The actual 1040 form filled out.
Tax Return Problem Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local Chamber of Commerce, while Wanda is employed part-time as a paralegal for a law firm.
During 2016, the Deans had the following receipts:
| Salaries ($60,000 for Lance, $41,000 for Wanda) | $101,000 | |
| Interest income— | ||
| City of Albuquerque general purpose bonds | $1,000 | |
| Ford Motor company bonds | 1,100 | |
| Ally Bank certificate of deposit | 400 | 2,500 |
| Child support payments from John Allen | 7,200 | |
| Annual gifts from parents | 26,000 | |
| Settlement from Roadrunner Touring Company | 90,000 | |
| Lottery winnings | 600 | |
| Federal income tax refund (for tax year 2015) | 400 | |
Wanda was previously married to John Allen. When they divorced several years ago, Wanda was awarded custody of their two children, Penny and Kyle. (Note: Wanda has never issued a Form 8332 waiver.) Under the divorce decree, John was obligated to pay alimony and child support—the alimony payments were to terminate if Wanda remarried.
In July, while going to lunch in downtown Santa Fe, Wanda was injured by a tour bus. As the driver was clearly at fault, the owner of the bus, Roadrunner Touring Company, paid her medical expenses (including a one-week stay in a hospital). To avoid a lawsuit, Roadrunner also transferred $90,000 to her in settlement of the personal injuries she sustained.
The Deans had the following expenditures for 2016:
| Medical expenses (not covered by insurance) | $7,200 | |
| Taxes— | ||
| Property taxes on personal residence | $3,600 | |
| State of New Mexico income tax (includes amount withheld from wages during 2016) | 4,200 | 7,800 |
| Interest on home mortgage (First National Bank) | 6,000 | |
| Paid church pledge | 3,600 | |
| Life insurance premiums (policy on Lance's life) | 1,200 | |
| Contribution to traditional IRA (on Wanda's behalf) | 5,000 | |
| Traffic fines | 300 | |
| Contribution to the reelection campaign fund of the mayor of Santa Fe | 500 | |
| Funeral expenses for Wayne Boyle | 6,300 | |
The life insurance policy was taken out by Lance several years ago and designates Wanda as the beneficiary. As a part-time employee, Wanda is excluded from coverage under her employer's pension plan. Consequently, she provides for her own retirement with a traditional IRA obtained at a local trust company. Because the mayor is a member of the local Chamber of Commerce, Lance felt compelled to make the political contribution.
The Deans' household includes the following, for whom they provide more than half of the support:
| Social Security Number | Birth Date | |
|---|---|---|
| Lance Dean (age 42) | 123-45-6786 | 12/16/1974 |
| Wanda Dean (age 40) | 123-45-6787 | 08/08/1976 |
| Penny Allen (age 19) | 123-45-6788 | 10/09/1997 |
| Kyle Allen (age 17) | 123-45-6789 | 05/03/1999 |
| Wayne Boyle (age 75) | 123-45-6785 | 06/15/1941 |
Penny graduated from high school on May 9, 2016, and is undecided about college. During 2016, she earned $8,500 (placed in a savings account) playing a harp in the lobby of a local hotel. Wayne is Wanda's widower father who died on January 20, 2016. For the past few years, Wayne qualified as a dependent of the Deans.
Federal income tax withheld is $5,200 (Lance) and $3,100 (Wanda). The proper amount of Social Security and Medicare tax was withheld.
Determine the Federal income tax for 2016 for the Deans on a joint return by completing the appropriate forms. They do not want to contribute to the Presidential Election Campaign Fund. All members of the family had health care coverage for all of 2016. If an overpayment results, it is to be refunded to them. Suggested software: H&R BLOCK Tax Software.
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