Cecil C. Seymour is a 64-year-old widower. He had income for 2015 as follows: Pe
ID: 2772101 • Letter: C
Question
Cecil C. Seymour is a 64-year-old widower. He had income for 2015 as follows:
Pension from former employer: 39850
Interest Income from Alto National Bank: 5500
Interest Income on City of Alto Bonds: 4500
Dividends received from IBM stock held for over one year: 2000
Collections on annuity contract he purchased from Great Life Insurance: 5400
Social Security benefits: 14000
Rent Income from townhouse: 9000
The cost of the annuity was 46800, and Cecil was expected to receive a total of 260 monthly payments of 450. Cecil has received 22 payments through 2015.
Cecil's 40-year-old daughter, Sarah C. Seymour, borrowed 60000 from Cecil on January 2, 2015. She used the money to start a new business. Cecil does not charge her interest because she could not afford to pay it, but he does expect to eventually collect the principal. Sarah is living with Cecil until the business becomes profitable. Except for housing, Sarah provides her own support from her business and 1600 in dividends on stocks that she inherited from her mother.
Other relevant information is presented below:
Cecil's Social Security Number: 123-45-6785
Address: 3840 Springfield Blvd., Alto, GA 30510
Sarah's Social Security Number: 123-45-6784
Expenses on rental townhouse:
Utilities: 2800
Maintenance: 1000
Depreciation: 2000
Real Estate Taxes: 750
Insurance: 700
State Income Taxes Paid: 3500
County Personal Property taxes paid: 2100
Payments on estimated 2015 Federal income tax: 5900
Charitable contributions of cash to Alto Baptist Church: 6400
Federal interest rate: 6%
Sales taxes paid: 912
Compute Cecil's 2015 Federal income tax payable (or refund due) manually using applicable forms.
Explanation / Answer
Imputed interest on gift loan ((working note 3)
Less: Personal exemption deduction (Working Note 5)
Net tax payable (or refund due) for 2015
Exclusion percentage of annuity contract Cecil Purchased = Cost of Annuity/(monthly payments x number of payments); $46,800/($450 x 260)
Amount of the Social Security benefits that include in gross income is the lesser of the two following amounts
Net rental income from the townhouse =
Cecils itemized deductions
Cecils standard deduction would be $12400 ( basic standard deduction + $1,200 additional standard deduction)
2015 Tax Brackets (for taxes due April 15, 2016)
Gross Income Pension $39,850 Interest Income $5,500 Dividend Income $2,000 Annuity Income (working note 1) $3,240 Social Security Benefits(working note 2) $11,900Imputed interest on gift loan ((working note 3)
$1,600 Net Rental Income ((working note 4) $1,750 Gross Income $65,840 Deduction for AGI $0 AGI $65,840Less: Personal exemption deduction (Working Note 5)
-$3,950 Less: Itemized deductions (Working Note 6) -$13,000 Taxable Income $48,890 Tax Liability $6,676 Less: Estimated Tax Payments -$5,900Net tax payable (or refund due) for 2015
$776 Working Note:-1 Cost of Annuity $46,800 Monthly Payments $450 Number of Monthly Payments 260Exclusion percentage of annuity contract Cecil Purchased = Cost of Annuity/(monthly payments x number of payments); $46,800/($450 x 260)
40.00% Annual Exclusion on annuity contract : Annuity received from group insurance $5,400 Annual Exclusion on annuity contract = annuity received x Exclusion percentage; $5400 x 40% $2,160 Annuity payment included in gross income = Annuity recived - Annual exclusion: $5,400 - $2,160 $3,240 Working Note :2Amount of the Social Security benefits that include in gross income is the lesser of the two following amounts
a. 85% x $14,000 $11,900 Working Note:3 Imputed interest on gift loan: Cecil made below market loan of amount $60,000 to her daughter qualifies for $100,000 loan exception , earned net income of $1500 from investment must include in Cecil's gross income instead of $60,000 x 6% (fedral tax rate)=. $3600 Working Note 4Net rental income from the townhouse =
Rent income $9,000 Less: Expenses Utilities $2,800 Maintenance $1,000 Real estate taxes $750 Insurance $700 Depreciation $2,000 -$7,250 Net rent income $1,750 Working Note :5 Cecil does not qualify for a dependency deduction as her daughter is indendent. Working Note 6Cecils itemized deductions
Personal property taxes $2,100 State income taxes $3,500 Charitable contributions $6,400 $12,000Cecils standard deduction would be $12400 ( basic standard deduction + $1,200 additional standard deduction)
$13600 Working Note 72015 Tax Brackets (for taxes due April 15, 2016)
Married filing jointly or qualifying widow/widower10% Up to $18,150 15% = $18,151 to $73,800 18150x 10% 1815 Taxable income =( 48,890 - $18151) x 15% 4611 tax liability 6426 Add: tax on dividend income ; 5% x $2000 250 Total tax liability $6676Related Questions
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