Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2014. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. During 2016, he had the following receipts:

Salary				$ 80,000
Interest income
Money market account at Omni Bank		$300
Savings account at Boone State Bank		1,100
City of Springfield general purpose bonds		3,000		4,400
Inheritance from Daniel				60,000
Life insurance proceeds				200,000
Amount from sale of St. Louis lot				80,000
Proceeds from estate sale				9,000
Federal income tax refund (for 2015 tax overpayment)				700

Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2016. 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, 2011, 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, 2016, 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 2016 include the following:

Medical expenses (including $10,500 for dental)				$11,500
Taxes
State of Missouri income tax (includes withholdings during 2016)		$3,200
Property taxes on personal residence		4,500		7,700
Interest on home mortgage (Boone State Bank)				4,600
Contribution to church (paid pledges for 2016 and 2017)				4,800

Logan and his dependents are covered by his employer's health insurance policy for all of 2016. 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, 2016, upon the advice of his pastor, he prepaid his pledge for 2017.

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

	Social Security Number	Birth Date
Logan Taylor (age 48)	123-45-6787	08/30/1968
Helen Taylor (age 70)	123-45-6780	01/13/1946
Asher Taylor (age 23)	123-45-6783	07/18/1993
Mia Taylor (age 22)	123-45-6784	02/16/1994

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.

Required:

Using the Form 1040, Form 8949 and Schedule A and Schedule D, compute Logan's income tax for 2016. 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.

Make realistic assumptions about any missing data.

Enter all amounts as positive numbers except any losses. Use the minus sign to indicate a loss.

If an amount box does not require an entry or the answer is zero, enter "0".

It may be necessary to complete the other tax schedules before completing Form 1040.

When computing the tax liability, do not round your immediate calculations. If required round your final answers to the nearest dollar.

Follow-up Advice Letter

In early 2017, 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 Daniels death, Logan pays off the mortgage on his personal residence.

Logan believes that these events may have an effect on his tax position for 2017. Therefore, he requests your advice. Complete the letter to Logan explaining in general terms the changes that will occur for tax purposes. Assume that Logans salary and other factors not mentioned (e.g., property and state income taxes) will remain the same. The personal exemption for 2017 is $4,050. Use the 2017 tax rate schedules (click here) in projecting Logans tax for 2017.

Hoffman, Young, Raabe, Maloney, & Nellen, CPAs 5191 Natorp Boulevard Mason, OH 45040

November 22, 2017

Mr. Logan B. Taylor 4680 Dogwood Lane Springfield, MO 65801

Dear Mr. Taylor:

In response to your inquiry regarding the Federal income tax situation for 2017, the news (is, is not) favorable. The following developments will cause (a decrease, an increase) in your taxes:

Your applicable filing status moves from surviving spouse to (head of household, single) . The result is a shift from the (highest to the lowest, lowest to the highest) progressive tax rates.

The capital loss deduction is $X which is $ X less than last year.

For various reasons, (only your mother, only your children, your children and mother) no longer qualify as dependents. The loss of (one dependency exemption, two dependency exemptions, three dependency exemptions) causes a $X reduction in deductions.

Because of (more, less, no) medical expense and (more, less, no) interest and charitable deductions, your itemized deductions (increase, decrease) by $X.

Based on last years data, an estimate of your Federal income tax liability for 2017 is ($12,651, $18,890, $22,744) . If I can be of further assistance to you in this matter, please do not hesitate to contact me.

Sincerely,

Charles Spain

Partner