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Valerie (age 52) & Stephen (age 55) McNamara have been married for 25 years and have one adult child, Tom, who is living on his own. They purchased their current home 7 years ago for $550,000. Valerie & Stephen file joint tax returns. The table below summarizes their financial data for tax purposes. Use this information when you are answering the questions that follow. Amount $100,000 $120,000 $22,700 $11,750 $15,683 $1,800 Tax Item Stephen's Earnings Valerie's Earnings Federal Tax Withholdings State Income Tax Withholdings FICA & M/C Savings Account Interest (2.5% per year) State Refund from Prior Year Home Mortgage Interest Paid (original mortgage on home valued at 500,000.) Real Estate Taxes Paid Charitable Contributions Unreimbursed Medical Expenses Stock Ownership: Union Motor Company (purchased 9 months ago & which they still hold) Whole Life Insurance Policy $1,200 $12,500 $16,500 $1,000 $2,800 Current Value: $4,000 Cost basis: $10,000 Face Value: $100,000 Cash Value: $8,800 Owner: Stephen Beneficiary: Valerie Insured: Stephen Policy Dividend: $300 The McNamarasitemized deductions for their federal return last year. Currently, neither Valerie nor Stephen has access to a qualified retirement plan through their work and they have not funded IRAs up to this point in time. They have access to a Section 125 flexible spending account through Valerie's employer. To date, they have not funded the account. Open enrollment is coming up and lasts for the next 30 days. For purposes of solving this case, use the tax information shown below. Please use this data to answer the questions in the Case Analysis. Show all formulas and computations. Justify all your responses completely. The Tax Tables are attached in the Appendix. 1. Compute the McNamara's AGI. Show your work. 2. If Stephen were to pass away this year, would Valerie be required to claim the face value of the life insurance received for federal income tax purposes? Explain. 3. Will their state tax refund be included in the McNamara's gross income for 2017? Explain your response APPENDIX INCOME TAX RATES SCHEDULES (2018) SINGLE Taxable income $0-$9,525 $9,526 - 38,700 38,701 - 82,500 82,501 - 157,500 157,501 - 200, 200,201 - 500,000 500,501 +... Standard Deduction Tax on Lower Amount SO 952.50 4,453.50 14,089.50 32,089.50 45,689.50 150,689.50 12,000 Tax Rate on Excess 10.0% 12.0% 22.0% 24.0% 32.0% 35.0% 37.096 Page 4 MARRIED FILING JOINTLY AND SURVIVING SPOUSES Taxable income SO - $19,050 19,051 - 77,400 77,401 - 165,000 165,001-315,000 315,001 - 400,000 400,001 - 600,000 600,001-... Standard Deduction Tax on Lower Amount SO 1,905.00 8,907.00 28,179.00 64,179.00 91,379.00 161,379.00 12,000 Tax Rate on Excess 10.0% 12.0% 22.0% 24.0% 32.096 35.096 37.09 HEAD OF HOUSEHOLD HEAD OF HOUSEHOLD Taxable income $0-$13,600 13,601 - 51,800 51,801 - 82,500 82,501 - 157,500 157.501 - 200,000 200,201-500,000 500,001 Standard Deduction Tax on Lower Amount SO 1,360.00 5,944.00 12,698.00 30,698.00 44,298.00 149,298.00 18,000 Tax Rate on Excess 10.0% 12.0% 22.0% 24.096 32.0% 35.0% 37.0% Valerie (age 52) & Stephen (age 55) McNamara have been married for 25 years and have one adult child, Tom, who is living on his own. They purchased their current home 7 years ago for $550,000. Valerie & Stephen file joint tax returns. The table below summarizes their financial data for tax purposes. Use this information when you are answering the questions that follow. Amount $100,000 $120,000 $22,700 $11,750 $15,683 $1,800 Tax Item Stephen's Earnings Valerie's Earnings Federal Tax Withholdings State Income Tax Withholdings FICA & M/C Savings Account Interest (2.5% per year) State Refund from Prior Year Home Mortgage Interest Paid (original mortgage on home valued at 500,000.) Real Estate Taxes Paid Charitable Contributions Unreimbursed Medical Expenses Stock Ownership: Union Motor Company (purchased 9 months ago & which they still hold) Whole Life Insurance Policy $1,200 $12,500 $16,500 $1,000 $2,800 Current Value: $4,000 Cost basis: $10,000 Face Value: $100,000 Cash Value: $8,800 Owner: Stephen Beneficiary: Valerie Insured: Stephen Policy Dividend: $300 The McNamarasitemized deductions for their federal return last year. Currently, neither Valerie nor Stephen has access to a qualified retirement plan through their work and they have not funded IRAs up to this point in time. They have access to a Section 125 flexible spending account through Valerie's employer. To date, they have not funded the account. Open enrollment is coming up and lasts for the next 30 days. For purposes of solving this case, use the tax information shown below. Please use this data to answer the questions in the Case Analysis. Show all formulas and computations. Justify all your responses completely. The Tax Tables are attached in the Appendix. 1. Compute the McNamara's AGI. Show your work. 2. If Stephen were to pass away this year, would Valerie be required to claim the face value of the life insurance received for federal income tax purposes? Explain. 3. Will their state tax refund be included in the McNamara's gross income for 2017? Explain your response APPENDIX INCOME TAX RATES SCHEDULES (2018) SINGLE Taxable income $0-$9,525 $9,526 - 38,700 38,701 - 82,500 82,501 - 157,500 157,501 - 200, 200,201 - 500,000 500,501 +... Standard Deduction Tax on Lower Amount SO 952.50 4,453.50 14,089.50 32,089.50 45,689.50 150,689.50 12,000 Tax Rate on Excess 10.0% 12.0% 22.0% 24.0% 32.0% 35.0% 37.096 Page 4 MARRIED FILING JOINTLY AND SURVIVING SPOUSES Taxable income SO - $19,050 19,051 - 77,400 77,401 - 165,000 165,001-315,000 315,001 - 400,000 400,001 - 600,000 600,001-... Standard Deduction Tax on Lower Amount SO 1,905.00 8,907.00 28,179.00 64,179.00 91,379.00 161,379.00 12,000 Tax Rate on Excess 10.0% 12.0% 22.0% 24.0% 32.096 35.096 37.09 HEAD OF HOUSEHOLD HEAD OF HOUSEHOLD Taxable income $0-$13,600 13,601 - 51,800 51,801 - 82,500 82,501 - 157,500 157.501 - 200,000 200,201-500,000 500,001 Standard Deduction Tax on Lower Amount SO 1,360.00 5,944.00 12,698.00 30,698.00 44,298.00 149,298.00 18,000 Tax Rate on Excess 10.0% 12.0% 22.0% 24.096 32.0% 35.0% 37.0%