Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2011. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. During 2013, he reported the following receipts.
Salary $80,000
Interest Income
Money market account at Omni Bank - $300
Savings account at Bosne State Bank - $1,100
City of Springfield general purpose bonds -$3,000
Inheritance from Daniel - $60,000
Life Insurance proceeds - $200,000
Amount from sale of St. Louis Lot - $80,000
Proceeds from estate sale - $9,000
Federal Income tax refund (for 2012 tax overpayment) - $700
Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2013. Logan also was the designated beneficiary of an insurance policy on Daniel's life insurance with a maturity value of $200,000. The lot in St. Louis was purchased on May 2, 2008, for $85,000 and held as an investment. As the neighborhood deteriorated , Logan decided to cut his losses and sold the lot on January 15, 2013, for $80,000. The estate sale consisted largely of items belonging to Sara and Daniel (e.g., camper, boat, furniture and fishing and hunting equipment). Logan estimates that the property sold originally cost at least twice the $9,000 he received and has declined or stayed the same in value since Sara and Daniel died. Logan's other 2013 expenditures include the following.
Medical expenses (including $10,500 for dental services) - $11,500
Taxes-
State of Missouri income tax (including withholdings) - $3,200
Property taxes on personal residence - $4,500
Interest on home mortgage - $4,600
Contribution to church )paid pledges for 2013 and 2014) - $4,800
Logan and his dependents are covered by his employer's health insurance policy. However, he is subject to a deductible, and dental care is not included. The $10,500 dental charge was for Helen's implants. Helen is Logan's widowed mother, who lives with him. Logan normally pledges $2,400 ($200 per month) each year to his church. On December 5, 2013, upon the advice of his pastor, he prepaid his pledge for 2014. Logan's household, all of whom he supports, include the following:
Logan Taylor (age 48) birthdate 8/30/1965
Helen Taylor (age 70) birthdate 1/13/1943
Asher Taylor (age 23) birthdate 7/18/1990
Mia Taylor (age 22) birthdate 2/16/1991
Helen, Logan's mother, receives a modest Social Security benefit. Asher, a son, is a full-time student in dental school and earns $4,500 as a part-time dental assistant. Mia, a daughter, des not work and s engaged to be married.
Part 1 - Using the appropriate forms and schedules, compute Logan's 2013 Federal income tax. Federal income tax of $5,500 was withheld from his wages. If Logan has any overpayment on his income tax, he wants the refund sent to him. Assume that the proper amounts of social security and Medicare taxes were withheld. Logan does not want to contribute to the Presidential Election Campaign Fund.
Part 2 - Follow up advice.
In early 2014, the following events take place.
Helen decides that she wants to live with one of her daughters and moves to Arizona
Asher graduates from dental school and joins an existing practice in St. Louis
Mia marries, and she and her husband move in with his parents
Using the insurance proceeds he received on Daniel's death, Logan pays off the mortgage on his personal residence.
Logan believes that these events may have an effect on his tax position for 2014. Therefore he requests your advice.
Write a letter to Logan explaining in general terms how the 2014 events will affect his Federal Income tax liability, Assume that Logan's salary and other factors not mentioned will remain the same. Use the Tax Rate schedules in projecting Logan's tax for 2014.