Question

Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe,...

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 Commerce, while Wanda is employed part-time as a paralegal for a law firm.

During 2016, the Deans had the following receipts:

Salaries ($60,000 for Lance, $41,000 for Wanda) $101,000
Interest income—
   City of Albuquerque general purpose bonds $1,000
   Ford Motor company bonds 1,100
   Ally Bank certificate of deposit 400 2,500
Child support payments from John Allen 7,200
Annual gifts from parents 26,000
Settlement from Roadrunner Touring Company 90,000
Lottery winnings 600
Federal income tax refund (for tax year 2015) 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 terminate 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 personal injuries she sustained.

The Deans had the following expenditures for 2016:

Medical expenses (not covered by insurance) $7,200
Taxes—
   Property taxes on personal residence $3,600
   State of New Mexico income tax (includes amount withheld
       from wages during 2016) 4,200 7,800
Interest on home mortgage (First National Bank) 6,000
Paid church pledge 3,600
Life insurance premiums (policy on Lance's life) 1,200
Contribution to traditional IRA (on Wanda's behalf) 5,000
Traffic fines 300
Contribution to the reelection campaign fund of the mayor of Santa Fe 500
Funeral expenses for Wayne Boyle 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:

Social Security Number Birth Date
Lance Dean (age 42) 123-45-6786 12/16/1974
Wanda Dean (age 40) 123-45-6787 08/08/1976
Penny Allen (age 19) 123-45-6788 10/09/1997
Kyle Allen (age 17) 123-45-6789 05/03/1999
Wayne Boyle (age 75) 123-45-6785 06/15/1941

Penny graduated from high school on May 9, 2016, and is undecided about college. During 2016, 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, 2016. 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.

Required:

Determine the Federal income tax for 2016 for the Deans on a joint return by completing the appropriate forms. Use Form 1040 and Schedule A to complete this tax return. They do not want to contribute to the Presidential Election Campaign Fund. All members of the family had health care coverage for all of 2016. If an overpayment results, it is to be refunded to them.

Make realistic assumptions about any missing data.

Enter all amounts as positive numbers.

If an amount box does not require an entry or the answer is zero, enter "0".

When computing the tax liability, do not round your immediate calculations. If required round your final answers to the nearest dollar.

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 Commerce, while Wanda is employed part-time as a paralegal for a law firm. During 2016, the Deans had the following receipts: Salaries ($60,000 for Lance, $41,000 for Wanda) $101,000 Interest income— City of Albuquerque general purpose bonds $1,000 Ford Motor company bonds 1,100 Ally Bank certificate of deposit 400 2,500 Child support payments from John Allen 7,200 Annual gifts from parents 26,000 Settlement from Roadrunner Touring Company 90,000 Lottery winnings 600 Federal income tax refund (for tax year 2015) 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 terminate 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 personal injuries she sustained. The Deans had the following expenditures for 2016: Medical expenses (not covered by insurance) $7,200 Taxes— Property taxes on personal residence $3,600 State of New Mexico income tax (includes amount withheld from wages during 2016) 4,200 7,800 Interest on home mortgage (First National Bank) 6,000 Paid church pledge 3,600 Life insurance premiums (policy on Lance's life) 1,200 Contribution to traditional IRA (on Wanda's behalf) 5,000 Traffic fines 300 Contribution to the reelection campaign fund of the mayor of Santa Fe 500 Funeral expenses for Wayne Boyle 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: Social Security Number Birth Date Lance Dean (age 42) 123-45-6786 12/16/1974 Wanda Dean (age 40) 123-45-6787 08/08/1976 Penny Allen (age 19) 123-45-6788 10/09/1997 Kyle Allen (age 17) 123-45-6789 05/03/1999 Wayne Boyle (age 75) 123-45-6785 06/15/1941 Penny graduated from high school on May 9, 2016, and is undecided about college. During 2016, 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, 2016. 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. Required: Determine the Federal income tax for 2016 for the Deans on a joint return by completing the appropriate forms. Use Form 1040 and Schedule A to complete this tax return. They do not want to contribute to the Presidential Election Campaign Fund. All members of the family had health care coverage for all of 2016. If an overpayment results, it is to be refunded to them. Make realistic assumptions about any missing data. Enter all amounts as positive numbers. If an amount box does not require an entry or the answer is zero, enter "0". When computing the tax liability, do not round your immediate calculations. If required round your final answers to the nearest dollar.

Complete Form 1040 below for Lance and Wanda Dean.

Form 1040 Department of the Treasury—Internal Revenue Service (99)
U.S. Individual Income Tax Return
2016 OMB No. 1545-0074 IRS Use Only—Do not write or staple in this space.
For the year Jan. 1–Dec. 31, 2016, or other tax year beginning ,2016, ending ,20 See separate instructions.
Your first name and initial
LANCE H
Last name
DEAN
Your social security number
123-45-6786
If a joint return, spouse's first name and initial
WANDA B
Last name
DEAN
Spouse's social security number
123-45-6787
Home address (number and street). If you have a P.O. box, see instructions.
431 YUCCA DRIVE
Apt. no. ? Make sure the SSN(s) above and on line 6c are correct.
City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below (see instructions).
SANTA FE NM 87501

Presidential Election Campaign

Check here if you, or your spouse if filing jointly, want $3 to go to this fund. Checking a box below will not change your tax or refund.

? You    ? Spouse

Foreign country name Foreign province/state/country Foreign postal code
Filing status Married filing jointly
Exemptions 6a Yes Yourself. If someone can claim you as a dependent, do not check box 6a . . . . . . . . . . . . . . . . . . . . . . . . . . . . }
Boxes checked on 6a and 6b

No. of children on 6c who:
• lived with you

• did not live with you due to divorce or separation (see instructions)

Dependents on 6c not entered above

Add numbers on lines above ?
b Yes Spouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

If more than
four dependents,
see instructions and check here. ? ?
c Dependents:
(2)Dependent's social security number

(3)Dependent's relationship to you
(4) ? If child under age 17 qualifying for child tax credit (see instructions)
(1) First name Last name
PENNY ALLEN 123-45-6788 Daughter
KYLE ALLEN 123-45-6787 Son
WAYNEBOYLE 123-45-6785 Parent
d Total number of exemptions claimed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income

Attach
Form(s) W-2
here. Also
attach
Forms
W-2G and
1099-R if
tax was
withheld.


If you did not
get a W-2, see
instructions.
7 Wages, salaries, tips, etc. Attach Form(s) W-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8a Taxable interest. Attach Schedule B if required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8a
b Tax-exempt interest. Do not include on line 8a . . . . . . . . . 8b
9a Ordinary dividends. Attach Schedule B if required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9a
b Qualified dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9b
10 Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . . . . . . . . . . 10
11 Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12 Business income or (loss). Attach Schedule C or C-EZ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13 Capital gain or (loss). Attach Schedule D if required. If not required, check here . . . . . ? ? 13
14 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15a IRA distributions . . . . . . . . . . 15a b Taxable amount . . . 15b
16a Pensions and annuities . . . . . 16a b Taxable amount . . . 16b
17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17
18 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
19 Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
20a Social security benefits . . . . . . 20a b Taxable amount . . . 20b
21
Other income. List type and amount Gambling/Lottery
21
22 Combine the amounts in the far right column for lines 7 through 21. This is your total income ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Adjusted
Gross
Income
23 Educator expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
24 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 or 2106-EZ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
25 Health savings account deduction. Attach Form 8889 . . . . 25
26 Moving expenses. Attach Form 3903 . . . . . . . . . . . . . . . . . 26
27 Deductible part of self-employment tax. Attach Schedule SE 27
28 Self-employed SEP, SIMPLE, and qualified plans . . . . . . . . . . 28
29 Self-employed health insurance deduction . . . . . . . . . . . . . . 29
30 Penalty on early withdrawal of savings . . . . . . . . . . . . . . . . 30
31a Alimony paid    b Recipient's SSN ? 31a
32 IRA deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
33 Student loan interest deduction . . . . . . . . . . . . . . . . . . . . . 33
34 Tuition and fees. Attach Form 8917 . . . . . . . . . . . . . . . . . . 34
35 Domestic production activities deduction. Attach Form 8903 35
36 Add lines 23 through 35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
37 Subtract line 36 from line 22. This is your adjusted gross income . . . . . . . . . . . . . . ? 37
KIA For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Form 1040(2016)
Form 1040 (2016) LANCE H DEAN 123-45-6786 Page 2
Tax and
Credits
38 Amount from line 37 (adjusted gross income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
39a
Check
if:
{ ? You were born before January 2, 1952, ? Blind.
? Spouse was born before January 2, 1952, ? Blind.
} Total boxes
checked ? 39a
Standard Deduction for

• People who check any box on line 39a or 39b or who can be claimed as a dependent, see instructions.

• All others:

Single or Married filing separately, $6,300

Married filing jointly or Qualifying widow(er), $12,600

Head of household, $9,300

b If your spouse itemizes on a separate return or you were a dual-status alien, check here ? 39b ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40 Itemized deductions (from Schedule A) or your standard deduction (see left margin) 40
41 Subtract line 40 from line 38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
42 Exemptions. If line 38 is $155,650 or less, multiply $4,050 by the number on line 6d. Otherwise, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
43 Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter -0- 43
44 Tax (see instructions). Check if any from: a ? Form(s) 8814 b ? Form 4972 c ? ___ 44
45 Alternative minimum tax (see instructions). Attach Form 6251 . . . . . . . . . . . . . . . . . 45
46 Excess advance premium tax credit repayment. Attach Form 8962 . . . . . . . . . . . . . . . . 46
47 Add lines 44, 45, and 46 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? 47
48 Foreign tax credit. Attach Form 1116 if required . . . . . . . . . . 48
49 Credit for child and dependent care expenses. Attach Form 2441 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
50 Education credits from Form 8863, line 19 . . . . . . . . . . . . . . 50
51 Retirement savings contributions credit. Attach Form 8880 . . 51
52 Child tax credit. Attach Schedule 8812, if required . . . . . . . . . 52
53 Residential energy credit. Attach Form 5695 . . . . . . . . . . . . . 53
54
Other credits from Form: a ? 3800 b ? 8801 c ?
54
55 Add lines 48 through 54. These are your total credits . . . . . . . . . . . . . . . . . . . . . . . . . . 55
56 Subtract line 55 from line 47. If line 55 is more than line 47, enter -0- . . . . . . . . . . . . . ? 56
Other
Taxes
57 Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
58 Unreported social security and Medicare tax from Form: a ? 4137 b ? 8919 . . . . . . . . . 58
59 Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required 59
60a Household employment taxes from Schedule H . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60a
b First-time homebuyer credit repayment. Attach Form 5405 if required . . . . . . . . . . . . . . 60b
61 Health care: individual responsibility (see instructions) Full-year coverage ? . . . 61
62 Taxes from: a ? Form 8959 b ? Form 8960 c ? Instructions; enter code(s) _ _ _ _ _ 62
63 Add lines 56 through 62. This is your total tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? 63
Payments 64 Federal income tax withheld from Forms W-2 and 1099 . . . . . . 64
If you have a qualifying child, attach Schedule EIC. 65 2016 estimated tax payments and amount applied from 2015 return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
66a Earned income credit (EIC) . . . . . . . . . . . . . . . . . . . . . . . . 66a
b Nontaxable combat pay election . . . . . . . . . . 66b
67 Additional child tax credit. Attach Schedule 8812 . . . . . . . . . . . 67
68 American opportunity credit from Form 8863, line 8 . . . . . . . . 68
69 Net premium tax credit. Attach Form 8962 . . . . . . . . . . . . . . 69
70 Amount paid with request for extension to file . . . . . . . . . . . . 70
71 Excess social security and tier 1 RRTA tax withheld . . . . . . . . . 71
72 Credit for federal tax on fuels. Attach Form 4136 . . . . . . . . . . 72
73
Credits from Form: a ? 2439 b ? Reserved c ? 8885 d ?
73
74 Add lines 64, 65, 66a, and 67 through 73. These are your total payments . . . . . . . . . . ? 74
Refund 75 If line 74 is more than line 63, subtract line 63 from line 74. This is the amount you overpaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
76a Amount of line 75 you want refunded to you. If Form 8888 is attached, check here . ? ? 76a
Direct deposit? See instructions. ? b
Routing number X X X X X X X X X ? c Type:  ? Checking  ? Savings
? d
Account number X X X X X X X X X X X X X X X X
77 Amount of line 75 you want applied to your 2017 estimated tax ? 77
Amount
You Owe
78 Amount you owe. Subtract line 74 from line 63. For details on how to pay, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? 78
79 Estimated tax penalty (see instructions) . . . . . . . . . . . . . . . . 79
Third Party Designee Do you want to allow another person to discuss this return with the IRS (see instructions)? ? Yes. Complete below. ? No
Designee's
name

?
Phone
no.

?
Personal identification
number (PIN) ?
Sign
Here

Joint return? See instructions. Keep a copy for your records.
Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
? Your signature Date Your occupation
CONVENTION MANAGER
Daytime phone number
Spouse's signature. If a joint return, both must sign. Date Spouse's occupation
PARALEGAL
If the IRS sent you an Identity Protection PIN, enter it here (see inst.)
Paid Preparer Use Only Print/Type preparer's name Preparer's signature Date Check ? if self-employed PTIN
Firm's name ? Firm's EIN ?
Firm's address ? Phone no.
KIA www.irs.gov/form1040 Form 1040 (2016)

Homework Answers

Answer #1

Lance h and Wanda b are the married now

John Allen & Wanda b are married previously now divorced.

The Penny and Kyle are two children of Wanda b and john Allen but after divorced custody of child with Wanda b.

And

Salaries. = 101000

Interest = 1550

Dividend = 950

Gift from parents. = exempt

Compensation from road

Runner Company. = 90000

Lottery (after 30% tds) = 420

It refunds. =400

Total. =194320

Deduction:

Interest on home mortgage. = (6000)

Chruch pledge. = (3600)

Life insurance premium. = (1200)

Contribution to ira. = (5000)

Contribution to re-election fund= (500)

Net income. =178020

Note:

1) The withheld tax should be deducted from the tax payable determined.

2) The penny income from her ability so it should not be clubbed with her parent’s income.

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