Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 2011. Alfred and Beulah will file a joint return for 2012. Alfred’s Social Security number is 111-11-
1111. Beulah’s Social Security number is 123-45-6789, and she adopted “Old” as her married name. They live at 211 Brickstone Drive, Atlanta, GA 30304.
Alfred was divorced from Sarah Old in March 2010. Under the divorce agreement,
Alfred is to pay Sarah $1,250 per month for the next 10 years or until Sarah’s death, whichever occurs first. Alfred pays Sarah $15,000 in 2012. In addition, in January 2012,
Alfred pays Sarah $50,000, which is designated as being her share of the marital property.
Also, Alfred is responsible for all prior years’ income taxes. Sarah’s Social Security number is 123-45-6788.
Alfred’s salary for 2012 is $150,000, and his employer, Cherry, Inc. (Federal I.D. No. 98-7654321), provides him with group term life insurance equal to twice his annual salary. His employer withheld $24,900 for Federal income taxes and $8,000 for state income taxes. The following amounts were withheld for FICA taxes: $4,624 ($110,100 ×
4.2%) for Social Security and $2,175 ($150,000 × 1.45%) for Medicare.
Beulah recently graduated from law school and is employed by Legal Aid Society,
Inc. (Federal I.D. No. 11-1111111), as a public defender. She receives a salary of $40,000 in 2012. Her employer withheld $7,500 for Federal income taxes and $2,400 for state income taxes. The following amounts were withheld for FICA taxes: $1,680 ($40,000 ×4.2%) for Social Security and $580 ($40,000 × 1.45%) for Medicare.
Beulah has $2,500 in qualified dividends on Yellow Corporation stock she inherited.
Alfred and Beulah receive a $1,900 refund on their 2011 state income taxes. They itemized deductions on their 2011 Federal income tax return (total = $15,000). Alfred and
Beulah pay $4,500 interest and $1,450 property taxes on their personal residence in 2012. Their charitable contributions total $2,400 (all to their church). They paid sales taxes of $1,400 for which they maintain the receipts.
Compute the Olds’ net tax payable (or refund due) for 2012. If you use tax forms for your solution, you will need Form 1040 and Schedules A and B. Suggested software:
H&R BLOCK At Home.
60. Martin S. Albert (Social Security number 111-11-1111) is 39 years old and is married to
Michele R. Albert (Social Security number 123-45-6789). The Alberts live at 512 Ferry
Road, Newport News, VA 23601. They file a joint return and have two dependent children,
Charlene, age 17, and Jordan, age 18. Charlene’s Social Security number is 123-45-
6788, and Jordan’s Social Security number is 123-45-6787. In 2013, Martin and Michele had the following transactions:
a. Martin received $120,000 in salary from Red Steel Corporation, where he is a construction engineer. Withholding for Federal income tax was $10,750. The amounts withheld for FICA tax were as follows: $7,049 ($113,700 × 6.2%) for Social Security and $1,740 ($120,000 × 1.45%) for Medicare. Martin worked in Mexico from January
1, 2012, until February 15, 2013. His $120,000 salary for 2013 includes $18,000 he earned for January and one-half of February 2013 while working in Mexico.
b. Martin and Michele received $800 in qualified dividends on Green, Inc. stock and $400 interest on Montgomery County (Virginia) school bonds.
c. Martin received $2,300 interest from a Bahamian bank account.
d. Michele received 50 shares of Applegate Corporation common stock as a stock dividend.
The shares had a fair market value of $2,500 at the time Michele received them, and she did not have the option of receiving cash.
e. Martin and Michele received a $1,200 refund on their 2012 Virginia income taxes.
Their itemized deductions in 2012 totaled $14,000.
f. Martin paid $6,600 alimony to his former wife, Rose T. Morgan (Social Security number 123-45-6786).
g. Martin and Michele kept the receipts for their sales taxes paid of $1,100.
h. Martin and Michele’s itemized deductions were as follows:
• State income tax paid and withheld totaled $5,100.
• Real estate taxes on their principal residence were $3,700.
• Mortgage interest on their principal residence was $2,500.
• Cash contributions to their church totaled $2,800.
Part 1—Tax Computation
Compute the Alberts’ net tax payable (or refund due) for 2013.
Part 2—Tax Planning
The Alberts are considering buying another house. Their house mortgage payments would increase by $500 (to $1,500) per month, which includes a $250 increase in interest and a $100 increase in property tax. The Alberts would like to know how much the mortgage payments would increase net of any change in their income tax. Write a letter to the Alberts that contains your advice.
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