Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2011. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. During 2013, he had the following receipts:

Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2013. Logan also was the designated beneficiary of an insurance policy on Daniel?s life with a maturity value of $200,000. The lot in St. Louis was purchased on May 2, 2008, for $85,000 and held as an investment. As the neighborhood has deteriorated, Logan decided to cut his losses and sold the lot on January 5, 2013, for $80,000. The estate sale consisted largely of items belonging to Sara and Daniel (e.g., camper, boat, furniture, and fishing and hunting equipment). Logan estimates that the property sold originally cost at least twice the $9,000 he received and has declined or stayed the same in value since Sara and Daniel died.

Logan?s expenditures for 2013 include the following:

Logan and his dependents are covered by his employer?s health insurance policy. However, he is subject to a deductible, and dental care is not included. The $10,500 dental charge was for Helen?s implants. Helen is Logan?s widowed mother, who lives with him (see below). Logan normally pledges $2,400 ($200 per month) each year to his church. On December 5, 2013, upon the advice of his pastor, he prepaid his pledge for 2014.

Logan?s household, all of whom he supports, includes the following:

Helen receives a modest Social Security benefit. Asher, a son, is a full-time student in dental school and earns $4,500 as a part-time dental assistant. Mia, a daughter, does not work and is engaged to be married.

Part 1?Tax Computation

Using the appropriate forms and schedules, compute Logan?s income tax for 2013. Federal income tax of $5,500 was withheld from his wages. If Logan has any overpayment on his income tax, he wants the refund sent to him. Assume that the proper amounts of Social Security and Medicare taxes were withheld. Logan does not want to contribute to the Presidential Election Campaign Fund. Suggested software: H&R BLOCK Tax Software.

Part 2?Follow-Up Advice

In early 2014, the following take place:

? Helen decides she wants to live with one of her daughters and moves to Arizona.

? Asher graduates from dental school and joins an existing practice in St. Louis.

? Mia marries, and she and her husband move in with his parents.

? Using the insurance proceeds he received on Daniel?s death, Logan pays off the mortgage on his personal residence.

Logan believes these events may have an effect on his tax position for 2014. Therefore, he requests your advice.

Write a letter to Logan explaining in general terms the changes that will occur for tax purposes. Assume that Logan?s salary and other factors not mentioned (e.g., property and state income taxes) will remain the same. Use the Tax Rate Schedules in projecting Logan?s tax for 2014.

Week 1 Assignment --Tax Return Problem P3-55 Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2013. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. During 2015, he had the following receipts: Salary Interest income Money market account at Omni Bank Savings account at Boone State Bank City of Springfield general purpose bonds Inheritance from Daniel Life insurance proceeds Amount from sale of St. Louis lot Proceeds from estate sale Federal income tax refund (for 2014 tax overpayment) $80,000 $300 1,100 3,000 4,400 60,000 200,000 80,000 9,000 700 Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2015. Logan also was the designated beneficiary of an insurance policy on Daniel's life with a maturity value of $200,000. The lot in St. Louis was purchased on May 2, 2010, for $85,000 and held as an investment. As the neighborhood has deteriorated, Logan decided to cut his losses and sold the lot on January 5, 2015, for $80,000. The estate sale consisted largely of items belonging to Sara and Daniel (e.g., camper, boat, furniture, and fishing and hunting equipment). Logan estimates that the property sold originally cost at least twice the $9,000 he received and has declined or stayed the same in value since Sara and Daniel died. Logan's expenditures for 2015 include the following: Medical expenses (including $10,500 for dental) Taxes State of Missouri income tax (includes withholdings during 2015) Property taxes on personal residence Interest on home mortgage $11,500 $3,200 4,500 7,700 4,600 Contribution to church (paid pledges for 2015 and 2016) 4,800 Logan and his dependents are covered by his employer's health insurance policy for all of 2015. However, he is subject to a deductible, and dental care is not included. The $10,500 dental charge was for Helen's implants. Helen is Logan's widowed mother, who lives with him (see below). Logan normally pledges $2,400 ($200 per month) each year to his church. On December 5, 2015, upon the advice of his pastor, he prepaid his pledge for 2015. Logan's household, all of whom he supports, includes the following: Logan Taylor (age 48) Helen Taylor (age 70) Asher Taylor (age 23) Mia Taylor (age 22) Social Security Number Birth Date 123-45-6787 123-45-6780 123-45-6783 123-45-6784 08/30/1967 01/13/1945 07/18/1992 02/16/1993 Helen receives a modest Social Security benefit. Asher, a son, is a full-time student in dental school and earns $4,500 as a part-time dental assistant. Mia, a daughter, does not work and is engaged to be married. Part 1Tax Computation Compute Form 1040 U.S. Individual Income Tax Return 2015 for Logan B. Taylor using the H&R BLOCK Tax Software. Federal income tax of $5,500 was withheld from his wages. If Logan has any overpayment on his income tax, he wants the refund sent to him. Assume that the proper amounts of Social Security and Medicare taxes were withheld. Logan does not want to contribute to the Presidential Election Campaign Fund. After you complete the Tax Return, submit only FORM 1040 in the Gradebook. Do not submit any of the accompanied Schedules & Forms or Tax Return computations. Note: Read the attached file, as it pertains, the numerical computations for the Tax Return and the accompanied 1040 Schedules A, D, and Form 8949. Suggested software: H&R BLOCK Tax Software. Part 2Follow-Up Advice (Solution Provided) In early 2016, the following take place: Helen decides that she wants to live with one of her daughters and moves to Arizona. Asher graduates from dental school and joins an existing practice in St. Louis. Mia marries, and she and her husband move in with his parents. Using the insurance proceeds he received on Daniel's death, Logan pays off the mortgage on his personal residence. Logan believes that these events may have an effect on his tax position for 2016. Therefore, he requests your advice. Write a letter to Logan explaining in general terms the changes that will occur for tax purposes. Assume that Logan's salary and other factors not mentioned (e.g., property and state income taxes) will remain the same. Use the Tax Rate Schedules in projecting Logan's tax for 2016. Read the Tax Return computations below: P3-55. Part 1Tax Computation Salary Interest income Omni Bank Boone State Bank City of Springfield bonds (Note 1) Inheritance (Note 2) Life insurance proceeds (Note 3) Sale of lot held as an investment (Note 4) Estate sale (Note 5) Federal income tax refund (Note 6) Adjusted gross income (AGI) Itemized deductions from AGI Medical [$11,500 (10% $78,400)] Taxes $80,000 $ 300 1,100 -0- $3,660 1,400 -0- -0- (3,000) -0- -0- $78,400 State income tax $3,200 Property tax 4,500 Interest on home mortgage Charitable contributions (Note 7) Personal and dependency exemptions (4 $4,000) (Note 8) Taxable income 7,700 4,600 4,800 Tax from 2015 Tax Table (Note 9) Less: Withholdings Net tax payable (or refund due) (20,760) (16,000) $41,640 $5,321 (5,500) ($ 179) Notes (1) Interest on state and local bonds is excluded from gross income. See Exhibit 3.1 in the text. (2) Inheritances are excluded from gross income. See Exhibit 3.1 in the text. (3) Life insurance proceeds are nontaxable. See Exhibit 3.1 in the text. Read IRS: Taxable or Non-Taxable Income? (4) Logan has a realized long-term capital loss of $5,000 [$80,000 (selling price) $85,000 (cost basis)] from the sale of the lot. Absent any offsetting capital gains, however, he can deduct only $3,000 against ordinary income. The $2,000 unabsorbed capital loss can be carried over to 2016. (5) The basis of the property inherited is its fair market value on the date of the decedent's death. The basis of any other property that was sold is its cost (see Chapter 14 in the text). Consequently, the estate sale most likely resulted in a realized loss. Because the loss is personal, it cannot be recognized. Thus, the estate sale results in no income tax consequences. (6) A Federal income tax refund is a return of a nondeductible expenditure and, therefore, is nontaxable. (7) Charitable contributions are deductible in the year paid ($2,400 + $2,400 = $4,800). Therefore, the year for which they were pledged does not matter. (8) Helen and Mia meet the qualifying relative tests. Asher is a qualifying child (under age 24 and a full-time student), so he is not subject to the gross income test. (9) Logan is a surviving spouse for filing purposes. Part 2Follow-Up Advice Hoffman, Young, Raabe, Maloney, & Nellen, CPAs 5191 Natorp Boulevard Mason, OH 45040 February 28, 2016 Logan B. Taylor 4680 Dogwood Lane Springfield, MO 65801 Dear Mr. Taylor: In response to your inquiry regarding the Federal income tax situation for 2016, the news is not good. The following developments will cause an increase in your taxes: The applicable filing status moves from surviving spouse to single. The result is a shift from the lowest to the highest progressive tax rates. The capital loss deduction is $2,000, or $1,000 less than last year. For various reasons, your children and mother no longer qualify as dependents. The loss of three dependency exemptions causes a $12,150 ($4,050 3) reduction in deductions. Because of less medical expense and no interest and charitable deductions, your itemized deductions decrease by $13,060 (from $20,760 to $7,700). Based on last year's data, an estimate of your Federal income tax liability for 2016 is $12,684* (or $7,363 more than the $5,321 for 2015). If I can be of further assistance to you in this matter, please do not hesitate to contact me. Sincerely, Charles Spain Partner *$81,400 (AGI without $3,000 capital loss deduction $2,000 (capital loss carryover) = $79,400 (AGI) $7,700 (itemized deductions; greater than the $6,300 standard deduction) $4,050 (personal exemption) = $67,650 (taxable income). Tax is $12,683.75 [$5,183.75 + 25%($67,650 $37,650)] under the 2016 Tax Rate Schedules for single taxpayers