Alice J. and Bruce M. Byrd are married taxpayers who file a joint return. Their Social Security numbers are 123-45-6789 and 111-11-1112, respectively. Alices birthday is September 21, 1969, and Bruces is June 27, 1968. They live at 473 Revere Avenue, Lowell, MA 01850. Alice is the office manager for Lowell Dental Clinic, 433 Broad Street, Low- ell, MA 01850 (employer identification number 98-7654321). Bruce is the manager of a Super Burgers fast-food outlet owned and operated by Plymouth Corporation, 1247 Central Avenue, Hauppauge, NY 11788 (employer identification number 11-1111111). The following information is shown on their Wage and Tax Statements (Form W2) for 2016.

Line	Description	Alice	Bruce
1	Wages, tips, other compensation	58000	62100
2	Federal Income Tax Withheld	4500	6300
3	Social Security Wages	58000	62100
4	Social Security Tax Withheld	3596	3850
5	Medicare wages and tips	58000	62100
6	Medicare tax withheld	841	900
15	State	Massachusetts	Massachusetts
16	State wages, tips, etc.	58000	62100
17	State income tax withheld	2950	3100

The Byrds provide over half of the support of their two children, Cynthia (born January 25, 1992, Social Security number 123-45-6788) and John (born February 7, 1996, Social Security number 123-45-6786). Both children are full-time students and live with the Byrds except when they are away at college. Cynthia earned $4,200 from a summer internship in 2016, and John earned $3,800 from a part-time job.

During 2016, the Byrds provided 60% of the total support of Bruces widower father, Sam Byrd (born March 6, 1940, 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 Sams life, received life insurance proceeds of $1,600,000 on December 28.

The Byrds had the following expenses relating to their personal residence during 2016:

Property Taxes	5000
Qualified interest on home mortgage	8700
Repairs to roof	5750
Utilities	4100
Fire and thief insurance	1900

The Byrds had the following medical expenses for 2016:

Medical insurance premiums	4500
Doctor bill for Sam incurred in 2015 and not paid until 2016	7600
Operation for Sam	8500
Prescription medicines for Sam	900
Hospital expenses for Sam	3500
Reimbursement from insurance company, received in 2016	3600

The medical expenses for Sam represent most of the 60% that Bruce contributed toward his fathers support. Other relevant information follows:

When they filed their 2015 state return in 2016, the Byrds paid additional state income tax of $900.

During 2016, 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 2016, the Byrds received interest income of $2,750, which was reported on a Form 1099INT from Second National Bank.

Alices employer requires that all employees wear uniforms to work. During 2016, Alice spent $850 on new uniforms and $566 on laundry charges.

Bruce paid $400 for an annual subscription to the Journal of Franchise Management and $741 for annual membership dues to his professional association.

Neither Alices nor Bruces 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.

All members of the Byrd family had health insurance coverage for all of 2016.

Alice and Bruce paid no estimated Federal income tax. Neither Alice nor Bruce wants to designate $3 to the Presidential Election Campaign Fund.

Part 1Tax Computation Compute net tax payable or refund due for Alice and Bruce Byrd for 2016. 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.

Part 2Tax Planning

Alice and Bruce are planning some significant changes for 2016. They have provided you with the following information and asked you to project their taxable income and tax liability for 2016.

The Byrds will invest the $1,600,000 of life insurance proceeds in short-term certificates of deposit (CDs) and use the interest for living expenses during 2016. They expect to earn total interest of $32,000 on the CDs.

Bruce has been promoted to regional manager, and his salary for 2016 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 2016. The estimated cost for her medical treatment is $15,400, of which $6,400 will be reimbursed by their insurance company in 2016. Their medical insurance premiums will increase to $9,769. Property taxes on their residence are expected to increase to $5,100. The Byrds' home mortgage interest expense and charitable contributions are expected to be unchanged from 2015.

John will graduate from college in December 2015 and will take a job in New York City in January 2016. His starting salary will be $46,000.

Assume that all of the information reported in 2015 will be the same in 2016 unless other information has been presented above.

Changes to Problem: Change all year ends to one year later (i.e., 2016 becomes 2017).

The following information should be helpful in your preparation of the tax return.

(1) (a) Requirement: Prepare the federal income tax return on the appropriate IRS forms. (Even if you use a software program, you must turn in manual entries on IRS forms.) Copies of those forms and instructions are also on reserve in the library and available at www.irs.gov.

(b) Additional Requirements: Prepare a brief top sheet summarizing the factual information in the format of the tax formula.

(2) Strategy: You might want to start with page 1 of the 1040 and manually make entries (pencil recommended). You may then need to do subsidiary forms (e.g., Schedules A & B). You might also want to work out the figures for the tax formula roughly first before beginning the return.

(3) Check Figures:

Adjusted gross income $122,850 Itemized deductions 38,536

Taxable income $68,114