Question

Hello,

I'm having some trouble computing the taxable income for this problem. Please describe how you arrive at the correct answer.

The problem is referring to the 2018 tax code.

Problem 3-39 (LO. 1, 2, 3, 4, 5, 6) Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children who live with her (all are under age 16). She also maintains the household in which her parents live and furnished 60% of their support. Besides interest on City of Miami bonds in the amount of $5,500, Charlotte's father received $2,400 from a part-time job. Charlotte has a salary of $80,000, a short-term capital loss of $2,000, a cash prize of $4,000 from a church raffle, and itemized deductions of $10,500. Click here to access the standard deduction table to use, if required. a. Compute Charlotte's taxable income $ 40,950 x b. Using the Tax Rate Schedules (click here), tax liability for Charlotte is $ for 2018. c. Compute Charlotte's child and dependent tax credit. Feedback Check My Work Individual taxpayers have two categories of deductions: (1) deductions for adjusted gross income (deductions to arrive at adjusted gross income) and (2) deductions from adjusted gross income. Taxpayers are allowed to deduct the greater of itemized deductions or the standard deduction. The child tax credit and dependent tax credit are provided to individual taxpayers based on the number of their qualifying children and dependents.

Answer 1

PART – a)

AGI of Charlotte = Salary of Charlotte + Cash prizes – Short term loss

                              = $80,000 + $4,000 – $2,000

                              = $82,000

Taxable income of Charlotte = AGI – Standard deduction

= $82,000 – $24,000

= $58,000

PART – b)

Tax liability = ($19,050*10%) + ($58,000 – $19,050)*12%

                    = $1,905 + ($38,950*12%)

                    = $1,905 + $4,674

                    = $6,579

PART – c)

Child tax credit = $2,000*No. of minor children

                          = $2,000*4

                          = $8,000

Dependent tax credit = $500*Parents

                                  = $500*2

                                  = $1,000