Question

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 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 $2,170 to move their personal belongings, and she and Heather spent two days driving the 1,458 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 $3,160 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 $5,960 in state income taxes and $12,660 in charitable contributions during the year. She also paid the following medical-related expenses for herself and Heather:

Insurance premiums	$	5,955
Medical care expenses	$	1,260
Prescription medicine	$	510
Nonprescription medicine	$	260
New contact lenses for Heather	$	360

Shortly after the move, Reba got distracted while driving and she ran into a street sign. The accident caused $1,060 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 $2,160 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: $2,360 of interest income from corporate bonds and $1,660 interest income from the City of Denver municipal bonds. Overall, Reba’s stock portfolio appreciated by $12,160 but she did not sell any of her stocks.

Heather reported $6,520 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).

a. Determine Reba’s federal income tax refund or taxes payable for the current year. Use Tax Rate Schedule for reference. (Round percentages to two decimal places. Round your intermediate computations and final answers to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)

Answer is complete but not entirely correct.

Description Amount Gross Income: Salary $38,500selected answer correct Alimony received 15,360selected answer correct Rental receipts 50,300selected answer correct Disability insurance payments 1,296selected answer correct Interest income from corporate bonds 2,360selected answer correct Interest income from municipal bonds 0selected answer correct (1) Gross income $107,816selected answer correct Deductions for AGI: Expenses for rental property 19,617selected answer correct (2) Total for AGI deductions 22,049selected answer incorrect (3) AGI $85,767selected answer incorrect From AGI deductions: Medical expenses 0selected answer incorrect State income taxes 5,960selected answer correct Charitable contributions 12,660selected answer correct (4) Total itemized deductions 18,620selected answer incorrect (5) Standard deduction 18,000selected answer correct (6) Greater of itemized deductions or standard deductionselected answer correct 18,620selected answer incorrect (7) Taxable income $67,147selected answer incorrect (8) Tax on taxable income $9,320selected answer incorrect (9) Credits 1,000selected answer incorrect (10) Tax prepayments 10,000selected answer correct Tax refundselected answer correct $1,680selected answer incorrect

Answer 1

Gross Income:-

Salary 38500

Alimony Received 15360

Rental Receipts 50300

Disability Insurance 1296

Interest Income from Corporate Bonds 2360

Interest Income From Municipal Bonds 0

Gross Income 107816

Deductions for AGI:-

(a) Expenses for Rental Property 19617

(b) Tution Fees 500

(c) Expenses paid to moving Company 2170

Total Deductions for AGI (a+b+c) 22287

Itemized Deductions:-

(a) Medical Expenses 1930.33

(Amount in excess of 7.5% of Medical Expenses= 8345-7.5% of(107816-22287)

(b) State Income tax 5960

(c) Charitable Contribution 12660

Total A =(a+b+c) 20555.33   

Standard Deduction B 18000

A or B whichever highest 20555.33

Taxable Income 64978.67

Tax Thereon 14295.30

Less Credits 0

Less:- Prepayments 10000

Tax payable 4295.30