Computation of Federal tax liability and Balance Due

Question

Prepare a solution to the following problem on worksheets, showing all computations. Your first sheet should mirror the line items on Form 1040 and be a summary of the computation of taxable income and tax liability. Only include the 1040 line items you are using in your solution. Computations of the line items on your summary sheet should be on a separate worksheet. For example, your computations of the net amounts of Sch. A, B, C, D and E should be made on a supporting worksheet with only the totals carried to the summary sheet. All amounts should appear in the same order as shown on Form 1040. Ignore self-employment taxes and all tax credits, including the child tax credit.

 

Facts

John and Mary Hagan, ages 33 and 29, are married and file a joint return. They reside in New Rochelle, New York and have 2 dependent children, Michael and Melissa, both aged 14. John is employed by Hi-Tech Inc. and in 2015 earned a salary of $75,000 from which Federal tax of $9,000 was withheld and New York State tax of $4,000 was withheld. Mary is employed as a nurse by St. Joseph’s Hospital and she earned a salary of $31,000 on which there were Federal taxes withheld of $4,000 and New York State tax withheld of $2,000.

They have a bank account which yielded interest on savings of $750; a corporate bond issued by Greatstone Corp. which paid them interest of $2,400; a U.S. Treasury bond which paid them interest of $1,200; and they have a New York State municipal bond which paid them interest of $2,000.

They also own shares of IBM stock which paid them a qualified dividend of $1,000.

John has a private consulting business in which he materially participates. His gross revenue for 2015 was $35,000 and he incurred expenses for advertising $3,500, insurance $3,000, legal fees $750, office expense $2,250, meals and entertainment $8,400 and utilities $1,800. John drives a 2010 Nissan which he acquired in 2012. During 2014 he drove 22,000 miles of which 3,000 miles were connected to his consulting business. He uses the standard mileage rate to compute his deduction. In addition, John purchased a new computer at a cost of $10,000 on December 15, 2015 for use in his consulting business. The computer is   used solely for business. John has decided that he should claim a Section 179 deduction for as much as allowable instead of regular depreciation.

On September 15, 2015 John and Mary sold 400 shares of Greatstone stock which they had acquired on November 1, 2013. They sold the stock for $12,000 and had purchased it for $7,000. They also sold a vacant lot which they had acquired on June 2, 2000. They sold the lot for $42,000 on 10/1/15 and had purchased it for $32,000. They also sold IBM stock on December 12, 2015 for $6,000; they had acquired this stock on December 20, 2014 for $10,000.

John and Mary also own a rental condominium in New Rochelle which has been rented for the entire year and was fully occupied by the tenant. They manage the property themselves and collected $24,000 in rents and paid expenses for maintenance $2,200, legal fees $3,000, mortgage interest $8,000, repairs $3,600, insurance $1,500 and real estate taxes $8,500. Depreciation amounted to $1,200. John and Mary also paid the following expenses during 2014: medical and dental expenses $11,500, real estate taxes on their home, $6,400, mortgage interest on their principal residence $7,800, they made cash contributions of $1,500 and paid tax preparation fees of $750. John also incurred $4,750 of business expenses in connection with his employment, none of which was reimbursed.

Compute John and Mary’s Federal tax liability and their balance due or overpayment for 2015.

** All expenses relate to 2015 and were paid in 2015, not 2014

 

Summary: This question belongs to accounting and discusses about a couple Federal tax liability and their balance due or overpayment for a given year.

Answer is in Excel format

 

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