Tax Return - John and Mary Sanders (Fictional Taxpayers)
The Sanders came to you to have their 2016 taxes prepared. They provided you with the accompanying documents, and after interviewing the Sanders you uncovered the following additional information: (All the appropriate documentation was available but I have not included all of the documentation for you.) You can use all the numbers without worrying if something is missing. Beware that this problem is designed to be best done by hand as required. Use the fillable forms from www.irs.gov for your submission. Tax software frequently asks questions and requests numbers like Employer Identification Numbers in order to run efficiently. These are deliberately omitted.
John and Mary Sanders, under age 65, have 2 children Brenda and William. Brenda was born on 1/22/2007 and her Social Security number is 365-32-5911. William was born on 8/19/2009 and his Social Security number is 325-36-5874. The Sanders incurred child care expenses of $2,923 for each of their children paid to the Big Elephant Day Care Employer Identification Number 04-1253667 address 175 Wildwood Manor in Lansing, Mi 48910.
Mary's Father, Kevin Latimer SSN 365-89-7411DOB 6/5/1937, lives with them and his income consisted of $3,900 in Social Security payments. While Kevin pays for some personal items he saves over half is money, John and Mary provide all other costs of his support. Kevin earned $100 in interest that he gave to his grandchildren. John's cousin Ronald Kemp, SSN 456-34-4876 DOB 2-11-1989, lives in Portland Oregon and John and Mary paid all his living expenses while he was looking for work. They spent $16,800 on Ronald for his apartment and for food in 2016. The Sanders also provided all the support for Mary's Niece Sandra Wilson, SSN 546-45-6783 DOB 4-3-1991 while she was on a church mission in Mexico. Sandra had lived with the Sanders for 2 years prior to deciding to go on the church mission. Her income for these years was under $2000 per year. Payments totaling $17,992 were sent directly to Sandra. Kenneth Lay, SSN 456-95-9565 DOB 6-12-1990, is not related to the Sanders but lived with them for the last 9 months of the year while he recovered from an accident. Ken was unable to work during that time. John and Mary also have a nephew John II lists the Sander's home as his address while he is in and out of jail and in drug rehabilitation.
John and Mary provided a form 1099INT showing that they had earned $5,250 in interest from Bank of America. Their children had each earned $200 from their savings accounts.
John and Mary paid out of pocket health insurance premiums totaling ¼ of the total health insurance premiums. John's employer paid the rest. The total premium was $21,800 and Mary and the children incurred $7,220 in out of pocket medical expenses consisting of $2,220 in prescription drugs and $5,000 in doctor and dentist bills. They also had to drive a total of 904 miles to receive medical service. John and Mary also incurred $1,125 in over the counter medicine expenses. They also paid the medical expenses for Sandra for a fall she incurred while hiking in the mountain while on her mission. The cost was $4,200. Mary paid $700 per month in alimony payments to her disabled ex-husband. His name is Peter and his SSN is 657-43-9875. John pays $400 per month in child support to his ex-wife, Susan SSN 987-23-3746 and Susan has full custody their son Benjamin. John receives $300 per month in child support for Brenda from another marriage.
John wants to open his own business and he incurred $11,000 of expenses in October 2016 to investigate the opening of a retail computer franchise. John is a financial consultant. He decided not to pursue this opportunity until 2017 or 2018.
John and Mary made $2,500 in charitable contributions all supported by receipts of which $2,100 was in cash and $400 was in clothing provided to the Salvation Army Lansing Michigan. They also incurred $12,248 in Mortgage interest, Property tax of $3,950 on their home found on form 1098 from the bank, license plate fees of $395 for all their vehicles. They also paid $520 to have their taxes prepared for 2015 and they had itemized their deductions in 2015. Union dues for Mary were $680. John had miscellaneous unreimbursed employee expenses of $2120. They received $537 in State and Local Tax refunds for 2015 received in 2016. John and Mary also received a state tax refund in 2016 of $1100 which was for tax year 2011. They did not itemize in 2011. All documentation has been verified.
You are to complete the 2016 Federal Tax Return and to write a letter giving at least 2 recommendations to help them reduce their 2016 tax liability assuming no changes to their financial situation. These recommendations make up 20 points for the return. The recommendations should be in a letter prepared for the clients that will lower their tax liability in future years.
You may have additional questions for the Sanders and you may post them on the Discussion Forum.