Alice J. and Bruce M. Byrd are married taxpayers who file a joint return. Their Social Security numbers are 123-45-6789 and 111-11-1111, respectively. Alice's birthday is September 21, 1967, and Bruce's is June 27, 1966. They live at 473 Revere Avenue, Lowell, MA 01850.
Alice is the office manager for Lowell Dental Clinic, 433 Broad Street, Lowell, MA 01850 (employer identification number 98-7654321).
Bruce is the manager of a Super Burgers fast-food outlet owned and operated by Plymouth Corporation, 1247 Central Avenue, Hauppauge, NY 11788 (employer identification number 11-1111111).
The following information is shown on their Wage and Tax Statements (Form W-2) for 2014.
|
Line
|
Description
|
Alice
|
Bruce
|
|
1
|
Wages, tips, other compensation
|
$58,000
|
$62,100
|
|
2
|
Federal income tax withheld
|
4,500
|
6,300
|
|
3
|
Social Security wages
|
58,000
|
62,100
|
|
4
|
Social Security tax withheld
|
3,596
|
3,850
|
|
5
|
Medicare wages and tips
|
58,000
|
62,100
|
|
6
|
Medicare tax withheld
|
841
|
900
|
|
15
|
State
|
Massachusetts
|
Massachusetts
|
|
16
|
State wages, tips, etc.
|
58,000
|
62,100
|
|
17
|
State income tax withheld
|
2,950
|
3,100
|
The Byrds provide over half of the support of their two children, Cynthia (born Jan- uary 25, 1990, Social Security number 123-45-6788) and John (born February 7, 1994, Social Security number 123-45-6786). Both children are full-time students and live with the Byrds except when they are away at college. Cynthia earned $4,200 from a summer internship in 2014, and John earned $3,800 from a part-time job.
During 2014, the Byrds provided 60% of the total support of Bruce's widower fa- ther, Sam Byrd (born March 6, 1938, Social Security number 123-45-6787). Sam lived alone and covered the rest of his support with his Social Security benefits. Sam died in November, and Bruce, the beneficiary of a policy on Sam's life, received life in- surance proceeds of $800,000 on December 28.
The Byrds had the following expenses relating to their personal residence during 2014:
|
Property taxes
|
$5,000
|
|
Qualified interest on home mortgage
|
8,700
|
|
Repairs to roof
|
5,750
|
|
Utilities
|
4,100
|
|
Fire and theft insurance
|
1,900
|
|
The Byrds had the following medical expenses for 2014:
Medical insurance premiums
|
$4,500
|
|
Doctor bill for Sam incurred in 2013 and not paid until 2014
|
7,600
|
|
Operation for Sam
|
8,500
|
|
Prescription medicines for Sam
|
900
|
|
Hospital expenses for Sam
|
3,500
|
|
Reimbursement from insurance company, received in 2014
|
3,600
|
The medical expenses for Sam represent most of the 60% that Bruce contributed toward his father's support.
Other relevant information follows:
• When they filed their 2013 state return in 2014, the Byrds paid additional state income tax of $900.
• During 2014, Alice and Bruce attended a dinner dance sponsored by the Lowell Police Disability Association (a qualified charitable organization). The Byrds paid $300 for the tickets. The cost of comparable entertainment would normally be $50.
• The Byrds contributed $5,000 to Lowell Presbyterian Church and gave used clothing (cost of $1,200 and fair market value of $350) to the Salvation Army. All donations are supported by receipts, and the clothing is in very good condition.
• In 2014, the Byrds received interest income of $2,750, which was reported on a Form 1099-INT from Second National Bank.
• Alice's employer requires that all employees wear uniforms to work. During 2014, Alice spent $850 on new uniforms and $566 on laundry charges.
• Bruce paid $400 for an annual subscription to the Journal of Franchise Manage- ment and $741 for annual membership dues to his professional association.
• Neither Alice's nor Bruce's employer reimburses for employee expenses.
• The Byrds do not keep the receipts for the sales taxes they paid and had no major purchases subject to sales tax.
• All members of the Byrd family had health insurance coverage for all of 2014.
• Alice and Bruce paid no estimated Federal income tax. Neither Alice nor Bruce wants to designate $3 to the Presidential Election Campaign Fund.
Part 1-Tax Computation
1. Compute net tax payable or refund due for Alice and Bruce Byrd for 2014. If they have overpaid, they want the amount to be refunded to them. If you use tax forms for your computations, you will need Forms 1040 and 2106 and Schedules A and B. Suggested software: H&R BLOCK At Home.
Part 2-Tax Planning
2. Alice and Bruce are planning some significant changes for 2015. They have pro- vided you with the following information and asked you to project their taxable income and tax liability for 2015.
The Byrds will invest the $800,000 of life insurance proceeds in short-term certificates of deposit (CDs) and use the interest for living expenses during 2015. They expect to earn total interest of $32,000 on the CDs.
Bruce has been promoted to regional manager, and his salary for 2015 will be $88,000. He estimates that state income tax withheld will increase by $4,000 and the Social Security tax withheld will be $5,456.
Alice, who has been diagnosed with a serious illness, will take a leave of absence from work during 2015. The estimated cost for her medical treatment is $15,400, of which $6,400 will be reimbursed by their insurance company in 2015. Their medical insurance premiums will increase to $9,769. Property taxes on their residence are expected to increase to $5,100. The Byrds' home mortgage interest expense and charitable contributions are expected to be unchanged from 2014.
John will graduate from college in December 2014 and will take a job in New York City in January 2015. His starting salary will be $46,000.
Assume that all of the information reported in 2014 will be the same in 2015 unless other information has been presented above.