4. 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 Com- merce, while Wanda is employed part-time as a paralegal for a law firm.
During 2014, the Deans had the following receipts:
Salaries ($60,000 for Lance, $41,000 for Wanda) Interest income—
City of Albuquerque general purpose bonds Ford Motor company bonds
Ally Bank certificate of deposit
Child support payments from John Allen Annual gifts from parents
Settlement from Roadrunner Touring Company Lottery winnings
Federal income tax refund (for tax year 2013)
$1,000 1,100 400
$101,000
2,500
7,200 26,000 90,000
600 400
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 termi- nate if Wanda remarried.
In July, while going to lunch in downtown Santa Fe, Wanda was injured by a tour bus. As 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 per- sonal injuries she sustained.
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CHAPTER 3 Tax Formula and Tax Determination; An Overview of Property Transactions 3-51 The Deans had the following expenditures for 2014:
Medical expenses (not covered by insurance) Taxes—
Property taxes on personal residence State of New Mexico income tax (includes
amount withheld from wages during 2014) Interest on home mortgage
Paid church pledge
Life insurance premiums (policy on Lance’s life) Contribution to traditional IRA (on Wanda’s behalf) Traffic fines
Contribution to the reelection campaign fund of the
mayor of Santa Fe
Funeral expenses for Wayne Boyle
$7,200
$3,600
4,200 7,800 6,000 3,600 1,200 5,000 300
500 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.
The Deans’ household includes the following, for whom they provide more than half of the support:
Lance Dean (age 42) Wanda Dean (age 40) Penny Allen (age 19) Kyle Allen (age 17) Wayne Boyle (age 75)
Social Security Number
123-45-6786 123-45-6787 123-45-6788 123-45-6789 123-45-6785
Birth Date
12/16/1972 08/08/1974 10/09/1995 05/03/1997 06/15/1938
Penny graduated from high school on May 9, 2014, and is undecided about col- lege. During 2014, 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 January 20, 2014. For the past few years, Wayne qualified as a dependent of the Deans.
Federal income tax withheld is $5,200 (Lance) and $3,100 (Wanda). The proper amount of Social Security and Medicare tax was withheld.
Determine the Federal income tax for 2014 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 2014. If an overpayment results, it is to be refunded to them. Suggested software: H&R BLOCK Tax Software.