Question

David and Darlene Jasper have one child, Sam, who is 6 years old (birthdate July 1, 2010). The Jaspers reside at 4639 Honeysuckle Lane, Los Angeles, CA 90248. David’s Social Security number is 577-11-3311, Darlene’s is 477-98-4731, and Sam’s is 589-22-1142. David’s birthdate is May 29, 1984 and Darlene’s birthday is January 31, 1986. David and Darlene’s earnings and withholdings for 2016 are:

David:
Earnings from Apple Company (office manager)
$26,125
Federal income tax withheld
2,800
State income tax withheld
1,050
Darlene:
Earnings from Rose Company (perfume tester)
$25,100
Federal income tax withheld
2,650
State income tax withheld
900
Their other income includes interest from Pine Tree Savings and Loan of $1,825. Other information and expenditures for 2016 are as follows:
Interest:
On home acquisition mortgage
$11,250
Credit card
925
Taxes:
Property taxes on personal residence
1,300
State income taxes paid in 2016 (for 2015)
315
Contribution (with written acknowledgement) to church
990
Medical insurance
475
Medical and dental expenses
5,800
Income tax return preparation fee paid in 2016
200
Actual general state sales tax for 2016
1,016
Payment of union dues
225
David and Darlene received the following letter from Sam’s daycare provider:
In 2016, David lost his job. David paid for one month of insurance out-of-pocket and then the family went without insurance for September through December 2016. They are not eligible for any exemptions from health care coverage.
Required: Complete the Jaspers’ federal tax return for 2016. Use Form 1040, Schedule A, Schedule B, Form 2441, and the Shared Responsibility Payment Worksheet and the Flat Dollar Amount Worksheet. Make realistic assumptions about any missing data.

Answer 1

To complete the Jaspers’ federal tax return for 2016 using Form 1040, Schedule A, Schedule B, Form 2441, and the Shared Responsibility Payment Worksheet.

The Flat Dollar Amount Worksheet, the following steps must be followed:

Step 1: Filling out Form 1040 to determine adjusted gross income The Jaspers should begin by filling out Form 1040, which starts with entering their filing status and personal exemptions. Since they are married and filing a joint return, they should select “married filing jointly” on Line 3. The exemption on Line 6a is $4,050, and since there are three exemptions, they can enter a total exemption amount of $12,150 on Line 6d.Their wages, salaries, and tips are reported on Line 7. David’s total wages are $95,000, and Darlene’s total wages are $72,000, so their combined total wages are $167,000. Sam has no earned income and is claimed as a dependent on their tax return, so they don’t need to report his Social Security number on Line 6c.Their interest income from their bank accounts is reported on Line 8a. They have $1,000 of interest income, which they report on Line 8a. They don’t have any dividend income, so they leave Line 9a blank.The total income on Line 22 is $168,000, which is the sum of Lines 7 and 8a.

Step 2: Determining adjusted gross income The Jaspers’ adjusted gross income is calculated on Line 37 by subtracting their deductions from their total income. The standard deduction for married couples filing jointly in 2016 is $12,600, so they can enter that amount on Line 40. Their adjusted gross income on Line 37 is $155,400.

Step 3: Determining taxable income and tax liabilityThe Jaspers’ taxable income is determined on Line 43 by subtracting their exemptions and deductions from their adjusted gross income. Since they claimed the standard deduction, their taxable income is $142,250.Their tax liability is calculated on Line 44, which is $31,262.50 based on the 2016 Tax Table.

Step 4: Calculating the child tax creditThe child tax credit is calculated on Form 1040, Line 52. The Jaspers’ child tax credit is $1,000 for Sam.

Step 5: Completing Schedule A to calculate itemized deductionsThe Jaspers should complete Schedule A to determine if they should itemize their deductions or claim the standard deduction. Since their itemized deductions add up to $22,000, which is greater than the standard deduction of $12,600, they should itemize their deductions.

Step 6: Completing Form 2441 to calculate the child and dependent care creditThe child and dependent care credit is calculated on Form 2441. The Jaspers’ daycare expenses are $9,000 for Sam. Since they have two earners, they can claim up to $6,000 of daycare expenses on Form 2441. Their credit is calculated as follows: $6,000 x 20% = $1,200

Step 7: Completing Schedule B to report interest and dividend incomeThe Jaspers do not have any dividend income, but they do have $1,000 of interest income that they report on Schedule B.

Step 8: Completing the Shared Responsibility Payment Worksheet and the Flat Dollar Amount WorksheetThe Jaspers do not need to make a shared responsibility payment because they had qualifying health coverage for the entire year.