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Josh and Megan Reed are married and have two children under 13 years old that qualify as their dependents. Josh is a self-employed landscape architect. Josh earned $150,000 of revenue and incurred $107,535 of deductible business expenses. Josh paid $2,000 in health insurance premiums. Megan is a nurse earning a taxable salary of $34,800. They incur $5,000 of child care expenses during the year. During the year they receive $1,600 in reimbursements from their medical plan and report $2,200 of investment income (qualified dividends). The Reed’s gambling winnings for the year were $1,000. Additionally, Josh paid $6,000 in alimony and $12,000 in child support to his former spouse. Josh’s ex-wife claims the children on her return. They provide you with the following data:
Automobile insurance $1,450
Homeowners’ insurance 625
Life insurance 980
Disability insurance (loss of earnings) 375
Country club dues 1,800
Hospital 3,500
Doctor 2,275
Chiropractor 650
Dentists 1,750
Prescription drugs 275
Cosmetic surgery (elective) 6,000
Over-the-counter drugs 460
Federal taxes withheld 7,500
State taxes withheld 3,745
Property taxes 320
Investment interest 1,600
Mortgage interest (primary residence) 6,850
Real estate taxes (primary residence) 2,240
Charitable contribution (cash) 8,435
Charitable contribution (clothes @ FMV) 100
Investment advice 425
Subscriptions to investment journals 225
Dues to professional organizations (Megan) 375
Attorney fee for tax advice on Dispute with IRS 525
Safe-deposit box 75
Tax return preparation 400
Gambling losses 1,650
Union dues 310
Nurse’s uniform 225
Please calculate AGI, taxable income, tax liability, any applicable credits, and tax due or refund amount for 2015 using the individual income tax format. Do not calculate AMT.
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