It is now March $2024$; the Reynolds family are working on their taxes for $2023.$ Below is their

basic information: Emily Reynolds $(45)$ works as an elementary school teacher at Mountain

View Elementary School in San Diego, California. Her husband, Alex Reynolds $(46),$ is

employed as a commercial pilot for Soar High Airlines, also in San Diego. Emily and Alex reside

in a recently purchased home in Del Mar area. The couple has two children who lived with them

throughout the year. Olivia is $12,$ and Ethan $(19)$ is now a full$-$time student at SDSU. Neither

child provided more than half of their own support. Emily and Alex had the following

transactions in $2023$:

$1.$ Alex's annual salary as a commercial pilot is $$210,000.$ Emily's annual salary is $$98,000.$

$2.$ In addition to their salaries, Alex and Emily have various investments and received the

following income on their investments: $$550$ in interest from San Diego municipal bonds;

$$2,070$ interest from mutual funds; $$65$ in interest from their joint savings account;

$$17,000$ net long$-$term capital gain from various stocks they disposed. During $2023,$ their

stock portfolio appreciated by $$16,800,$ but they have not sold these stocks.

$3.$ The Reynolds own a rental property. This year, they received $$42,000$ of rental payments

from tenants and incurred $$20,000$ of expenses associated with the rental.

$4.$ Early $2023,$ the Reynolds sold their previous residence for $$1\mathrm{.}4$ million, which they

bought $10$ years ago for $$800,000.$ The newly purchased home was bought at $$2\mathrm{.}2$ million

in $2023,$ with a mortgage of $$750,000.$ In $2023,$ they paid total property tax of $$26,000,$

and mortgage interest of $$11,050.$

$5.$ Alex injured his arm on a family skiing trip and was unable to fly for three weeks. He

received $$9,000$ for disability pay from his disability insurance policy. Soar High Airlines

paid $$1,200$ in premiums on this policy during $2023.$ The disability insurance policy

premiums are paid for by Soar High Airlines as a nontaxable fringe benefit to Alex.

$6.$ In September, Emily was hit by a car while crossing the street near her school. The

driver$$s insurance company paid her $$2,800$ for medical expenses relating to her injuries

from the accident, $$5,000$ for emotional distress from the accident, and $$20,000$ as

punitive damage.

$7.$ Alex$$s father died in $2023.$ Alex received a $$100,000$ death benefit from his father$$s life

insurance policy and inherited a property with a value of $$30,000.$ Olivia and Ethan also

each received $$50,000$ worth of stocks, generating dividend income of $$3,800$ for the

year.

$8.$ The Reynolds donated $$30,000$ cash to their local church.

$9.$ In $2023,$ Emily enrolled in a community college to take a class on Advanced Classroom

Management, and paid tuition of $$1,200.$

$10.$ Olivia went to a summer camp and the tuition was $$3,200.$

$11.$ The Reynolds paid a total state income tax of $$22,000.$

$12.$ Alex had $$36,750$ of federal income tax withheld by his employer and Emily had

$$11,000.$ They did not make any estimated tax payments. Their tax liability last year was

$$35,800.$

Requirements:

$1.$ Pease determine each of the family members filing status and filing requirements $($whether or not

they need to file$)$ for $2023.$

$2.$ Please use the income tax formula to determine the Reynolds$$s federal income taxes dues or taxes

payable for the current year. Make sure that you list all items, such as different items of gross

income, for AGI and from AGI deductions, tax credits, repayments etc. to receive full credits. For

income excluded, you may also list with $$0.$ For each of the items listed, consider show calculations

for partial credits.

$3.$ Determine the amount of FICA taxes Emily and Alex are required to pay.

$4.$ What is the due date of the Reynolds$$ tax return, if they plan not to request an extension?

$5.$ Would the Reynolds be subject to underpayment penalty and what is the amount, if any? Assume

the federal short$-$term rate is $5$ percent.

$6.$ What do they need to do to avoid the underpayment penalty?

$7.$ Are Olivia and Ethan subject to Kiddie tax? Why or why not? Are there any ways for them to

avoid Kiddie tax? Explain.