Answered: The Deans' household includes the…

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter3: Tax Formula And Tax Determination; An Overview Of property Transactions

Section: Chapter Questions

Problem 36P

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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, and
Wanda is employed part-time as a paralegal for a law firm.
During 2018, 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 2017) 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. Because 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 2018:
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 2018) 4,200 7,800
Interest on home mortgage (First National Bank) 6,000
Charitable contributions 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.Penny graduated from high school on May 9, 2018, and is undecided about college.
During 2018, 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 December 20,
2017. For the past few years, Wayne qualified as a dependent of the Deans.
Federal income tax withheld is $4,200 (Lance) and $2,100 (Wanda). The proper
amount of Social Security and Medicare tax was withheld.
Determine the Federal income tax for 2018 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 2018. If an overpayment results, it is to be refunded to them. Suggested software:
ProConnect Tax Online.

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)
Wanda Dean (age 40)
Penny Allen (age 19)
123-45-6786
12/16/1976
123-45-6787
08/08/1978
123-45-6788
10/09/1999
Kyle Allen (age 16)
Wayne Boyle (age 75)
123-45-6780
05/03/2002
123-45-6785
06/15/1943

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