54. Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2010. He lives at 4680
Dogwood Lane, Springfield, Missouri 65801. He is employed as a paralegal by a local law firm. During 2012, he reported the following receipts.
Salary $ 80,000
Money market account at Omni Bank $ 300
Savings account at Bosne State Bank 1,100
City of Springfield general purpose bonds 3,000 4,400
Inheritance from Daniel 60,000
Life insurance proceeds 200,000
Amount from sale of St. Louis lot 80,000
Proceeds from estate sale 9,000
Federal income tax refund (for 2011 tax overpayment) 700
Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2012.
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, 2007, 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, 2012, 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 expenditures for 2012 include the following.
Medical expenses (including $10,500 for dental services) $11,500
State of Missouri income tax (includes withholdings during 2012) $3,200
Property taxes on personal residence 4,500 7,700
Interest on home mortgage 4,600
Contribution to church (paid pledges for 2012 and 2013) 4,800
Tax Return Problem
Logan and his dependents are covered by his employer’s health insurance policy.
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, 2012, upon the advice of his pastor, he prepaid his pledge for 2013.
Logan’s household, all of whom he supports, includes the following.
Social Security Number Birth Date
Logan Taylor (age 48) 123-45-6787 08/30/1964
Helen Taylor (age 70) 123-45-6780 01/13/1942
Asher Taylor (age 23) 123-45-6783 07/18/1989
Mia Taylor (age 22) 123-45-6784 02/16/1990
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 income tax for 2012. 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 At Home.
Part 2—Follow-Up Advice
In early 2013, 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 2013.
Therefore, he requests your advice.
Write a letter to Logan explaining in general terms how the 2013 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 2013.