Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2014. 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, 2009, 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, 2014, 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 other 2014 expenditures include the following.
Medical expenses (including $10,500 for dental services) ……………………….$11,500
Taxes
State of Missouri income tax (includes withholdings) ………………$3,200
Property taxes on personal residence …………………………………4,500 …….. 7,700
Interest on home mortgage ………………………………………………………… 4,600
Contribution to church (paid pledges for 2014 and 2015) …………………………. 4,800
Logan and his dependents were covered by his employer’s health insurance policy for all of 2014. 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, 2014, upon the advice of his pastor, he prepaid his pledge for 2015.
Logan’s household, all of whom he supports, includes the following.
__________________________Social Security Number _________Birth Date
Logan Taylor (age 48) …………………123-45-6787 ……………08/30/1966
Helen Taylor (age 70) ………………….123-45-6780 ……………01/13/1944
Asher Taylor (age 23) ………………….123-45-6783 ……………07/18/1991
Mia Taylor (age 22) ……………………..123-45-6784 ……………02/16/1992
Helen, Logan’s mother, 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 2014 Federal income tax. 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 2015, the following events 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 2015. Therefore, he requests your advice.
Write a letter to Logan explaining in general terms how the 2015 events will affect his Federal income tax liability. 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 2015.