TAX RETURN PROBLEM ONE

Mike E. Smith and Jean A. Field, each age 42, married on September 7, 2018. Mike and Jean will file a joint return for 2020. Mikes Social Security number is 111-11-1112. Jeans Social Security number is 123-45-6789, and she adopted Smith as her married name. They live at 211 Brickstone Drive, Brooklyn, NY 11304. Mike was divorced from Sarah Smith in March 2017. Under the divorce agreement, Mike is to pay Sarah $1,250 per month for the next 10 years or until Sarahs death, whichever occurs first. Mike pays Sarah $15,000 in 2020. In addition, in January 2020, Mike pays Sarah $50,000, which is designated as being for her share of the marital property. Also, Mike is responsible for all prior years income taxes. Sarahs Social Security number is 123-45-6788.

1. Mikes salary for 2020 is $150,000 as an executive, and his employer, Harbor, Inc. (Federal I.D. No. 98-7654321), provides him with group term life insurance equal to twice his annual salary. His employer withheld $24,900 for Federal income taxes and $8,000 for state income taxes. The proper amounts were withheld for FICA taxes.

2. Jean recently graduated from law school and is employed by Legal Aid Society, Inc. (Federal I.D. No. 11-2111111), as a public defender. She receives a salary of $42,000 in 2020. Her employer withheld $7,500 for Federal income taxes and $2,400 for state income taxes. The proper amounts were withheld for FICA taxes.

3. Mike and Jean had taxable interest income from the Bank of Brooklyn of $500. They receive a $1,900 refund on their 2019 state income taxes. They claimed the standard deductions on their 2019 Federal income tax return. Mike and Jean pay $4,500 interest and $1,450 property taxes on their personal residence in 2020. Their charitable contributions total $2,400 (all to their church). They paid sales taxes of $1,400, for which they maintain the receipts.

Neither have owned or used virtual currency, and do not want to contribute to the Presidential Election Campaign. They received the appropriate coronavirus recovery rebate (economic impact payments.) Related questions in the tax software program being used should be ignored.

REQUIRED: Compute the Smiths net tax payable (or refund due) for 2020. You will need to prepare Form 1040 and Schedule 1.