South-western Federal Taxation 2018: Individual Income Taxes
41st Edition
ISBN: 9781337385886
Author: William H. Hoffman, James C. Young, William A. Raabe, David M. Maloney, Annette Nellen
Publisher: Cengage Learning
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Question
Chapter 10, Problem 41CP
(1)
To determine
Compute net tax payable or refund due for Person A and Person B for 2018.
(1)
Expert Solution
Explanation of Solution
Compute net tax payable or refund due for Person A and Person B for 2018:
| Particulars | Amount ($) |
| Person B's salary | $62,100 |
| Person A's salary | $58,000 |
| Interest income | $2,750 |
| Adjusted gross income | $122,850 |
| Less: Itemized deductions (1) | ($36,486) |
| Taxable income | $86,364 |
| Tax from 2018 Married filing Joint tax table | $10,879 |
| Less: Prepayments and Credits | |
| Income tax withheld | ($9,800) |
| Dependent tax credit (2) | ($1,000) |
| Net tax payable (or refund due) for 2018 | $79 |
Table (1)
Therefore, net tax payable for 2018 is $79.
Note: The taxpayer is not subjected to the AMT.
Working note (1): Compute the total itemized deductions:
| Particulars | Amount ($) | Amount ($) |
| Medical expenses: | ||
| Medical insurance premiums | $4,500 | |
| Doctor bill for Person S paid in 2018 for services in 2017 | $7,600 | |
| Operations for Person S | $8,500 | |
| Prescription medicines for Person S | $900 | |
| Hospital expenses for Person S | $3,500 | |
| Total medical expenses | $25,000 | |
| Less: Reimbursement received in 2018 | ($3,600) | |
| Less: 7.5% of $122,850 AGI | ($9,214) | |
| Medical expenses deductible in 2018 | $12,186 | |
| Taxes: | ||
| State income taxes | $6,950 | |
| Property taxes on residence | $5,000 | |
| $11,950 | ||
| Overall limit on state and local taxes | $10,000 | |
| Qualifies interest on home mortgage | $8,700 | |
| Charitable contributions: (3) | ||
| Church contribution | $5,000 | |
| Tickets to charity dinner dance | $250 | |
| (Only the excess of the ticket price of $300 over the cost of comparable entertainment of $50 is deductible) | ||
| used clothing donated (limited to fair market value) | $350 | $5,600 |
| Total itemized deductions | $36,486 |
Table (2)
Therefore, total itemized deductions $36,486.
Note: The expenses for Person A’s uniforms and laundry
Person A and Person B would opt for itemize their deductions since total itemized deductions exceed the standard deduction of $24,000 for the year 2018 for married persons filing jointly.
Working note (2): Determine the dependent tax credit:
In addition to Person B’ son, Person J, Person B’s father, Person S, eligible as a dependent. Person C cannot be asserted as a dependent as she is not below age of 24 (as a result she is not a eligible child) and has too much income to be a qualifying relative. Person J does not eligible for the child tax credit because he is not under age 17. But both Person J and Person B eligible for the dependent tax credit of $500.
Working note (3): Determine charitable contribution:
The $400 specified to a required family via neither a crowd-funding site nor the $65 given to homeless individuals eligible for a charitable contribution as the amounts were not given to qualified organizations.
(2)
To determine
Compute the taxable income and tax liability for 2018 in the given situation.
(2)
Expert Solution
Explanation of Solution
Compute the taxable income and tax liability for 2018 in the given situation:
| Particulars | Amount ($) |
| Person B's salary | $88,000 |
| Interest income | $34,750 |
| Adjusted gross income | $122,750 |
| Less: Itemized deductions (4) | ($30,794) |
| Taxable income | $91,956 |
| Tax liability from 2018 Married, filing jointly tax rate schedule | $12,109 |
Table (3)
Therefore, Tax liability from 2018 married, filing jointly tax rate schedule is $12,109.
Working note (4): Determine the itemized deductions:
| Particulars | Amount ($) | Amount ($) |
| Medical expenses: | ||
| Medical insurance premiums | $9,769 | |
| Estimated costs for Person A | $9,000 | |
| Less: 10% of $122,750 AGI | ($12,275) | $6,494 |
| Taxes: | ||
| State income taxes | $7,100 | |
| Property taxes on residence | $5,100 | |
| $12,200 | ||
| Overall limit on state and local taxes | $10,000 | |
| Qualified interest on home mortgage | $8,700 | |
| Charitable contributions | $5,600 | |
| Total itemized deductions | $30,794 |
Table (4)
Therefore, total itemized deductions $30,794.
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Chapter 10 Solutions
South-western Federal Taxation 2018: Individual Income Taxes
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