Question

Itemized Deductions (LO. 4)

Paula lives in Arkansas, which imposes a state income tax. During 2019, she pays the following taxes:

Federal tax withheld $5,125 State income tax withheld 1,900 State sales tax – actual receipts 370 Real estate tax 1,740 Property tax on car (ad valoreum) 215 Social Security tax 4,324 Gasoline taxes 124 Excise taxes 112

Refer to only Exhibit 8-3 to answer the following questions. Note: Exhibit 8-3 refers to the 2018 IRS table since the 2019 table is not available at the time.

a. If Paula’s adjusted gross income is $35,000 what is her allowable deduction for taxes? $_3,855_

b. Assume the same facts as in part a, except that Paula pays $1,600 in sales tax on a motor vehicle she purchased during the year. What is Paula’s allowable deduction for taxes? (use the sales tax table value of $554 to get the correct answer for the b part of the problem)

$________

Answer 1

Dear Student ,

Please see below answer with multiple tax amount and treatment as per IRS . Please see line by line and any doubt , please drop me message

Thank you !!

Answer (a)

In this question , multiple Taxes involved and we need to determined treatement
of Taxes
Federal Tax Withheld $			5125
Treatment - federal Income Tax Not deductable
State Income tax withheld $			1900
State Sales tax - actual receipt$			370
In this case , State Income tax withheld amount is higher than
Sales tax deduction
So Paula will deduct her State Income Tax
As per Question , other taxes like
Social Security tax
Gasoline Tax
Excise tax
All above 3 taxes are NOT allowable taxes
Real Estate Tax $			1740
Property tax on car( ad valoreum)$			215
Treatment of above two taxes
Paul is allowed to take Itemized deduction
in relates to Real Estate Tax + Property tax on
car
So as per above analysis , we can derived below tax amount
State Income tax withheld $			1900
Real Estate Tax $			1740
Property tax on car( ad valoreum)$			215
Total Tax deduction $			3855

Answer (b)

Answer b)	Assume the same facts as in part , except paul
	pays $ 1600 in sales Tax on a motor vehicle
	which she purchased during the years
	As per sales tax table value $ 554
	So , Sales Tax deduction would be $			1600+554
				2154
	This amoutn is higher than $ 1900
	State Income tax withheld $			2154
	Real Estate Tax $			1740
	Property tax on car( ad valoreum)$			215
	Total Tax deduction $			4109