                                                                                                     $45,000

Barbara                                                                                                                        $55,000

Rental Income                                                                                                             $7,100

Dividend Income                                                                                                         $300

Interest Income                                                                                                             $1,250

Cash Prize                                                                                                                    $1,000

Business Income                                                                                                           $1,200

Total Income                                                                                                                 $110,850

less-Deductible self-employment tax                                                                            $(85)

Adjusted Gross Income                                                                                                 $110,765

less- Itemized Deduction                                                                                              $(14,000)

        Exemptions                                                                                                          $(32,000)

Taxable Income                                                                                                            $64,765

Tax                                                                                                                                 $8,794

Self-Employment Tax                                                                                                       $170

Total Tax (a)                                                                                                                  $8,964

Federal Income tax Withheld (b)                                                                                   $15,000

Refund   (b)-(a)                                                                                                               $6,036

Calculation of Self-Employment Tax Particulars Amount Business Income $1,200 Multiply by .9235                                                                                                                          $1,108

Self-Employment Tax                                                                                                     $170

Deduction for one-half of employment tax                                                                     $85