TAX RETURN PROBLEM #2 Michelle J. and Fred M. Smith are married taxpayers who file a joint return. Their Social Security numbers are 123-45-6789 and 111-11-1112, respectively. Michelle's birthday is September 21, 1969, and Fred's is June 27, 1968. They live at 1 Main St, NY, NY 10001. Michelle is the office manager for Powell Dental Clinic, 433 Broad Street, NY, NY 10001 (employer identification number 98-7654321). Fred is the manager of a Super Burgers fast-food outlet owned and operated by Plymouth Corporation, 1247 Central Avenue, Hauppauge, NY 11788 (employer identification number 11-1111111). The following information is shown on their Wage and Tax Statements (Form W2) for 2016. Line Description Michelle Fred 1 Wages, tips, other compensation $58,000 $62,100 2 Federal income tax withheld 4,500 6,300 3 Social Security wages 58,000 62,100 4 Social Security tax withheld 3,596 3,850 5 Medicare wages and tips 58,000 62,100 6 Medicare tax withheld 841 900 15 State New York New York 16 State wages, tips, etc. 58,000 62,100 17 State income tax withheld 2,950 3,100 The Smiths provide over half of the support of their two children, Cynthia (born January 25, 1992, Social Security number 123-45-6788) and John (born February 7, 1996, Social Security number 123- 45-6786). Both children are full-time students and live with the Smiths except when they are away at college. Cynthia earned $4,200 from a summer internship in 2016, and John earned $3,800 from a part-time job. During 2016, the Smiths provided 60% of the total support of Fred's widower father, Sid Smith (born March 6, 1940, Social Security number 123-45-6787). Sid lived alone and covered the rest of his support with his Social Security benefits. Sid died in November, and Fred, the beneficiary of a policy on Sid's life, received life insurance proceeds of $1,600,000 on December 28. The Smiths had the following expenses relating to their personal residence during 2016: Property taxes $5,000 Qualified interest on home mortgage 8,700 Repairs to roof 5,750 Utilities 4,100 Fire and theft insurance 1,900 The Smiths had the following medical expenses for 2016: Medical insurance premiums $4,500 Doctor bill for Sid incurred in 2015 and not paid until 2016 7,600 Operation for Sid 8,500 Prescription medicines for Sid 900 Hospital expenses for Sid 3,500 Reimbursement from insurance company, received in 2016 3,600 The medical expenses for Sid represent most of the 60% that Fred contributed toward his father's support. Other relevant information follows: When they filed their 2015 state return in 2016, the Smiths paid additional state income tax of $900. During 2016, Michelle and Fred attended a dinner dance sponsored by the Powell Police Disability Association (a qualified charitable organization). The Smiths paid $300 for the tickets. The cost of comparable entertainment would normally be $50. The Smiths contributed $5,000 to Powell Presbyterian Church and gave used clothing (cost of $1,200 and fair market value of $350) to the Salvation Army. All donations are supported by receipts, and the clothing is in very good condition. Michelle and Fred made a gift to a needy family who lost their home in a fire ($100). In addition, they made several cash gifts to homeless men downtown ($35). In 2016, the Smiths received interest income of $2,750, which was reported on a Form 1099INT from Second National Bank, 125 Oak Street, Powell, NY 11790 (Employer Identification Number 98-7654322). The home mortgage interest was reported on Form 1098 by Powell Commercial Bank, P.O. Box 1000, Powell, NY 11790 (Employer Identification Number 98-7654323). The mortgage (outstanding balance of $425,000 as of January 1, 2016) was taken out by the Smiths on May 1, 2012. Michelle's employer requires that all employees wear uniforms to work. During 2016, Michelle spent $850 on new uniforms and $566 on laundry charges. Fred paid $400 for an annual subscription to the Journal of Franchise Management and $741 for annual membership dues to his professional association. Neither Michelle's nor Fred's employer reimburses for employee expenses. The Smiths do not keep the receipts for the sales taxes they paid and had no major purchases subject to sales tax. All members of the Smith family had health insurance coverage for all of 2016. This year the Smiths gave each of their children $2,000, which was then deposited into their Roth IRAs. Michelle and Fred paid no estimated Federal income tax. Neither Michelle nor Fred wants to designate $3 to the Presidential Election Campaign Fund. Part 1Tax Computation Compute net tax payable or refund due for Michelle and Fred Smith for 2016. If they have overpaid, they want the amount to be refunded to them. If you use tax forms for your computations, you will