- Alton Newman, age 67, is married and files a joint return with his wife, Clair, age 65. Alton and Clair are both retired, and during 2016, they received Social Security benefits of $10,000. Both Alton and Clair are covered by Medicare. Alton’s Social Security number is 111-11-1112, and Clair’s is 123-45-6789. They reside at 210 College Drive, Columbia, SC 29201.
- Alton, who retired on January 1, 2016, receives benefits from a qualified pension plan of $2,750 a month for life. His total contributions to the plan (none of which were deductible) were $168,250. In January 2016, he received a bonus of $2,000 from his former employer for service performed in 2015. No income taxes were withheld on this bonus by his former employer (Amalgamated Industries, Inc.; EIN 12-3456789; 114 Main Street, Columbia, SC 29201). Although Amalgamated Industries, Inc., accrued the bonus in 2015, it was not paid until 2016.
- Clair, who retired on December 31, 2015, started receiving benefits of $1,400 a month on January 1, 2016. Her contributions to the qualified pension plan (none of which were deductible) were $74,100.
- On September 27, 2016, Alton and Clair received a pro rata 10% stock dividend on 600 shares of stock they owned. They had bought the stock on March 5, 2009, for $20 a share. On December 16, 2016, they sold the 60 dividend shares for $55 a share.
- On October 10, 2016, Clair sold the car she had used in commuting to and from work for $17,000. She had paid $31,000 for the car in 2010.
- On July 14, 2008, Alton and Clair received a gift of 1,000 shares of stock from their son, Thomas. Thomas’s basis in the stock was $35 a share (fair market value at the date of gift was $25). No gift tax was paid on the transfer. Alton and Clair sold the stock on October 8, 2016, for $24 a share.
- On May 1, 2016, Clair’s mother died, and Clair inherited her personal residence. In February 2016, her mother had paid the property taxes for 2016 of $2,100. The residence had a fair market value of $235,000 and an adjusted basis to the mother of $160,000 on the date of her death. Clair listed the house with a real estate agent, who estimated it was worth $240,000 as of December 31, 2016.
- Clair received rent income of $6,000 on a beach house she inherited three years ago from her uncle Charles. She had rented the property for one week during the July 4 weekend and one week during the Thanksgiving holiday. Charles’s adjusted basis in the beach house was $150,000, and its fair market value on the date of his death was $240,000. Clair and Alton used the beach house for personal purposes for 56 days during the year. Expenses associated with the house were $3,700 for utilities, maintenance, and repairs; $2,200 for property taxes; and $800 for insurance. There are no mortgages on the property.
- Clair and Alton paid estimated Federal income tax of $3,100 and had itemized deductions of $6,800 (excluding any itemized deductions associated with the beach house). If they have overpaid their Federal income tax, they want the amount refunded. Both Clair and Alton want $3 to go to the Presidential Election Campaign Fund.
- Compute their net tax payable or refund due for 2016.
- You are not required to complete the Qualified Dividends and Capital Gain Tax Worksheet. However, the form is provided to assist you in computing the tax.
- Make realistic assumptions about any missing data.
- If an amount box does not require an entry or the answer is zero, enter “0”.
- Enter all amounts as positive numbers, unless otherwise instructed.
- It may be necessary to complete the 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.
