Question

Jeremy earned $100,000 in salary and $6,000 in interest income during the year. Jeremy’s employer withheld $11,000 of federal income taxes from Jeremy’s paychecks during the year. Jeremy has one qualifying dependent child who lives with him. Jeremy qualifies to file as head of household and has $23,000 in itemized deductions.

a. Determine Jeremy’s tax refund or taxes due.

b. Assume that in addition to the original facts, Jeremy has a long-term capital gain of $4,000. What is Jeremy’s tax refund or tax due including the tax on the capital gain?

c. Assume the original facts except that Jeremy has only $7,000 in itemized deductions. What is Jeremy’s tax refund or tax due?

(1) Gross income

(2) For AGI deductions

(3) Adjusted gross income

(4) Standard deduction

(5) Itemized deductions

(6) Greater of standard deduction or itemized deductions

(7) Taxable income

(8) Income tax liability

(9) Child tax credit

(10) Tax withholding

Answer 1

Solution:

(a) Jeremy's tax refund is $ 302 as computed below:

Description	Amount	Computation
(1) Gross income	$106,000	$ 100,000 salary + $ 6,000 Interest income
(2) For AGI deductions	0
(3) Adjusted gross income	$106,000	(1) - (2)
(4) Standard deduction	18,350	Head of Household
(5) Itemized deductions	23,000
(6) Greater of standard deduction or itemized deductions	(23,000)	(5) > (4)
(7) Taxable income	$83,000
(8) Income tax liability	$12,698	(83,000 - 52,850) x 22% + $6,065( see tax rate schedule for head of household)
(9) Child tax credit	(2,000)
(10) Tax withholding	(11,000)
Tax (refund)	($302)	(8) + (9) + (10)

b) Jeremy has a tax due of $ 298 below:

Description	Amount	Computation
(1) Gross income	$110,000	$100,000 salary + $ 6,000 Interest income + $4,000 long term capital gain
(2) For AGI deductions	0
(3) Adjusted gross income	$110,000	(1) - (2)
(4) Standard deduction	18,350	Head of Household
(5) Itemized deductions	23,000
(6) Greater of standard deduction or itemized deductions	(23,000)	(5) > (4)
(7) Taxable income	$87,000
(8) Income tax liability	$13,298	[(83,000 - 52,850) x 22%+ $6,065] + $ 4000 x 15% ( see tax rate schedule for head of household)
(9) Child tax credit	(2,000)
(10) Tax withholding	(11,000)
Taxes due	$ 298	(8) + (9) + (10)

c) Jeremy has a tax due of $ 790 below:

Description	Amount	Computation
(1) Gross income	$106,000	$ 100,000 salary + $ 6,000 Interest income
(2) For AGI deductions	0
(3) Adjusted gross income	$106,000	(1) - (2)
(4) Standard deduction	18,350	Head of Household
(5) Itemized deductions	7,000
(6) Greater of standard deduction or itemized deductions	(18,350)	(4) > (5)
(7) Taxable income	$87,650
(8) Income tax liability	$13,790	(87,650 - 84,200) x 24% + $12,962 ( see tax rate schedule for head of household)
(9) Child tax credit	(2,000)
(10) Tax withholding	(11,000)
Taxes due or (tax refund)	$790	(8) + (9) + (10)