In-class Problem

Jonathan and Amanda Green support both Jonathans parents and Amandas parents, who live with them. Jonathans parents are 83 and 77 years of age respectively and have no income except for the $2,600 in combined Social Security income they receive annually. Amandas parents, both 67 years of age, have the following combined sources of income:

Social Security $9,500

Interest Income $3,600

Dividend Income $1,900

Jonathans annual salary is $65,000 and his wifes annual salary is $43,000.

They have three small children who live at home. The Green provide all the support for all their three children, who have no income of their own. Also, they own an apartment house, which they rented out on January 1, 2017, for $750 per month (a 3-year lease). In January 2017 the tenant also made a security deposit of $750, which the Greene will apply towards the final months rent. The same tenant also paid January 2018 rent in advance in December 2017 (another $750).

Jonathan and Amanda have additional sources of interest income, as follows:

General Corp. nonqualified common stock dividend (U.S. corporation) $600

Interest income from savings accounts $1,850

Interest income from State of Alaska Highway Bonds $800

Amanda entered the local area bake-off, won first place for her cherry pie, and received a $1,000 cash prize.

Jonathan, who is an accountant, made an arrangement with Marcus the dentist. Jonathan would do Marcuss tax work if Marcus would take care of Jonathan and his familys dental work. During the year, Jonathan estimated that the value of his services to Marcus was $500 and that Marcus gave Jonathan and his family $600 worth of dental services. In December, Jonathan did a consulting assignment on a weekend and received $700. No Social Security or taxes were withheld.

During the year, they had $22,000 withheld for federal taxes. During 2017, Jonathan and Amanda have $14,000 of itemized deductions. Compute Jonathan and Amandas net tax due, including self-employment tax. Assume dividends are taxed at ordinary rates.

What is their federal tax refund?