Please complete the required 2017 federal individual income tax return forms for the following taxpayer. You must complete the forms neatly by hand. You may not use any tax return preparation software. Please use the 2017 version of the required forms. You can access links to the forms on Blackboard under "External Links", or you can access the forms from the Internal Revenue Service website at irs.gov. You will need to complete Form 1040, pages 1 and 2; and Schedule A, Itemized Deductions. Ignore alternative minimum tax calculations. Ignore the requirement to attach the form(s) W-2 to the front page of the Form 1040. If required information is missing, use reasonable assumptions to fill in the gaps.
• Please round all tax return entries to the nearest dollar.
• Please use the tax rate schedule at the back of your text to calculate any tax liability.
• Please recall that the personal and dependency exemptions apply for tax year 2017. Each exemption is $4,050 for 2017. Pay particular attention to line 42 on page 2 of the Form 1040.
• Please disregard any tax credits for the 2017 tax return and the 2018 tax projection as we have not covered them in class yet.
• AGI should equal $108,890, and total tax on line 63 should equal $9,914.
A. 2017 Income Tax Return
Eddie, age 43, and Lucy Brown, age 44, are married and live in Any Town, Missouri. The Browns have two children Pete age 20 who is a full-time student, and Peg age 18. In addition, Lucy's grandmother, EstelleMacGruder, lives in her own home near the Brown's home. Estelle'sgross income for the year is $3,000, and the Browns provided more than half of her support for the year. The Browns would like to file a joint tax return for the year.
The following information relates to the Brown's tax year:
• Eddie's Social Security number is XXX-45-1234.
• Lucy's Social Security number is XXX-37-4893.
• Pete's Social Security number is XXX-32-5690.
• Peg's Social Security number is XXX-32-4690.
• Estelle's Social Security number is XXX-37-4894.
• The Brown's mailing address is 123 Bear Drive, Any Town, Missouri 65897.
Eddie Brown received the following wages during the year:
Federal Income Tax Withholding
State Income Tax Withholding
Lucy Brown received the following wages during the year:
Federal Income Tax Withholding
State Income Tax Withholding
Any Town Accountants
All applicable and appropriate payroll taxes were withheld by Eddie and Lucy Brown's employers.
The Browns also received the following during the year:
• Interest income from Missouri State Bank $90
• Interest income from City of Any Town, MO Bond$350
• Interest income from U.S. Treasury Bond $700
• Worker's compensation payments to Eddie $4,250
• Disability payments received by Eddie on account of injury $3,600
o US Storage paid 100% of the premiums on the policy and included the premium payments in Eddie's taxable wages.
• Gambling winnings $100
• Receipt of payment by Lucy as a result of a lawsuit for damages sustained in a car accident:
o Medical Expenses $3,000
o Emotional Distress$11,000
o Punitive Damages$12,000
The Browns did not own, control or manage any foreign bank accounts nor were they a grantor or beneficiary of a foreign trust during the tax year.
The Browns paid the following expenses during the year:
Dentist/Orthodontist (unreimbursed by insurance)$7,550
Doctors (unreimbursed by insurance)$ 675
Prescriptions (unreimbursed by insurance)$ 390
Real property tax on residence$1,200
Vehicle (personal) property tax based upon value of cars$ 400
Mortgage interest on principal residence$7,000
Contribution to Red Cross$ 500
Contribution to state senator re-election campaign$1,000
Contribution to First Methodist Church of Any Town $4,000
Contribution to financially struggling neighbor$ 250
Lucy also paid $2,600 in student loan interest during the year on a qualified education loan.
The Browns drove 500 miles in total to receive medical treatment at a hospital in March.
Lucy would like to contribute the maximum deductible contribution to herIRA account. Neither she nor Eddie participates in an employer sponsored retirement plan.
The Browns want to contribute to the Presidential Election Campaign. The Browns would like to receive a refund (if any) of any tax they may have overpaid for the year. Their preferred method of receiving the refund is by check.
Everyone listed on the tax return had health care insurance coverage for all of 2017.
B. 2018 Income Tax Projection
The Browns heard about the 2017 Tax Cuts and Jobs Act, and expressed concern about their withholding from their 2018 wages. Using their 2017 information (with the exception of changes noted below), the attached form on page 3, the 2018 tax rate tables posted on Blackboard, and the new standard deduction (if applicable), calculate the Browns' 2018 income tax due/refund so that they can adjust their federal tax withholdings if necessary.
Assume the following changes for tax year 2018:
1. Eddie will not receive worker's compensation or benefits from disability insurance in 2018.
2. Lucy will not receive any additional amounts from the lawsuit settlement.
The tax return project is due Thursday, April 5, 2018 at the beginning of class. It is worth 30 points.
2018 Income Tax Projection
Total Gross Income_________________
Adjustments from Gross Income ("For AGI Deductions")
Total Adjustments to Gross Income_________________
Adjusted Gross Income_________________
Less: Itemized or Standard Deduction (2018)_________________
Taxable Income _________________
Tax (Use 2018 Tax Rate Schedules)_________________
Federal Income Tax Withheld_________________
Refund or (Tax Due)_________________
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