Reba Dixon is a fifth-grade school teacher who earned a salary
of $38,000 in 2018. She is 45 years old and has been divorced for
four years. She receives $1,200 of alimony payments each month from
her former husband (divorced in 2016). Reba also rents out a small
apartment building. This year Reba received $50,000 of rental
payments from tenants and she incurred $19,500 of expenses
associated with the rental.
Reba and her daughter Heather (20 years old at the end of the year)
moved to Georgia in January of this year. Reba provides more than
one-half of Heather’s support. They had been living in Colorado for
the past 15 years, but ever since her divorce, Reba has been
wanting to move back to Georgia to be closer to her family.
Luckily, last December, a teaching position opened up and Reba and
Heather decided to make the move. Reba paid a moving company $2,010
to move their personal belongings, and she and Heather spent two
days driving the 1,426 miles to Georgia.
Reba rented a home in Georgia. Heather decided to continue living
at home with her mom, but she started attending school full-time in
January at a nearby university. She was awarded a $3,000 partial
tuition scholarship this year, and Reba helped out by paying the
remaining $500 tuition cost. If possible, Reba thought it would be
best to claim the education credit for these expenses.
Reba wasn't sure if she would have enough items to help her benefit
from itemizing on her tax return. However, she kept track of
several expenses this year that she thought might qualify if she
was able to itemize. Reba paid $5,800 in state income taxes and
$12,500 in charitable contributions during the year. She also paid
the following medical-related expenses for herself and Heather:
Insurance premiums | $ | 5,795 |
Medical care expenses | $ | 1,100 |
Prescription medicine | $ | 350 |
Nonprescription medicine | $ | 100 |
New contact lenses for Heather | $ | 200 |
Shortly after the move, Reba got distracted while driving and
she ran into a street sign. The accident caused $900 in damage to
the car and gave her whiplash. Because the repairs were less than
her insurance deductible, she paid the entire cost of the repairs.
Reba wasn’t able to work for two months after the accident.
Fortunately, she received $2,000 from her disability insurance. Her
employer, the Central Georgia School District, paid 60% of the
premiums on the policy as a nontaxable fringe benefit and Reba paid
the remaining 40% portion.
A few years ago, Reba acquired several investments with her portion
of the divorce settlement. This year she reported the following
income from her investments: $2,200 of interest income from
corporate bonds and $1,500 interest income from City of Denver
municipal bonds. Overall, Reba’s stock portfolio appreciated by
$12,000 but she did not sell any of her stocks.
Heather reported $6,200 of interest income from corporate bonds she
received as gifts from her father over the last several years. This
was Heather’s only source of income for the year.
Reba had $10,000 of federal income taxes withheld by her employer.
Heather made $1,000 of estimated tax payments during the year. Reba
did not make any estimated payments. Reba had qualifying insurance
for purposes of the Affordable Care Act (ACA).
Required:
B.Is Reba allowed to file as a head of household or
single?
C.Determine the amount of FICA taxes Reba was required to pay on
her salary.
D.Determine Heather’s federal income taxes due or payable. Use Tax
Rate Schedule, Dividends and Capital Gains Tax Rates, Estates and
Trusts for reference
Description |
Amount |
|
Gross income: |
||
Salary |
38000 |
|
Alimony received (1200*12) |
14400 |
|
Rental receipts |
50000 |
|
Gift from mother |
0 |
|
Disability insurance payments (2000*60%) |
1200 |
|
Interest income from corporate bonds |
2200 |
|
Interest income from municipal bonds |
0 |
|
1. |
Gross income |
105800 |
Deductions for AGI: |
||
Expenses for rental property |
19500 |
|
Moving expenses (2010+(1426*0.18)) |
2267 |
|
2. |
Total for AGI deductions |
21767 |
3. |
AGI |
84033 |
From AGI deductions: |
||
Medical expenses ((5795+1100+350+200)-(10%*84033)) |
958 |
|
State income taxes |
5800 |
|
Charitable contributions |
12500 |
|
Casualty loss deduction |
||
4. |
Total itemized deductions |
19258 |
5. |
Standard deduction |
18000 (Head of household status) |
6. |
Greater of itemized deductions or standard deduction |
19258 |
7. |
Taxable income |
64775 |
8. |
Tax on taxable income |
8799 (5944+(22%*(64775-51800))) |
9. |
Credits |
1000 |
10. |
Tax prepayments |
10000 |
Tax refund |
2202 |
Therefore,
Reba is unmarried during the tax year and Heather qualifies as her dependent. As Heather is Reba’s daughter and lives with her. She is below 24 years as well as does not provide half of her support. So, Reba qualifies for the head of household status
b. |
Status of taxpayer |
Head of household |
c. |
FICA taxes |
8799 |
d. |
Tax refund |
2202 |
Reba Dixon is a fifth-grade school teacher who earned a salary of $38,000 in 2018. She...
Reba Dixon is a fifth-grade school teacher who earned a salary of $38,000 in 2018. She is 45 years old and has been divorced for four years. She receives $1,200 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental. Reba and her daughter Heather (20 years old at the...
Reba Dixon is a fifth-grade school teacher who earned a salary of $38,300 in 2018. She is 45 years old and has been divorced for four years. She receives $1,290 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,400 of rental payments from tenants and she incurred $19,656 of expenses associated with the rental. Reba and her daughter Heather (20 years old at the...
Reba Dixon is a fifth-grade school teacher who earned a salary of $38,400 in 2018. She is 45 years old and has been divorced for four years. She receives $1,300 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,200 of rental payments from tenants and she incurred $19,578 of expenses associated with the rental. Reba and her daughter Heather (20 years old at the...
Reba Dixon is a fifth-grade school teacher who earned a salary of $38,000 in 2017. She is 45 years old and has been divorced for four years. She receives $1,200 of alimony payments each month from her former husband. Reba also rents out a small apartment building. This year Reba received $30,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental. Reba and her daughter Heather (20 years old at the end of the...
Reba Dixon is a fifth-grade school teacher who earned a salary of $38,300 in 2018. She is 45 years old and has been divorced for four years. She receives $1,240 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental. Reba and her daughter Heather (20 years old at the...
Reba Dixon is a fifth-grade school teacher who earned a salary of $38,000 in 2019. She is 45 years old and has been divorced for four years. She receives $1,200 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental.Reba and her daughter Heather (20 years old at the end...
Reba Dixon is a fifth-grade school teacher who earned a salary of $38,500 in 2018. She is 45 years old and has been divorced for four years. She receives $1,280 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,300 of rental payments from tenants and she incurred $19,617 of expenses associated with the rental. Reba and her daughter Heather (20 years old at the...
Reba Dixon is a fifth-grade school teacher who earned a salary of $38,300 in 2019. She is 45 years old and has been divorced for four years. She receives $1,230 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,500 of rental payments from tenants and she incurred $19,695 of expenses associated with the rental. Reba and her daughter Heather (20 years old at the...
Reba Dixon is a fifth-grade school teacher who earned a salary of $38,000 in 2019. She is 45 years old and has been divorced for four years. She receives $1,200 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental. Reba and her daughter Heather (20 years old at the...
Reba Dixon is a fifth-grade school teacher who earned a salary of $38,000 in 2019. She is 45 years old and has been divorced for four years. She receives $1,200 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental. Reba and her daughter Heather (20 years old at the...