Chapter 3, Problem 6FPE

a.

Summary Introduction

To determine: The tax return of person L for the year 2018.

A taxable income is termed to any person's or business' remuneration that is utilized to decide tax liability. The gross income or total income is utilized as the origin to ascertain the amount of taxes an individual or a business owes to the government for the regular tax period.

Explanation of Solution

Determine the taxable income:

Form 1040 is used by majority of the taxpayers. Scholarship used to pay Tuition is tax exempted. The itemized deduction are lower than the standard deduction and will not influence the return.

$\begin{array}{c}Taxable=\left[AdjustedGrossIncome-S\tan dardDeduction\right]\\ =\left[\left(\$1,850+\$55,000+\$185\right)-\$12,000\right]\\ =\$45,035\end{array}$

Therefore the taxable income is $45,035.

Determine the tax liability:

$\begin{array}{c}TaxLiability=\left[\begin{array}{l}AdditionalAmount+\left(TaxableIncome-TaxDue\right)\times \\ ApplicableTaxRate\end{array}\right]\\ =\left[\$4,453.50+\left(\$45,035-\$38,700\right)\times 22\%\right]\\ =\left[\$4,453.50+\$1,393.70\right]\\ =\$5,847.20\end{array}$

Therefore the taxable liability is $5,847.20.

Determine the tax due:

$\begin{array}{c}TaxDue=\left[TaxLiability-IncomeTaxesWithheld\right]\\ =\left[\$6,045.20+\$2,600\right]\\ =\$3,247.20\end{array}$

Therefore the taxable due is $3,247.20.

b.

Summary Introduction

To determine: The tax return of person L for the year 2018 with additional information provided.

Explanation of Solution

Determine the revised adjusted gross income:

$\begin{array}{c}\mathrm{Re}visedAdjustedGrossIncome=\left[\begin{array}{l}GrossIncom{e}_{PartA}+CashDividends-\\ IRAcontribution\end{array}\right]\\ =\left[\$57,035+\$150-\$5,000\right]\\ =\$52,185\end{array}$

Therefore the revised adjusted gross income is $52,185.

Determine the revised taxable income:

$\begin{array}{c}\mathrm{Re}visedTaxableIncome=\left[\begin{array}{l}\mathrm{Re}visedAdjustedGrossIncome-\\ S\tan dardDeductions\end{array}\right]\\ =\left[\$52,185-\$12,000\right]\\ =\$40,185\end{array}$

Therefore the revised taxable income is $40,185.

Determine the ordinary taxable income:

$\begin{array}{c}OrdinaryTaxableIncome=\left[\mathrm{Re}visedTaxableIncome-CashDividends\right]\\ =\left[\$40,185-\$150\right]\\ =\$40,035\end{array}$

Therefore the ordinary taxable income is $40,035.

Determine the taxes on ordinary taxable income

$\begin{array}{c}TaxesonOrdinaryTaxableIncome=\left[\begin{array}{l}AdditionalAmount+\left(TaxableIncome-TaxDue\right)\times \\ ApplicableTaxRate\end{array}\right]\\ =\left[\$4,453.50+\left(\$40,035-\$38,700\right)\times 22\%\right]\\ =\left[\$4,453.50+\$293.70\right]\\ =\$4,747.20\end{array}$

Therefore the taxes on ordinary taxable income is $4,747.20.

Determine the tax liability:

$\begin{array}{c}TaxLiability=\left[\begin{array}{l}TaxesonOrdinaryTaxableIncome+\\ TaxesonDividends\end{array}\right]\\ =\left[\$4,747.20+\left(\$150\times 15\%\right)\right]\\ =\$4,769.70\end{array}$

Therefore the taxable liability is $4,769.70.

Determine the tax due

$\begin{array}{c}TaxDue=\left[TaxLiability-IncomeTaxesWithheld\right]\\ =\left[\$4,769.70+\$2,600\right]\\ =\$2,169.70\end{array}$

Therefore the taxable due is $2,169.70.