42. LO.2, 3, 4, 5, 7, 9 Bart and Susan Forrest, both age 47, are married and have no dependents. They have asked you to advise them whether they should file jointly or separately in 2013. They present you with the following information:

Bart Susan Joint Salary $38,000 Business net income $110,000 Interest income 400 1,200 $2,200 Deductions for AGI 2,400 14,000 Medical expenses 10,427 3,358 State income tax 800 1,800 Real estate tax 3,800 Mortgage interest 4,200 Unreimbursed employee expenses 1,200 If they file separately, Bart and Susan will split the real estate tax and mortgage interest deductions equally. Write Bart and Susan a letter in which you make and explain a During 2012, the Byrds furnished 60% of the total support of Bruce’s widower father, Sam Byrd (born March 6, 1936, Social Security number 123-45-6787). Sam lived alone and covered the rest of his support with his Social Security benefits. Sam died in November, and Bruce, the beneficiary of a policy on Sam’s life, received life insurance proceeds of $800,000 on December 28.
The Byrds had the following expenses relating to their personal residence during 2012:
Property taxes $5,000 Qualified interest on home mortgage 8,800 Repairs to roof 5,750 Utilities 4,100 Fire and theft insurance 1,900 The following facts relate to medical expenses for 2012:
Medical insurance premiums $4,500 Doctor bill for Sam incurred in 2011 and not paid until 2012 7,600 Operation for Sam 8,500 Prescription medicines for Sam 900 Hospital expenses for Sam 3,500 Reimbursement from insurance company, received in 2012 3,600 The medical expenses for Sam represent most of the 60% that Bruce contributed toward his father’s support.
Other relevant information follows:
• When they filed their 2011 state return in 2012, the Byrds paid additional state income tax of $900.
• During 2012, Alice and Bruce attended a dinner dance sponsored by the Lowell Police Disability Association (a qualified charitable organization). The Byrds paid $300 for the tickets. The cost of comparable entertainment would normally be $50.
• The Byrds contributed $5,000 to Lowell Presbyterian Church and gave used clothing (cost of $1,200 and fair market value of $350) to the Salvation Army. All donations are supported by receipts, and the clothing is in very good condition.
• In 2012, the Byrds received interest income of $2,750, which was reported on a Form 1099–INT from Second National Bank.
• Alice’s employer requires that all employees wear uniforms to work. During 2012, Alice spent $450 on new uniforms and $225 on laundry charges.
• Bruce paid $400 for an annual subscription to the Journal of Franchise Management.
• Neither Alice’s nor Bruce’s employer reimburses for employee expenses.
• The Byrds do not keep the receipts for the sales taxes they paid and had no major purchases subject to sales tax.
• Alice and Bruce paid no estimated Federal income tax. Neither Alice nor Bruce wants to designate $3 to the Presidential Election Campaign Fund.
Part 1—Tax Computation Compute net tax payable or refund due for Alice and Bruce Byrd for 2012. If they have overpaid, they want the amount to be refunded to them. If you use tax forms for your computations, you will need Forms 1040 and 2106 and Schedules A and B. Suggested software: H&R BLOCK At Home.
Part 2—Tax Planning Alice and Bruce are planning some significant changes for 2013. They have provided you with the following information and asked you to project their taxable income and tax liability for 2013.
The Byrds will invest the $800,000 of life insurance proceeds in short-term certificates of deposit (CDs) and use the interest for living expenses during 2013. They expect to earn total interest of $32,000 on the CDs.

Bruce has been promoted to regional manager, and his salary for 2013 will be $88,000. He estimates that state income tax withheld will increase by $4,000 and the Social Security tax withheld will be $5,456.
Alice, who has been diagnosed with a serious illness, will take a leave of absence from work during 2013. The estimated cost for her medical treatment is $15,400, of which $6,400 will be reimbursed by their insurance company in 2013. Their medical insurance premiums will increase to $9,769.
John will graduate from college in December 2012 and will take a job in New York City in January 2013. His starting salary will be $46,000.
Assume that all of the information reported in 2012 will be the same in 2013 unless other information has been presented above.