Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2009. He lives at 4680 Dogwood Lane, Springfield, Missouri 65801. He is employed as a paralegal by a local law firm. During 2011, 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 |
4,400 |
|
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 2010 tax |
|
|
|
overpayment) |
|
700 |
Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2011. Logan also was the designated beneficiary of an insurance policy on Daniel’s life with a maturity value of $200,000. The lot in St. Louis was purchased on May 2, 2006, for $85,000 and held as an investment. As the neighborhood has deteriorated, Logan decided to cut his losses and sold the lot on January 5, 2011, 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 expenditures for 2011 include the following.
|
Medical expenses (including $10,500 for dental services) |
|
$11,500 |
|
Taxes— |
||
|
State of Missouri income tax (includes withholdings |
|
|
|
during 2011) |
$3,200 |
|
|
Property taxes on personal residence |
4,500 |
7,700 |
|
Interest on home mortgage |
|
4,600 |
|
Contribution to church (paid pledges for 2011 and 2012) |
|
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 (see below). Logan normally pledges $2,400 ($200 per month) each year to his church. On December 5, 2011, upon the advice of his pastor, he prepaid his pledge for 2012.
Logan’s household, all of whom he supports, includes the following.
|
Social Security Number |
Birth Date |
|
|
Logan Taylor (age 48) |
123 45 6787 |
08/30/1963 |
|
Helen Taylor (age 70) |
123 45 6780 |
01/13/1941 |
|
Asher Taylor (age 23) |
123 45 6783 |
07/18/1988 |
|
Mia Taylor (age 22) |
123 45 6784 |
02/16/1989 |
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, does not work and is engaged to be married.
Part 1—Tax Computation Using the appropriate forms and schedules, compute Logan’s income tax for 2011. 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. Suggested software: H&R BLOCK At Home.
Part 2—Follow up Advice In early 2012, 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 2012. Therefore, he requests your advice.
Write a letter to Logan explaining in general terms how the 2012 events will affect his Federal income tax liability. Assume that Logan’s salary and other factors not mentioned (e.g., property and state income taxes) will remain the same. Use the Tax Rate Schedules in projecting Logan’s tax for 2012.