1. Calculate Anya's Social Security and Medicare taxes. Calculate how much of these taxes are deductible.
2. Calculate the Goulds' total income and adjusted gross income for the year.
3. Are the moving expenses deductible? Why or why not?
4. Should the Goulds take the standard deduction, or should they itemize? What is the amount of their deduction?
5. What tax form will the Goulds use? Why?
6. What credits might the Goulds use to reduce their tax liability?
Austin and Anya Gould are a middle-aged couple with two children, Rusty, age 13, and Sam, age 11, whom they adopted this year. They also bought a new home in the area to give the children a yard in which to play. The Goulds have an extensive retirement portfolio invested primarily in growth-oriented mutual funds. Their annual investment income is only $500, none of which is attributable to capital gains. Austin works in the banking industry and receives an annual income of $32,500. Anya, who owns the only travel agency in town, makes about $40,000 a year.
The Goulds give extensively to charities. They also have tax deductions from their mortgage interest expense, business expenses, tax expenses, and unreimbursed medical expenses, as follows:
Health insurance (provided by Anya) ……………………..$2,200
Rusty's braces …………………………………………….$1,500
Mortgage interest expense ……………………………….$7,200
Real estate taxes ………………………………………… $900
Investment and tax planning expenses …………………..$1,450
Other medical expenses ………………………………….$3,600
Charitable contributions …………………………………$3,500
Moving expenses ……………………………………….$3,000
Austin's unreimbursed business expenses ………………$2,300
Qualified adoption expenses …………………………..$6,700
State taxes withheld and owed …………………………$4,000
Remember that Anya has some special tax expense deductions because she is self-employed. Be sure to include them when estimating their 2014 taxes.