The year before last, Victor earned $85,000 from his retail management position, and Maria began working full-time and earned $52,000 as a medical technician. After they took the standard deduction and claimed four exemptions (themselves plus their two children), their federal income tax liability was about $20,000. After being convinced by friends that they were paying too much in taxes, the cou- ple vowed to try to never again pay that much. Therefore, the Hernandezes embarked on a yearlong effort to reduce their income tax liability. This year they tracked all of their possible itemized deductions, and both made contribu- tions to retirement plans at their places of employment. A.) Calculate the Hernandezes’ income tax liability for this year as a joint return (using Table 4-2) given the following information: gross salary income (Victor, $85,000; Maria, $52,000); state income tax refund ($400); interest on checking and savings accounts ($250); holiday bonus from Maria’s employer ($1,000); contributions to qualified retirement accounts ($5,500); itemized deductions (real estate taxes, $4,600; mortgage interest, $6,300; charitable con- tributions, $2,500); and exemptions for themselves and their two children ($4,050 each). B.) List five additional strategies that Victor and Maria might consider for next year’s tax planning to reduce next year’s tax liability.

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The year before last, Victor earned $85,000 from his retail management position, and Maria began working full-time and earned $52,000 as a medical technician. After they took the standard deduction and claimed four exemptions (themselves plus their two children), their federal income tax liability was about $20,000. After being convinced by friends that they were paying too much in taxes, the cou- ple vowed to try to never again pay that much. Therefore, the Hernandezes embarked on a yearlong effort to reduce their income tax liability. This year they tracked all of their possible itemized deductions, and both made contribu- tions to retirement plans at their places of employment.

A.) Calculate the Hernandezes’ income tax liability for this year as a joint return (using Table 4-2) given the following information: gross salary income (Victor, $85,000; Maria, $52,000); state income tax refund ($400); interest on checking and savings accounts ($250); holiday bonus from Maria’s employer ($1,000); contributions to qualified retirement accounts ($5,500); itemized deductions (real estate taxes, $4,600; mortgage interest, $6,300; charitable con- tributions, $2,500); and exemptions for themselves and their two children ($4,050 each).

B.) List five additional strategies that Victor and Maria might consider for next year’s tax planning to reduce next year’s tax liability.

Personal finance....
Howard Davidoff
Brooklyn College, Brooklyn, New York
154
Table 4-2
Tax Rate Schedules
DO IT IN CLASS
Single Individuals
If taxable income is over–
But not over–
The tax is-
$ 9,275
$ 37,650
$ 91,150
10% of the taxable income
$ 9,276
$ 37,651
$ 91,151
$927.50 plus 15% of the amount over $9,275
155
$5,183.75 plus 25% of the amount over $37,650
$190,150
$18,558.75 plus 28% of the amount over $91,150
$190,151
$413,350
$46,278.75 plus 33% of the amount over $190,150
ADVICE FROM A SEASONED PRO
$413,351
$415,050
$119,934.75 plus 35% of the amount over $413,350
Over $415,050
No limit
$120,529.75 plus 39.6% of the amount over $415,050
Married Couples Filing Jointly
If taxable income is over–
But not over–
The tax is-
156
$
$ 18,550
$ 75,300
10% of the taxable income
$ 18,551
$1855 plus 15% of the amount over $18,550
$ 75,301
$151,900
$10,367.50 plus 25% of the amount over $75,300
ADVICE FROM A SHASONED PRO
$151,901
$231,450
$29,517.50 plus 28% of the amount over $151,900
$231,451
$413,350
$51,791.50 plus 33% of the amount over $231,450
hes u
$413,351
$466,950
$111,818,50 plus 35% of the amount over $413,350
Over $466,950
No limit
$130,578.50 plus 39.6% of the amount over $466,950
157
Transcribed Image Text:Personal finance.... Howard Davidoff Brooklyn College, Brooklyn, New York 154 Table 4-2 Tax Rate Schedules DO IT IN CLASS Single Individuals If taxable income is over– But not over– The tax is- $ 9,275 $ 37,650 $ 91,150 10% of the taxable income $ 9,276 $ 37,651 $ 91,151 $927.50 plus 15% of the amount over $9,275 155 $5,183.75 plus 25% of the amount over $37,650 $190,150 $18,558.75 plus 28% of the amount over $91,150 $190,151 $413,350 $46,278.75 plus 33% of the amount over $190,150 ADVICE FROM A SEASONED PRO $413,351 $415,050 $119,934.75 plus 35% of the amount over $413,350 Over $415,050 No limit $120,529.75 plus 39.6% of the amount over $415,050 Married Couples Filing Jointly If taxable income is over– But not over– The tax is- 156 $ $ 18,550 $ 75,300 10% of the taxable income $ 18,551 $1855 plus 15% of the amount over $18,550 $ 75,301 $151,900 $10,367.50 plus 25% of the amount over $75,300 ADVICE FROM A SHASONED PRO $151,901 $231,450 $29,517.50 plus 28% of the amount over $151,900 $231,451 $413,350 $51,791.50 plus 33% of the amount over $231,450 hes u $413,351 $466,950 $111,818,50 plus 35% of the amount over $413,350 Over $466,950 No limit $130,578.50 plus 39.6% of the amount over $466,950 157
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