Paul and Donna Decker are married taxpayers, ages 44 and 42, respectively, who file a joint return for 2017. The Deckers live at 1121 College Avenue, Carmel, IN 46032. Paul is an assistant manager at Carmel Motor Inn, and Donna is a teacher at Carmel Elementary School. They present you with W-2 forms that reflect the following information:
_________________________________________ Paul _____________ Donna
Salary ..................................................... $68,000 ............... $56,000
Federal tax withheld ..................................... 6,770 ................... 6,630
State income tax withheld ................................ 900 ....................... 800
FICA (Social Security and Medicare) withheld ..... 5,202 .................... 4,284
Social Security numbers ........................ 111-11-1112 ......... 123-45-6789
Donna is the custodial parent of two children from a previous marriage who reside with the Deckers through the school year. The children, Larry and Jane Parker, reside with their father, Bob, during the summer. Relevant information for the children follows:
______________________________________ Larry ________________ Jane
Age .................................................... 17 .............................. 18
Social Security numbers ....................... 123-45-6788 ............ 123-45-6787
Months spent with Deckers ......................... 9 ............................... 9
Under the divorce decree, Bob pays child support of $150 per month per child during the nine months the children live with the Deckers. Bob says that he spends $200 per month per child during the three summer months they reside with him. Donna and Paul can document that they provide $2,000 of support per child per year. The divorce decree is silent as to which parent can claim the exemptions for the children.
In August, Paul and Donna added a suite to their home to provide more comfortable accommodations for Hannah Snyder (Social Security number 123-45-6786), Donna's mother, who had moved in with them in February 2016 after the death of Donna's father. Not wanting to borrow money for this addition, Paul sold 300 shares of Acme Corporation stock for $50 per share on May 3, 2017, and used the proceeds of $15,000 to cover construction costs. The Deckers had purchased the stock on April 29, 2012, for $25 per share. They received dividends of $750 on the jointly owned stock a month before the sale.
Hannah, who is 66 years old, received $7,500 in Social Security benefits during the year, of which she gave the Deckers $2,000 to use toward household expenses and deposited the remainder in her personal savings account. The Deckers determine that they have spent $2,500 of their own money for food, clothing, medical expenses, and other items for Hannah. They do not know what the rental value of Hannah's suite would be, but they estimate it would be at least $300 per month.
Interest paid during the year included the following:
Home mortgage interest (paid to Carmel Federal Savings and Loan) ................. $7,890
Interest on an automobile loan (paid to Carmel National Bank) ......................... 1,660
Interest on Citibank Visa card .................................................................. 620
In July, Paul hit a submerged rock while boating. Fortunately, he was uninjured after being thrown from the boat and landing in deep water. However, the boat, which was uninsured, was destroyed. Paul had paid $25,000 for the boat in June 2016, and its value was appraised at $18,000 on the date of the accident.
The Deckers paid doctor and hospital bills of $10,700 and were reimbursed $2,000 by their insurance company. They spent $640 for prescription drugs and medicines and $5,904 for premiums on their health insurance policy. They have filed additional claims of $1,200 with their insurance company and have been told they will receive payment for that amount in January 2018. Included in the amounts paid for doctor and hospital bills were payments of $380 for Hannah and $850 for the children. All members of the Decker family had health insurance coverage for all of 2017.
Additional information of potential tax consequence follows:
Real estate taxes paid ........................................................... $3,850
Sales taxes paid (per table) ...................................................... 1,379
Contributions to church ........................................................... 1,950
Appraised value of books donated to public library ............................ 740
Paul's unreimbursed employee expenses to attend hotel management convention:
Airfare ................................................................................. 340
Hotel ................................................................................... 170
Meals .................................................................................... 95
Registration fee ....................................................................... 340
Refund of state income tax for 2016 (the Deckers itemized on their 2016
Federal tax return) .............................................................. 1,520
Compute net tax payable or refund due for the Deckers for 2017. Ignore the child tax credit in your computations. If the Deckers have overpaid, the amount is to be credited toward their taxes for 2018?