54. Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2010. He lives at 4680Dogwood Lane, Springfield, Missouri 65801. He is employed as a paralegal by a local law firm. During 2012, he reported the following receipts.Salary $ 80,000Interest incomeMoney market account at Omni Bank $ 300Savings account at Bosne State Bank 1,100City of Springfield general purpose bonds 3,000 4,400Inheritance from Daniel 60,000Life insurance proceeds 200,000Amount from sale of St. Louis lot 80,000Proceeds from estate sale 9,000Federal income tax refund (for 2011 tax overpayment) 700Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2012.Logan also was the designated beneficiary of an insurance policy on Danielâs life with a maturity value of $200,000. The lot in St. Louis was purchased on May 2, 2007, for $85,000 and held as an investment. As the neighborhood has deteriorated, Logan decided to cut his losses and sold the lot on January 5, 2012, for $80,000. The estate sale consisted largely of items belonging to Sara and Daniel (e.g., camper, boat, furniture, and fishing and hunting equipment). Logan estimates that the property sold originally cost at least twice the $9,000 he received and has declined or stayed the same in value since Sara and Daniel died.Loganâs expenditures for 2012 include the following.Medical expenses (including $10,500 for dental services) $11,500TaxesState of Missouri income tax (includes withholdings during 2012) $3,200Property taxes on personal residence 4,500 7,700Interest on home mortgage 4,600Contribution to church (paid pledges for 2012 and 2013) 4,800Tax Return ProblemLogan and his dependents are covered by his employerâs health insurance policy.However, he is subject to a deductible, and dental care is not included. The $10,500 dental charge was for Helenâs implants. Helen is Loganâs widowed mother, who lives with him (see below). Logan normally pledges $2,400 ($200 per month) each year to his church. On December 5, 2012, upon the advice of his pastor, he prepaid his pledge for 2013.Loganâs household, all of whom he supports, includes the following.Social Security Number Birth DateLogan Taylor (age 48) 123-45-6787 08/30/1964Helen Taylor (age 70) 123-45-6780 01/13/1942Asher Taylor (age 23) 123-45-6783 07/18/1989Mia Taylor (age 22) 123-45-6784 02/16/1990Helen, Loganâs mother, receives a modest Social Security benefit. Asher, a son, is a full-time student in dental school and earns $4,500 as a part-time dental assistant. Mia, a daughter, does not work and is engaged to be married.Part 1âTax ComputationUsing the appropriate forms and schedules, compute Loganâs income tax for 2012. Federal income tax of $5,500 was withheld from his wages. If Logan has any overpayment on his income tax, he wants the refund sent to him. Assume that the proper amounts ofSocial Security and Medicare taxes were withheld. Logan does not want to contribute to the Presidential Election Campaign Fund. Suggested software: H&R BLOCK At Home.Part 2âFollow-Up AdviceIn early 2013, the following events take place.â¢ Helen decides that she wants to live with one of her daughters and moves to Arizona.â¢ Asher graduates from dental school and joins an existing practice in St. Louis.â¢ Mia marries, and she and her husband move in with his parents.â¢ Using the insurance proceeds he received on Danielâs death, Logan pays off the mortgage on his personal residence.Logan believes that these events may have an effect on his tax position for 2013.Therefore, he requests your advice.Write a letter to Logan explaining in general terms how the 2013 events will affect hisFederal income tax liability. Assume that Loganâs salary and other factors not mentioned (e.g., property and state income taxes) will remain the same. Use the Tax Rate Schedules in projecting Loganâs tax for 2013.
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