Tax Return Problems Tax Forms Problem

Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local Chamber of Commerce, while Wanda is employed part-time as a paralegal for a law firm.

During 2020, the Deans had the following receipts:

Salaries (60,000 for Lance, $42,00 for Wanda)		$102,000
Interest income --
City of Albuquerque General purpose bonds	$1,000
Ford motor company bonds	1,100
Ally bank certificate of deposit	400	2,500
child support payments from Josh Allen		7200
annual gift from parents		26,000
settlement from roadrunner touring company		90,000
lottery winnings		600
federal income tax refund (for year 2019		400

Details Wanda was previously married to John Allen. When they divorced several years ago, Wanda was awarded custody of their two children, Penny and Kyle. (Note: Wanda has never issued a Form 8332 waiver.) Under the divorce decree, John was obligated to pay alimony and child supportthe alimony payments were to terminate if Wanda remarried.

In July, while going to lunch in downtown Santa Fe, Wanda was injured by a tour bus. As the driver was clearly at fault, the owner of the bus, Roadrunner Touring Company, paid her medical expenses (including a one-week stay in a hospital). To avoid a lawsuit, Roadrunner also transferred $90,000 to her in settlement of the personal injuries she sustained.

The Deans had the following expenditures for 2020:

Medical Expenses (not covered by insurance)		$7,200
Taxes--
Property taxes on personal residence	$3,600
State of New Mexico income tax (includes amt withheld from wages during 2020	4,200	7,800
Interest on home mortgage (first national bank)		6,000
Charitable contributions (cash)		3,600
Life insurance premiums (policy on lances life)		1,200
contribution to Traditional IRA (on wanda's behalf)		5,000
Traffic fines		300
Contribution to the reelection campaign fund of the mayor of Sante Fe		500
Funeral expenses for Wayne Boyle		6,300

Details The life insurance policy was taken out by Lance several years ago and designates Wanda as the beneficiary. As a part-time employee, Wanda is excluded from coverage under her employers pension plan. Consequently, she provides for her own retirement with a traditional IRA obtained at a local trust company. Because the mayor is a member of the local Chamber of Commerce, Lance felt compelled to make the political contribution.

The Deans household includes the following, for whom they provide more than half of the support:

Social Security Number Birth Date Lance Dean (age 42) 123-45-6786 12/16/1978 Wanda Dean (age 40) 123-45-6787 08/08/1980 Penny Allen (age 19) 123-45-6788 10/09/2001 Kyle Allen (age 16) 123-45-6789 05/03/2004 Wayne Boyle (age 75) 123-45-6785 06/15/194

Penny graduated from high school on May 9, 2020, and is undecided about college. During 2020, she earned $8,500 (placed in a savings account) playing a harp in the lobby of a local hotel. Wayne is Wandas widower father, who died on January 20, 2020. For the past few years, Wayne qualified as a dependent of the Deans.

Federal income tax withheld is $3,900 (Lance) and $1,800 (Wanda). The proper amount of Social Security and Medicare tax was withheld. The Deans received the appropriate coronavirus recovery rebates (economic impact payments); related questions in ProConnect Tax should be ignored.

Determine the Federal income tax for 2020 for the Deans on a joint return by completing the appropriate forms. They do not own and did not use any virtual currency during the year, and they do not want to contribute to the Presidential Election Campaign Fund. If an overpayment results, it is to be refunded to them. Suggested software: ProConnect Tax. Note: For 2020, non-itemizers may deduct up to $300 of cash charitable contributions (see text Section 10-4d).