It is the end of the tax-year, and Kate and Sam Smith need your help completing pages 1 and 2 of Schedule 1040 and Schedule A.Kate Smith (SS # 555-55-5555)Sam Smith (SS# 444-44-4444)33 Oak Street DriveSan Diego, California 91911The taxpayers are 52 years old, file Married Filing Jointly, and have two children:Elizabeth Smith (SS # 333-33-3333) Jonathan Smith (SS# 222-22-2222).For this problem, assume their gross income is $185,300.This year Kate got a new job, and the Smiths moved to a new city. The new job was located within the same state about 650 miles away from their old house. Before the move, the family went on a house hunting trip that cost them $700. They also hired a moving company for $2,800. On their way to their new house they spent $50 on meals, and $75 on a hotel room. They also stopped by an amusement park and spent $80 on tickets for the day.The Smiths paid $12,000 in interest on their home mortgage this year, and $2,500 in real estate taxes on their new home. They also paid $1,200 in personal credit card interest, and Kate paid $850 in interest on student loans. Sam was hospitalized with a heart condition this year, which required him to undergo surgery. The Smiths incurred $25,000 in medical expenses as a result of Sam’s illness. Of this amount, $18,000 was reimbursed by the insurance company.During the year the Smiths contributed $1,500 cash to the Salvation Army. Before their move, the family donated clothes and furniture that they had purchased for $650 to Goodwill. At the time of donation the items were worth $300. They also gave some old baby furniture to their friends that was valued at $150.Sam Smith paid $200 in union dues for the year, and the family pays $250 for tax return preparation services.Kate and Sam Smith Investment OpportunitiesHere are the three different investment opportunities you have identified for the Smiths, all with the same amount of risk:1.Taxable corporate bonds that pay 4.75 percent interest annually.2.A high-dividend stock that pays 4 percent dividends annually but has no appreciation potential.3.Tax-exempt municipal bonds that pay 3.5 percent annually.Kate and Sam have a marginal tax rate of 30 percent (capital gains rate of 15 percent).Investment ChoiceComputationAfter-Tax Return1.Corporate Bond2.High-dividend stock3.Municipal bondHere are the three basic tax planning strategies, and the features of taxation each of them exploits:
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