Question

CASE FACTS

Mike and Jane Cool are married and file a joint Federal income tax return. Both are under 50 years old. Mike’s social security number is 999-88-7777. Jane’s is 888-77-6666. They live at 234 Freedom Boulevard, Cedar City, UT 84720. Neither is interested in contributing to the Presidential Election Campaign.

Mike is a city engineer. His W-2 showed wages of $85,000, Federal income tax withheld of $7,500 and state income tax withheld of $3,000. Mike does not participate in the city’s health care plan.

Jane is a professor at SUU. Her W-2 showed compensation of $105,000, Federal income tax withheld of $14,400 and state income tax withheld of $3,500. Jane participates in SUU’s high deductible health care plan which covers both her and her husband. The premiums on this plan are paid by SUU. She also participates in their health savings account program. She made pre-tax contributions of $6,000 to the account this year through payroll deductions (Hint: line 9 of Form 8889). The funds in the account that have accumulated over the years earned interest income of $300. This year $2,000 was distributed from the account to pay for various medical and dental expenses of Mike and Jane (Hint: line 14a of Form 8889).

Mike and Jane took a trip to Aruba to a resort that offered cosmetic surgery. Jane received a face lift and lipo suction at the resort. The round-trip airfare for each was $1,500. Jane’s medical procedures cost $8,500. Their stay at the resort cost $5,000 for the week which included $1,500 of nursing services. All these expenses were paid out-of-pocket by the Cool’s, not using the health savings account.

While in Aruba, Mike came down with a deadly virus that permanently damaged his heart and caused an odd disfigurement to his face. They flew to a hospital in Rochester, Minnesota where Mike received specialized treatment for the virus. He also was able to receive cosmetic surgery to repair his disfigured face. Round trip airfare to Minnesota for each was $2,500. The cost for the surgery and hospital stay was $25,000. All of which they paid out-of-pocket, not using the health savings account.

After returning home, Mike struggled with going up and down the stairs in their three-story home. He became weaker the more he used the stairs. He paid a visit to his family doctor. His doctor told him that if he continued to exert himself in that manner, his heart would give out. His doctor recommended moving to a single level house or installing an elevator in his current home.   The Cools decided to install an elevator in their current home for Mike’s use. The cost of the elevator and installation was $15,000. Their electricity bill increased by $30 a month as a result of the elevator usage. Elevator maintenance cost for the year was $300. Fortunately, the elevator increased the value of their home by $5,000.

Other medical expenses incurred out-of-pocket by Mike and Jane consisted of various over-the-counter medicines in the amount of $500 and a wheelchair for Mike costing $1,500.

The Cools have the following expenses related to their personal residence:

Real estate property taxes (form 1098)         $5,500

Home mortgage interest (form 1098)               7,500

Homeowners insurance                                        700

Flood repairs                                                      3,000

Utilities                                                               3,500

When Jane renewed her car registration for her RAV4 this year it cost her $250 which included a $25 donation to SUU, a tax of $60 and registration fees of $165. Mike’s truck registration was only $100 consisting of $50 tax and $50 registration fees. Also, they paid $60 to register their ATV.

Mike attended the Rocky Mountain Elk Foundation banquette this year. He purchased two tickets for $100 which entitled him to two meals and 20 raffle tickets. He bid $20,000 for a guided elk hunt in Colorado and won it. The fair market value of the hunt is $2,000. The amount paid in excess of the value of the hunt was paid to the Utah Department of Natural Resources.

This year the Cools contributed $10,000 to their local church. They donated clothing and household articles to their local Deseret Industries on June 5th. All items were in excellent condition. They estimated the items cost them around $8,000 and are worth $800 using thrift store values. They also gave $500 to a family down the street that seemed to be financially struggling. Jane gave $10 a week to a homeless man sees see outside the grocery store.

Through a qualified IRS charitable organization Mike and Jane participated in a trip to Peru to help build a school house. The value of their services rendered was $3,000. Round trip airfare to Peru and back was $800 each. The paid $80 a night for lodging for 6 nights in Peru while building the school. They also incurred $300 in food expense during the week. Before leaving Peru they were persuaded to donate $3,000 to the local school district in Lima, Peru.

The Cools received a form 1099 from their brokerage firm showing ordinary interest income of $3,200 from Bank of American, tax-exempt interest of $2,000 from Mountain America Credit Union, and ordinary dividends of $1,500 from ZTT Mutual Fund Company.

If they have an overpayment of Federal income tax, they would like it refunded directly to their checking account # 123456789, routing # 987654321. They do not want to authorize any other person to discuss their return with the IRS.

REQUIREMENTS

Step 1: Tax Formula Spreadsheet. Please prepare a spreadsheet using the tax formula consistent with the following format:

+ Gross income (List gross income items not broad income, but actual taxable items)

- Deductions for AGI (list each deductible item)

= AGI

- Deductions from AGI

= Taxable Income

Answer 1

Particulars	in $
Total Wages	190,000.00
Total Federal Income taxes Withheld	(21,900.00)
Total State Income taxes Withheld	(6,500.00)
Investments	7,000.00
Home Ownership expenses	(13,000.00)
Medical Expenses	(48,500.00)
Donations	(28,225.00)
Other Expenses	(7,945.00)
AGI	197,000.00
Greater of Itemized or Std. Deduction	82,470.00
Taxable Income	114,530.00
Estimated Tax rate	22%