5.Will dividends earned on the insurance policy be included in the McNamara's gross income this year?Explain your response.

6.Should the McNamaras itemize deductions for 2018 or take the standard deduction?Show your computations.

Use the information below to answer the question

Valerie (age 52) & Stephen (age 55) McNamara have been married for 25 years and have one adult child, Tom, who is living on his own.They purchased their current home 7 years ago for $550,000.

Valerie & Stephen file joint tax returns.The table below summarizes their financial data for tax purposes.Use this information when you are answering the questions that follow.

Tax Item

Amount

Stephen's Earnings

$100,000

Valerie's Earnings

$120,000

Federal Tax Withholdings

$22,700

State Income Tax Withholdings

$11,750

FICA & M/C

$15,683

Savings Account Interest (2.5% per year)

$1,800

State Refund from Prior Year

$1,200

Home Mortgage Interest Paid (original mortgage on home valued at 500,000.)

$12,500

Real Estate Taxes Paid

$16,500

Charitable Contributions

$1,000

Unreimbursed Medical Expenses

$2,800

Stock Ownership: Union Motor Company (purchased 9 months ago & which they still hold)

Current Value:$4,000

Cost basis: $10,000

Whole Life Insurance Policy

Face Value: $100,000

Cash Value: $8,800

Owner: Stephen

Beneficiary: Valerie

Insured: Stephen

Policy Dividend: $300

The McNamaras itemized deductions for their federal return last year.Currently, neither Valerie nor Stephen has access to a qualified retirement plan through their work and they have not funded IRAs up to this point in time.They have access to a Section 125 flexible spending account through Valerie's employer.To date, they have not funded the account.Open enrollment is coming up and lasts for the next 30 days.For purposes of solving this case, use the tax information shown below.