1. Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local Chamber of Commerce, while Wanda is employed part-time as a paralegal for a law firm.

During 2020, the Deans had the following receipts:

Salaries ($60,000 for Lance, $42,000 for Wanda) $102,000 Interest income—

City of Albuquerque general purpose bonds $1,000 Ford Motor Company bonds 1,100 Ally Bank certificate of deposit 400 2,500 Child support payments from John Allen 7,200 Annual gifts from parents 26,000 Settlement from Roadrunner Touring Company 90,000 Lottery winnings 600 Federal income tax refund (for tax year 2019) 400 Wanda was previously married to John Allen. When they divorced several years ago, Wanda was awarded custody of their two children, Penny and Kyle. (Note: Wanda has never issued a Form 8332 waiver.) Under the divorce decree, John was obligated to pay alimony and child support—the alimony payments were to terminate if Wanda remarried.

In July, while going to lunch in downtown Santa Fe, Wanda was injured by a tour bus. As the driver was clearly at fault, the owner of the bus, Roadrunner Touring Company, paid her medical expenses (including a one-week stay in a hospital).

To avoid a lawsuit, Roadrunner also transferred $90,000 to her in settlement of the personal injuries she sustained.

The Deans had the following expenditures for 2020:

Medical expenses (not covered by insurance) $7,200 Taxes—

Property taxes on personal residence $3,600 State of New Mexico income tax (includes amount withheld from wages during 2020) 4,200 7,800 Interest on home mortgage (First National Bank) 6,000 Charitable contributions (cash) 3,600 Life insurance premiums (policy on Lance’s life) 1,200 Contribution to traditional IRA (on Wanda’s behalf ) 5,000 Traffic fines 300 Contribution to the reelection campaign fund of the mayor of Santa Fe 500 Funeral expenses for Wayne Boyle 6,300 The life insurance policy was taken out by Lance several years ago and designates Wanda as the beneficiary. As a part-time employee, Wanda is excluded from coverage under her employer’s pension plan. Consequently, she provides for her own retirement with a traditional IRA obtained at a local trust company. Because the mayor is a member of the local Chamber of Commerce, Lance felt compelled to make the political contribution.
The Deans’ household includes the following, for whom they provide more than half of the support:
Social Security Number* Birth Date Lance Dean (age 42) 123-45-6786 12/16/1978 Wanda Dean (age 40) 123-45-6787 08/08/1980 Penny Allen (age 19) 123-45-6788 10/09/2001 Kyle Allen (age 16) 123-45-6789 05/03/2004 Wayne Boyle (age 75) 123-45-6785 06/15/1945 Penny graduated from high school on May 9, 2020, and is undecided about college.
During 2020, she earned $8,500 (placed in a savings account) playing a harp in the lobby of a local hotel. Wayne is Wanda’s widower father, who died on January 20, 2020. For the past few years, Wayne qualified as a dependent of the Deans.
Federal income tax withheld is $3,900 (Lance) and $1,800 (Wanda). The proper amount of Social Security and Medicare tax was withheld. The Deans received the appropriate coronavirus recovery rebates (economic impact payments); related questions in ProConnect Tax should be ignored.
Determine the Federal income tax for 2020 for the Deans on a joint return by completing the appropriate forms. They do not own and did not use any virtual currency during the year, and they do not want to contribute to the Presidential Election Campaign Fund. If an overpayment results, it is to be refunded to them.
Suggested software: ProConnect Tax. Note: For 2020, non-itemizers may deduct up to $300 of cash charitable contributions (see text Section 10-4d).