Tax Accounting – Macon and Daisy are married with two kids, Porter and Gus

| February 25, 2017

Question
Macon and Daisy are married with two kids, Porter and Gus, both under 18 and living at home full-time. Macon is employed full-time for Dogs R Us while Daisy stays home taking care of Porter and Gus which is a much harder job than Macon’s. They did live in NC in 2014 but moved to SC in late 2014 after the enterprise for which Macon worked teaching dogs to swim in the ocean went under (pun intended) and he underwent an exhaustive job search which landed them in Columbia; Daisy, in addition to her domestic responsibilities, is working on her Masters so that she might get out of the house. They sold their home in NC in early 2014 and bought a new home with the money they made after renting in SC for several months. Both of their children are in private school and they have three dogs all of which require a lot of pet sitting and maintenance. Finally, Daisy has a chronic medical condition that necessitates much medical care, a good portion of which their health plan does not cover for one absurd reason or another. Information regarding their finances for their 2014 tax return (due 4/15) is below.

Macon’s W-2 reports earned $145,500 from his job (this is adjusted for taxes below)
Macon had $7,049 withheld for FICA
Macon had $14,212 withheld for Federal taxes owed
Macon had $5,900 withheld for State taxes owed
Macon and Daisy itemized last year and had a $1,127 state tax refund
Daisy did consulting on the side and earned $22,000 from her side business which is an S-corp
Macon paid $8,400 into his 401(k)
His employer matched his contribution in the amount of $2,490
They paid $18,000 in tuition for private schools
They paid $1,200 for Daisy’s tuition
They paid $950 to a babysitter while Daisy was attending yoga classes
They paid $6,800 in rent
They paid $22,450 to their mortgage holder
$17,200 in interest and points on the new mortgage
$ 1,500 in property taxes
$ 3,750 in principal
They paid the movers $4,000 to move them from NC to SC after their home sold in 2013
They paid $2,300 in other property taxes e.g. cars and boats
They had $490 in taxable interest income in 2014
They had $3,600 in qualified dividend income in 2014
During 2013 Macon and Daisy had the following capital gain sales:
Capital stock sales that resulted in a $7,000 loss
Capital stock sales that resulted in a $2,000 gain
Their home resulted in a $125,000 gain
They made contributions of:
$200 to Goodwill in the form of clothes
$200 to other charities and their church in the form of cash
They paid their tax provider, Rosie, $450 to prepare their 2013 taxes
Macon incurred $6,500 in qualified business expenses
Daisy incurred $13,660 in out-of-pocket medical expenses
Prepare the return
If Macon’s actual federal tax liability is $27,601, will he owe or get a refund?
What is his marginal tax rate?
What if Daisy’s medical expenses were $20,000 instead?
What if Macon’s business expenses were $900 instead?
What if the gain in their home were $525,000 instead?
What if their stock sales resulted in a $4,000 gain and $2,000 loss instead?
What if their stock sales resulted in a $3,000 loss instead?
What if instead of working Macon was the beneficiary of a large trust fund in 2007 which he manages and he had $250,000 in net capital gains and $100,000 in qualified dividends and $150,000 of municipal bond interest (which is not taxable) with no other income. What would his federal tax liability be? What is his marginal tax rate under this scenario? Any opinions on this?

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