Diana (41) and Ryan (39) Workman were married on January 2, 2018. Ryan works as a computer programmer at Datafile Inc. (DI) earning a salary of $96,000. Diana is self-employed and runs a daycare center. They have a 20-year-old son, Samuel, that is a sophomore in college and is a full-time student. Samuel lived with the Workmans for all of 2018, and the Workmans provided over 50% of Samuel’s support.
The Workmans reported the following financial information pertaining to their activities during 2018:
- Ryan earned a $96,000 salary for the year. DI withheld federal income taxes of $5,000.
- Ryan’s employer pays the couple’s annual health insurance premiums of $5,500 for a qualified plan.
- Ryan received a trip to Hawaii ($5000 value) for reaching 10 years of continuous service at DI.
- For meeting his performance goals this year, Ryan was informed on December 27 that he would receive a $5,000 year-end bonus. DI (located in Houston, Texas) mailed Ryan’s bonus check from its payroll processing center (Tampa, Florida) on December 28. Ryan didn’t receive the check at his home until January 2.
e. Ryan is a member of the computer programmers union, and he paid union dues of $1,250.
- Ryan borrowed $12,000 from DI to purchase a car. DI charged him 2 percent interest ($240) on the loan, which Ryan paid on December 31. DI would have charged Ryan $720 if interest had been calculated at the applicable federal interest rate.
- Diana’s day care business collected $35,000 in revenues. In addition, customers owed her $3,000 at year-end. During the year, Diana spent $5,500 for supplies, $1,500 for utilities, and $15,000 for rent. One customer made some improvements to Ryan and Diana’s house (worth $2,500) in exchange for Diana allowing his child to attend the day care center free of charge. Diana accounts for her business activities using the cash method of accounting.
- Samuel had a summer job in 2018 and earned wages of $3,000.
- Diana won a $2,100 cash prize at her church-sponsored Bingo game.
- The Workmans received $500 of interest from corporate bonds and $250 of interest from a municipal bond.
- The Workmans received qualified dividends of $9,200.
- The couple bought 50 shares of ABC Inc. stock for $40 per share on November 30. The stock paid a dividend of $1.00 per share on December 1.The stock was worth $47 per share on December 31. The Workmans sold all 50 shares of ABC Inc. for $50 per share on January 15, 2019.
- Diana’s father passed away on April 14. She inherited cash of $50,000 from her father and his baseball card collection, valued at $2,000. As the beneficiary of her father’s life insurance policy, Diana also received $150,000.
- Ryan was hit and injured by a drunk driver while crossing a street at a crosswalk. He was unable to work for a month. He received $6,000 from his disability insurance. DI paid the premiums for Ryan, but it reported the amount of the premiums as compensation to Ryan on his year-end W-2.
- The drunk driver who hit Ryan was required to pay his $2,000 medical costs and $5,000 for punitive damages.
- Ryan and Diana donated the following to a public charity:
i. $2,500 cash
ii. 100 shares of D Corp. stock. The Workmans purchased the stock in 2016 for $4,000. The fair market value of the stock at the time of the donation was $14,000.
iii. 100 shares of E Corp. stock. The Workmans purchased the stock in 2016 for $14,000. The fair market value of the stock at the time of the donation was $4,000.
q. Diana paid student loan interest of $3,000 in 2018. Diana took out the loan back in 2008 to pay tuition for her undergraduate degree.
r. Diana and Ryan purchased a personal residence on January 10, 2018. The purchase price was $800,000. The Workmans made a $30,000 down payment, and the remaining $770,000 was financed through a mortgage (no points) issued by Lender Bank. Diana and Ryan paid mortgage interest of $37,000 and mortgage insurance (PMI) of $3,850.
s. The Workmans paid real estate taxes of $9,700 and maintenance expenses of $5,000 for their personal residence.
t. The Workmans paid state income tax of $3,000 and sales tax of $1,500.
u. Diana came down with pneumonia in 2018 and spent a week in the hospital. She paid medical bills of $5,000.
v. Diana made estimated tax payments of $2,000.
w. Samuel’s tuition for 2018 $10,000, and Samuel bought $1,000 worth of required textbooks. Samuel had a scholarship of $7,000 that was used to pay a portion of the tuition, and Ryan and Diana paid the remaining $3,000. Samuel paid for the books from the money he earned at his summer job.
Assume that the Workmans file a joint tax return for 2018.
A. What is the Workman’s federal gross income for 2018?
B. What is the Workman’s federal adjusted gross income for 2018?
C. What is the total amount of their deductions from AGI for 2018?
D. What is their federal taxable income for 2018?
E. What is their federal taxes payable or refund due for 2018?
Is Samuel required to file a tax return for 2018? Explain your answer.Get
