Texts: Discussion Case 1
Holly and Zachary Neal, from Dublin, Virginia, are preparing to file their 2020 income taxes. Their children are grown; however, Holly’s mother, Martha, has moved in with them. As Holly is now caring for her mother, she is no longer working. Martha is dependent on their income for support except for her $536 monthly Social Security benefit. Zachary works for a software company and earns enough to keep their heads above water; however, he had to discontinue participation in his retirement plan so they could pay the bills. Holly is taking this opportunity to work toward her master’s degree. They know they will file jointly but need your help preparing their federal tax return. They have gathered all of the appropriate records, as follows:
USING INFO ABOVE and in pic ANSWER THESE QUESTIONS:
1. Which items listed on page 129 comprise “Gross income” for Holly & Zachary Neal as defined in Step 1 on page 108 and Figure 4.3 on page 112 and lines 7-21? What is the total amount?
- 1099-DIV, Capital Gains, short-term: $900
- Zachary's W-2, Wage and Tax Statement: $54,500
- Gambling winnings: $1,500
- Inheritance: $35,000
Total Gross Income: $92,900
2. Which items listed on page 129 comprise “Adjustments to Gross Income” as defined in Step 2 on page 1 and Figure 4.3 on page 112? What is the total amount?
- Holly's and Zachary's traditional IRA contributions: $5,000
- Martha's unreimbursed medical expenses: $5,100
- Holly's and Zachary's unreimbursed medical expenses: $1,700
Total Adjustments to Gross Income: $11,800
3. What is the Neal’s Adjusted Gross Income?
Adjusted Gross Income = Gross Income - Adjustments to Gross Income
Adjusted Gross Income = $92,900 - $11,800
Adjusted Gross Income = $81,100
4. What tax advantages are available for Holly’s education expenses?
Please refer to the “Ch 4 Textbook Assignment Hints” in the course documents section of Blackboard.
5. Would the Neal’s benefit from itemizing their deductions as defined in step 3 on pages 109-110 or should they take the standard deduction on p 111?
Please refer to the “Ch 4 Textbook Assignment Hints” in the course documents section of Blackboard.
6. What is Martha’s Gross Taxable Income for the year?
Please refer to the “Ch 4 Textbook Assignment Hints” in the course documents section of Blackboard.
1099-DIV, Capital Gains, short-term: $900
Zachary's W-2, Wage and Tax Statement: $54,500
Gambling winnings: $1,500
Inheritance: $35,000
Holly's and Zachary's traditional IRA contributions: $5,000
Martha's unreimbursed medical expenses: $5,100
Holly's and Zachary's unreimbursed medical expenses: $1,700
Martha's total living expenses, excluding medical: $13,000
State taxes withheld and owed: $2,280
Mortgage interest expense: $6,000
Holly's student loan interest payments: $590
Holly's education expense: $5,450