Can someone help me for this tax return project? Tax Return Problem Lance H. and

Question

Can someone help me for this tax return project?

Tax Return Problem Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501.

Lance

Lance still works for the Chamber of Commerce, and this year he was promoted to management. Not only was Lance satisfied that his hard work was recognized, but he was also happy to learn that the promotion came with a big raise. During 2017, he had $7,800 of Federal income tax withheld from his paycheck. Lance's annual salary is 188,000

Wanda

2017 was a big year for Wanda. Early in the year she learned she was pregnant with the couple’s third child, Eva, who was born in late October. Wanda did not work when Penny and Kyle were young children, and she didn’t want to be away from home when Eva was born either. As soon as she learned the news of her pregnancy, she quit her job at the law firm and started a business that she could conduct from home. She is currently self-employed as a hair stylist. She operates her business under the name “Wanda’s Waves,” which operates on the cash method. Since it is a new business, her gross receipts for 2017 were only $2,200. During 2017, Wanda paid $935 to rent a stylist’s chair that is used in her business, $580 for advertising, and $410 for hair products (shampoo, conditioner, etc.). The business code for Wanda’s business is 812990. She paid no estimated taxes during 2017 with regard to her freelance income, and like her husband she does not wish to designate $3 to the Presidential Election Campaign Fund. Although she operates her business out of her house, she is not considered to have a “home office” (i.e., no part of her home is treated as being for “business use”).

Wanda earned $7,300 working at the law firm during 2017 prior to her resignation, and Federal income tax withheld was $950. Unlike last year, she did not make any contributions to her traditional IRA during 2017. Lance’s Parents Just like last year, Wanda’s parents made a gift of $26,000 to Wanda and Lance during 2017.

Penny

The Deans’ oldest child, Penny, finally made up her mind about college. She applied and was accepted to the University of Chicago. She has just completed her first semester, which began on August 28, 2017.

2 Kyle

Kyle is in his senior year of high school and he has started to look at colleges. His parents describe him as an all-American kid. He gets good grades, he works at a movie theater (where he earned $4,800 during 2017), and he plays soccer. Unfortunately, he was injured while playing soccer during 2017. Thankfully, after months of rest, physical therapy, and $22,000 of medical expenses (paid by Mom and Dad), it looks like he’s on his way to a full recovery. The injury caused a lot of pain, and although his doctors prescribed painkillers Kyle preferred to take Tylenol. Lance and Wanda spent $250 (in addition to the $22,000 of other medical expenses) on Tylenol for Kyle during 2017. Although Lance and Wanda expect that the medical expenses will be reimbursed in full by their medical plan, none of it was received during 2017.

Eva

The Dean family welcomed little Eva to the family on October 30, 2017. Eva’s Social Security Number is 123-45-6790. The Deans paid medical expenses of $12,200 relating to Eva’s birth. The $12,200 was reimbursed by Lance and Wanda’s medical plan in December 2017. Wanda was so excited to have another baby that she went on a huge shopping spree. She bought new furniture for the baby and tons of tiny outfits, which she charged on her credit card. As a result of the charges, the Deans paid $300 of interest to their credit card company during 2017.

Wayne

The Deans had told you last year that Lance’s father, Wayne, passed away during 2016. Lance learned that his father had named him as the beneficiary of a $500,000 life insurance policy. Due to paperwork delays, the Deans did not receive the proceeds until February 2017. They deposited the funds in a savings account in First National Bank, a U.S. bank and the savings account earned interest of $3,625 during 2017. In September 2017, Lance and Wanda made a donation of $4,000 to the hospital which cared for Wayne in his final days. The hospital is as a qualified charitable organization within § 170(c) and the Deans have a receipt for their donation.

Investments:

The Deans still own the same investments as they did in 2016. For 2017, the couple received the following interest income: - City of Albuquerque general purpose bonds - $1,000 - Ford Motor Company bonds - $1,100 - Ally Bank certificate of deposit - $475

In addition, the Deans had three transactions involving stock during 2017.

1. The Deans purchased 40 shares of ABC, Inc. stock on February 15, 2017 for $70 per share. During 2017, ABC paid and the Deans received a dividend of $12 per share. ABC is a foreign corporation and the dividends it pays are not qualified dividends.

3 2. On July 17, 2017 the Deans sold 150 shares of DEF, Inc. stock for $45 per share. The stock had been purchased on December 13, 2016 for $13 per share.

3. On October 27, 2017 the Deans sold 185 shares of GHI, Inc. stock for $4 per share. The stock had been purchased on August 21, 2013 for $49 per share. Miscellaneous: - Wanda received child support payments of $7,200 from her ex-husband, John Allen, during 2017. - The Deans moved to a larger house in 2017.

As a result, their property taxes increased by 10% since 2016. - The Deans’ mortgage payment is $2,200 each month. The Deans made 12 mortgage payments during 2017, which reduced the principal amount they owe by a total of $12,400 during 2017. - The Deans had State income taxes of $3,800 withheld from wages during 2017. - The Deans asked if your fee has increased. The Deans paid you $195 during 2017 as compensation for your preparation of their 2016 return. You informed them that the fee has not increased.

Explanation / Answer

Hi,

Based on the available information and my knowledge, will give the following opinion:

Lance

With respect to his pay check, as he has with held amount of $7,800, it is correct but since he comes in the bracket of 28%, there is still payment required to be made of $44,840 to reach the total of $52,640.

Wanda

Despite having a $7,300 she falls under the bracket of 10% and since she has paid $950 she is entitled to a return of (950 - 730) = $220. Though she is operating her business of a hair stylist and not making tax payment at the moment, as a tax expert she is required to make a payment to the tune of 10% of her payment, and if not done, will need to show the source of income as a one time reciept for now. Subsequently, she will have to start filing returns.

Her other expenses such as the credit card charges of $300 will be questionable by the authorities.

Other instances such as the stock transactions for 2017 and child support payment received by Wanda from ex-husband will require constant monitoring to ensure the funds iare being diverted in the expcted direction.

As for Kyle, though his medical expenses have not been re-imbursed, his payment of $4800 from his job can be set off and he could claim benefits for the same.

Sufficient information about Penny is not available.

Eva has a social security numbers and hence medical expenses in her name shall be taxable.

This way, the fee is required to be increased for accomodating change in the job for Wanda, birth of Eva and also to file the increase in mortgage payments for moving into a new house. This requires an increase in paperwork, and more transactions to be monitored. Depending on the policy of the firm and the relationship shared with the Deans, the fees charged should be increased.

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