Ralph Reed, who turned 65 in December of 2016 and his wife, Mary, only 60, have been married for 40 years. They support several family members including Ralph's parents who live down the street, two teenage girls still in high school, and a son, 22 who is just finishing graduate school. In addition, Ralph's best friend from his college band days, who has no visible means of support although he is 55, lives with Ralph and Mary in the pool house. Ralph, though long suffering, has been paying more than 50% of their support, if not all 100%, throughout 2016.

Ralph works full-time and receives a salary of $160,000. In 2016, before the Christmas break, he also received a bonus check of $25,000, which he did not deposit until January 2, 2017. $10,000 of Federal Income Tax was withheld from his paychecks.

Ralph and Mary received interest of $5,000 on several mutual funds. In addition, they received $700 of interest on Pittsburgh Municipal Bonds.

Ralph also paid $12,000 in alimony and $5,000 in child support to a former wife.

Mary had Bingo winnings of $1,000 in the big jackpot.

Mary also received $5,000 from her mother and $7,000 from her father as a gift.

Ralph inherited $30,000 from a rich aunt. He also received $50,000 in life insurance proceeds upon her death.

Mary settled a lawsuit successfully and received $1,000 in compensation and $10,000 in punitive damages.

Following the successful lawsuit, Mary quit her part time job. But she did earn $20,000 in 2016, and had $2,000 of Federal Income Tax withheld from her paychecks.

Ralph sold two blocks of stock held over two years. One had a gain of $2,000 and the other had a loss of $6,000.

Ralph and Mary had $15,000 in Itemized Deductions.

Please Do the Following:

Show all work.

Identify the Tax Forms and Line Numbers for Each Item.

Calculate Taxable Income and 2016 Federal Taxes in total and owed.

Show the incremental and average tax rate.

Also, did they have enough tax withheld during the year, or are they subject to a penalty?

Please Label Properly, as I give partial credit.

You can use Excel, Word, or Handwrite your solution. You can also use the IRS Tax Forms.

List and clearly identify:

Marital Status

Gross Income items (by line on 1040 if it helps you)

Deductions for AGI

AGI

Standard Vs Itemized Deductions

Personal and Dependency Exemptions

Taxable Income

Taxes

Taxes Owed or Refund Due