Question

Samantha is a single individual with no dependents. In 2018, she had total income of $162,000, of which $9,500 is from municipal bond interest. She has FOR AGI deductions of $12,000, itemized deductions of $9,800 and tax credits of $1,200. She also made estimated tax payments of $25,000. (Hint: Refer to the tax formula for individuals in “Helpful Formulas from the Book” PDF.) a.Compute Samantha’s taxable income for 2018. b.Compute Samantha’s tax due for 2018. c.Assume that Samantha is a C Corporation instead of an individual and all of the deductions are business related. What would the corporation’s tax due be for 2018? 3) Goliath Supplies Inc. (a C Corp) reports total net income of $575,000 in 2018. This includes $25,000 of income from 5.00% Jackson County municipal bonds (muni bond interest is not taxable). Thus, the Corporation’s taxable income is equal to $550,000. a.What is Goliath’s tax liability for 2018? b.What are Goliath’s marginal, average and effective tax rates, respectively? c.If equivalent taxablebonds pay 6.50% interest, what is the implicit tax rate for the Jackson County bonds? (see handout for Implicit Tax Rate) d.Did Goliath make a good choice to invest in the municipal bonds instead of the taxable bonds? 4) Joe owns a 25% interest in an S Corporation that earned $250,000 in 2018. He also owns 20% of the stock in a C Corporation that earned $400,000 during the year. The S Corporation distributed $50,000 to Joe, and the C Corporation paid dividends of $15,000 to Joe. How much income must Joe report from these businesses on his individual income tax return? (Hint: A C Corporation is a separate taxable entity. An S Corporation is a flow-through entity.)

Answer 1

Salary		390000
Interest income		11000
Dividend income		15000
Gambling winnings		14000
Adjusted gross income		430000
Less: itemized deductions
Medical expenses (12000-(7.5%*430000))	0
State income taxes	8100
Real estate taxes	4000
Mortgage interest on residence	13100
Investment interest expense	3800
Gambling losses	5100
Total itemized deductions		(35100)
Taxable income		394900
Taxable income		394900
Plus: adjustments
Medical expenses		0
State income taxes		8100
Real estate taxes		4000
Plus: preference (interest on private activity bonds)		40000
Alternative minimum taxable income		447000
Less: exemption		70300
AMT base		376700
AMT rate		28%
TMT		125160