2. This question is worth 25 points. Fatima and Eric (both age 28), are married and file a joint tax return. They are cash basis taxpayers 2018 income includes: 1. combined salary of $100,000 2. Fatima was in a car accident and received compensatory damages of $25,000 for her broken nose. She also received $10,000 in punitive damages. 3. Eric had a student loan. In 2018, when the balance was $23,000, the lender accepted a one time payment of $8,000 as full payment, discharging $15,000 of debt. Eric was solvent at the time. 4. interest income from Wayne Township bonds in the amount of $2,000 5. refund of 2017 NJ Income Taxes of $1,000 (the couple itemized their deductions in 2017, itemized deductions exceeded the standard deduction by $3,000). $3,000 400 12.000 5.000 2,000 The taxpayers also incurred and paid the following expenses during the year: 6* NU income tax withheld 7 Parking tickets 8 Alimony (Eric was previously married and pays Alimony to his ex-wife) 9 Legal fees associated with divorce proceedings-not tax related 10. Charitable contributions -paid on 12/30/18 with a credit card. The credit card bill was paid 1/15/19. Il Federal income tax payments withheld 12 Mortgage interest on principal residence 13* Property taxes (real estate taxes) on personal residence 14. Nephew, Angel, owns a home and could not make his real estate tax payment as he is unemployed. The couple paid Angel's taxes. 15* Health Insurance payments 16. Medical expenses 14,000 24,000 9,000 6,000 5,000 15,000 Requirements: A. Certain items above require special attention. Provide a sentence or two explaining limitations, rules, calculations of income/deductions, etc. for the following items: 3 - Why is this debt that was discharged taxable or not? 5 - What is the tax benefit rule? Apply it to the facts. 6 and 13 - What are these deductions referred to as? Is there a cap on these expenses? If so, what is the cap? 10 - In what year can this expertse be deducted (2018 or 2019)? Why? 14 - Can the taxpayers deduct costs of another person? Why or why not? 15 and 16 - State the rule for deducting medical expenses and apply the rule to the facts (i.e. provide a detailed calculation of the amount of medical expenses that can be deducted). B. Review items 6 through 16 above and list, by number, any non-deductible expenses (for example, if items 2 and 4 were expenses and non-deductible, your answer would simply state: 2,4). C. Using the tax formula, beginning with Income Broadly Conceived, provide a detailed calculation of the couple's 2018 taxable income (do NOT calculate the income tax). Your answer MUST follow the tax formula (do not simply include totals, list all items), or points will be deducted! Be certain to show your comparison of the standard deduction amount to total itemized deductions. D. Complete and attach Schedule A of Form 1040 to support your total itemized deductions