PLEASE READ THE LAST PORTION – IMPORTANT TO SHOW YOUR WORK !!!!!Problem 2 Harry K. Gibbs, age 37, and his wife, Meg, age 33, have two children, Chris and Garrett, ages 2and 12. Harry is employed as an engineer for an oil company, and his wife recently completed adegree in accounting and will begin working for a public accounting firm next year. Harry hascompiled the following information for your use in preparing his tax return for 2016. For the currentyear, Harry received a salary of $70,000. His employer withheld Federal income taxes of $9,000 andthe appropriate amount of FICA taxes. At the annual Christmas party, he received a card indicating that he would receive a bonus of$3,000 for his good work during the year. The bonus check was placed in his mailbox at work onDecember 30. Since Harry was out of town for the holidays, he did not pick up the bonus check untilJanuary 2. A bond issued by AM&T inc. was sold on May 30, 2016 for $9,700, $700 of which represented interest accrued to the date of the sale. The Gibbs had purchased the bond (issued at par value of$10,000 on March 1, 2005) in 2012 for $10,000. The couple has a $500 U.S. Savings Bond, which they purchased for $300 and gave to theirdaughter several years ago. The proper election to report the income from the bond annually wasmade. The bond’s redemption value increased $30 this year. Harry was an instant winner in the state lottery and won $50. The Gibbs sold 100 shares of stock in 13 Corporation for $10,000 on May 1, 2016. They hadpurchased the stock on June 1, 2009 for $14,000. During the year, Meg prepared a number of tax returns for which she received $5,000. Heronly deductible expense incurred in performing these services was $100 for some tax software. The couple’s itemized deductions were medical expenses of $7,468, interest on their homemortgage of $8,500, state income taxes $3,750, property taxes on their home of $5,000, andcharitable contributions of $2,000. Compute Mr. and Mrs. Gibbs’ Federal income tax liability (or refund) for 2016. You might find ithelpful to use 2016 tax forms to assist you in completing the computations. Please make sure to showall of you work in order to obtain partial credit.
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