Reference no: EM133087650
Question - PART 1 - Fred and Ginger are married and file a joint return for 2021. They have one dependent child, Carmen (age 18), who lives with them. Fred and Ginger have the following items of income and expense for 2021:
Income:
Fred's salary $110,000
Ginger's salary 125,000
Interest income on State of Arizona bonds 3,000
Interest income on US Treasury bonds 8,000
Qualified cash dividends 6,000
Regular (nonqualified) cash dividends 9,500
FMV of shares received from stock dividend 8,500
Share of RKO Partnership loss* (10,000)
Share of Hollywood Corporation (an electing S corporation) income** 30,000
Life insurance proceeds received on the death of Fred's mother 150,000
Short-term capital gains 5,000
Short-term capital losses (10,000)
15% Long-term capital gains 30,000
15% Long-term capital losses (7,000)
Expenses:
Traditional IRA Contributions 12,000
Home mortgage interest ($300,000 principal) 18,000
Home equity loan interest ($75,000 principal) 6,000
Vacation home loan interest ($120,000 principal) 8,400
Car loan interest 3,000
Home property taxes 6,000
Vacation home property taxes 1,800
Car tags (ad valorem part) 950
Arizona income tax withheld 8,000
Federal income taxes withheld 45,000
Arizona sales taxes paid 6,500
Medical insurance premiums (not part of an employer plan) 12,000
Unreimbursed medical bills 10,000
Charitable contributions 12,000
* Fred and Ginger invested $15,000 as limited partners in the RKO Partnership at the beginning of 2021. The loss is not the result of real estate rentals. Neither Fred nor Ginger materially participates.
** Ginger is a 50% owner and President of Hollywood. She materially participates in the corporation.
REQUIRED - Determine Fred and Ginger's tax liability, using the tax formula. You must label your work, provide supporting schedules for summary computations, and indicate any carryovers. Present your work in a neat, orderly fashion.
PART 2 - Fred and Ginger have purchased several bond mutual funds in Carmen's name. In 2021, the bonds earned $7,000 of taxable interest. Carmen also earned $2,500 from babysitting.
REQUIRED - Determine Carmen's tax liability, using the tax formula. Label all work.