Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2014. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. During 2016, he had the following receipts:

Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2016. Logan also was the designated beneficiary of an insurance policy on Daniel's life with a maturity value of $200,000. The lot in St. Louis was purchased on May 2, 2011, 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, 2016, 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. Logan's expenditures for 2016 include the following:

Logan and his dependents are covered by his employer's health insurance policy for all of 2016. However, he is subject to a deductible, and dental care is not included. The $10,500 dental charge was for Helen's implants. Helen is Logan's widowed mother, who lives with him (see below). Logan normally pledges $2,400 ($200 per month) each year to his church. On December 5, 2016, upon the advice of his pastor, he prepaid his pledge for 2017.
Logan's household, all of whom he supports, includes the following:
__________________________ Social Security Number _____ Birth Date
Logan Taylor (age 48) ............... 123-45-6787 .................. 08/30/1968
Helen Taylor (age 70) ............... 123-45-6780 .................. 01/13/1946
Asher Taylor (age 23) ............... 123-45-6783 .................. 07/18/1993
Mia Taylor (age 22) .................. 123-45-6784 .................. 02/16/1994
Helen 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 1-Tax Computation
Using the appropriate forms and schedules, compute Logan's income tax for 2016. 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 of Social Security and Medicare taxes were withheld. Logan does not want to contribute to the Presidential Election Campaign Fund. Suggested software: H&R BLOCK Tax Software.
Part 2-Follow-Up Advice
In early 2017, the following take place:
• Helen decides that she wants to live with one of her daughters and moves to
Arizona.
• Asher graduates from dental school and joins an existing practice in St. Louis.
• Mia marries, and she and her husband move in with his parents.
• Using the insurance proceeds he received on Daniel's death, Logan pays off the mortgage on his personal residence.
Logan believes that these events may have an effect on his tax position for 2017.
Therefore, he requests your advice.
Write a letter to Logan explaining in general terms the changes that will occur for tax purposes. Assume that Logan's salary and other factors not mentioned (e.g., property and state income taxes) will remain the same. Use the Tax Rate Schedules in projecting Logan's tax for 2017.

Transcribed Image Text:

Salary Interest income- Money market account at Omni Bank Savings account at Boone State Bank City of Springfield general purpose bonds Inheritance from Daniel Life insurance proceeds Amount from sale of St. Louis lot Proceeds from estate sale Federal income tax refund (for 2014 tax overpayment) $ 80,000 $ 300 1,100 4400 60,000 200,000 80,000 3,000 9,000 700 Medical expenses (induding $10,500 for dental) $11,500 Taxes- State of Missouri income tax (includes withholdings during 2016) Property taxes on personal residence Interest on home mortgage Contribution to church (paid pledges for 2015 and 2016) $3,200 4,500 7,700 4,600 4,800