TAX RETURN PROBLEM #3
Josh Bari, age 40, is single. His Social Security number is 111-11-1111, and he resides at 150-51 Ave. A, Tangers, NY 11234.
Josh has a 5-year-old child, Kendra, who lives with her mother, Katy. As a result of his divorce in 2017, Josh pays alimony of $6,000 per year to Katy and child support of $12,000. The $12,000 of child support covers 65% of Katy’s costs of rearing Kendra. Kendra’s Social Security number is 123-45-6789, and Katy’s is 123-45-6788.
Josh’s mother, Sally, lived with him until her death in early September 2018. He incurred and paid medical expenses for her of $12,900 and other support payments of $11,000. Sally’s only sources of income were $5,500 of interest income on certificates of deposit and $5,600 of Social Security benefits, which she spent on her medical expenses and on maintenance of Josh’s household. Sally’s Social Security number was 123-45-6787.
Josh is employed by the Highway Department of the State of New York in an executive position. His salary is $95,000. The appropriate amounts of Social Security tax and Medicare tax were withheld. In addition, $9,500 was withheld for Federal income taxes, and $4,000 was withheld for state income taxes.
In addition to his salary, Josh’s employer provides him with the following fringe benefits:
- Group term life insurance with a maturity value of $95,000. The cost of the premiums for the employer was $295.
- Group health insurance plan. Josh’s employer paid premiums of $5,800 for his coverage. The plan paid $2,600 for Josh’s medical expenses during the year.
Upon the death of his aunt Josie in December 2017, Josh, her only recognized heir, inherited the following assets:
| Asset | Josie’s Adjusted Basis | FMV at Date of Death |
| Car | $35,000 | $ 19,000 |
| Land—300 acres | 90,000 | 175,000 |
| IBM stock | 15,000 | 40,000 |
| Cash | 10,000 | 10,000 |
Three months prior to her death, Josie gave Josh a mountain cabin. Her adjusted basis for the mountain cabin was $120,000, and the fair market value was $195,000. No gift taxes were paid.
During the year, Josh had the following transactions:
- On February 1, 2018, he sold for $45,000 Microsoft stock that he inherited from his father four years ago. His father’s adjusted basis was $49,000, and the fair market value at the date of the father’s death was $41,000.
- The car Josh inherited from Josie was destroyed in a wreck on October 1, 2018. He had loaned the car to Katy to use for a two-week period while the engine in her car was being replaced. Fortunately, neither Katy nor Kendra was injured. Josh received insurance proceeds of $16,000, the fair market value of the car on October 1, 2018.
- On December 28, 2018, Josh sold the 300 acres of inherited land to his brother, James, for its fair market value of $160,000. James planned on using the land for his dairy farm.
Other sources of income for Josh were as follows:
| Dividend income (qualified dividends) | $ 3,500 |
| Interest income: | |
| Guaranty Bank | 1,000 |
| City of Tangers water bonds | 2,000 |
| Award from state of New York for outstanding suggestion for highway beautification | 10,000 |
Potential itemized deductions for Josh, in addition to items already mentioned, were as follows:
| State and local property taxes paid on his residence and cabin | $ 7,000 |
| State property taxes | 3,500 |
| Estimated Federal income taxes paid | 3,000 |
| Charitable contributions | 4,500 |
| Mortgage interest on his residence | 7,200 |
| Orthodontic expenses for Kendra | 4,000 |
REQUIRED:
Compute Josh’s net tax payable or refund due for 2018. Complete Forms 1040, 8949 and 6251 if applicable, Schedules A, B & D.
You must prepare the 1040, Schedules A, B, D. Forms 8949 & 6251 IF APPLICABLE. You may use tax software or manually prepare their tax return.
You must submit all for
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