South-Western Federal Taxation 2018
APPENDIX E
PROBLEM 2—INDIVIDUALS (FORM 1040) See Facts Below.
Neil B. (age 42) and Mae R. (age 48) King are married and live at 7605 Walnut Street,
Kansas City, MO 64114. Neil is a chemist employed by Sargent Pharmaceuticals, Inc., and Mae
is a self-employed doctor of anesthesiology. They are calendar year, cash basis taxpayers.
1. Sargent Pharmaceuticals develops and produces injectable medicines used in
chemotherapy treatments for cancer patients. Neil manages the Kansas City facility
for an annual salary of $90,000. Sargent makes contributions to a qualified defined
contribution pension plan for all of its full-time employees. Although Neil also has
the opportunity to make contributors to the plan, he chose no to do so in 2016.
Neil participates in his employer’s group health insurance plan, to which he contributed $4,000 in 2016 for medical coverage. These contributions are made with pretax dollars. The health plan covers Neil, Mae, and their two dependent children.
Because of the risk associated with Neil’s work (I.e., processing chemotherapy
drugs), Sargent provides all of its employees with $200.000 of group term life insurance. An additional $180 of income is included in Neil’s Form W—Z to report the taxable value of this insurance.
2. In late 2015, three employees at Sargent’s Chicago facility were seriously injured
while processing a customer order. While the injuries occurred in what the company called a “freak accident”, Neil began to look for a safer job in the chemical industry. He incurred the following expense, during 2016: