Question

Jim and Pat are married, file jointly, and have one dependent (12-year-old qualifying child). Jim receives a $92,000 salary. Pat is self-employed. Her sole proprietorship’s revenues are $98,000, and its expenses are $48,000. Jim and Pat each make a $6,000 deductible contribution to a traditional IRA. Their itemized deductions are $26,000. Federal income taxes of $7,000 are withheld from Jim’s paychecks, and Pat makes $3,000 of estimated tax payments. Determine the additional tax due or refund when Jim and Pat file their 2019 income tax return. Ignore any self-employment tax.

Answer 1

Jim's Gross income from salary is $92,000.

Pat runs a sole-proprietorship, which as per IRS, is not taxed separately. The income from sole proprietorship business which is the firm's revenues less firm's expenses, is treated as personal income and required for filing personal income taxes.

So, Pat's income = Firm's revenues - Firm's expenses = $98,000 - $48,000 = $50,000

Jim and Pat are married, filing jointly, so their total gross income = $92,000 + $50,000 = $142,000

Next, their itemized deductions are $26,000, whereas standard deduction allowed for married filing jointly for 2019 is $24,400. Since itemized deductions amount is higher the couple should take itemized deductions from total gross income.

Further, they make $6,000 each deductible contribution to a traditional IRA. As per IRS, each of the spouse can make individual contributions and also the limit to contribution by each individual in traditional IRA in 2019 is $6,000.

So, the couple can deduct this $6,000 * 2 = $12,000 contribution to traditional IRA from taxable income.

So, taxable income = $142,000 - $26,000 - $12,000 = $104,000

The tax slabs for married filing jointly and the tax calculation for Jim and Pat is given in the table below :

Tax rate	Married, filing jointly	Tax calculation	Tax amount
10%	$0 to $19,400	=10% * $19,400	$1,940.00
12%	$19,401 to $78,950	=12% * ($78,950 - $19,400)	$7,146.00
22%	$78,951 to $168,400	=22% * ($104,000 - $78,950)	$5,511.00
24%	$168,401 to $321,450
32%	$321,451 to $408,200
35%	$408,201 to $612,350
37%	$612,351 or more
Total tax amount			$14,597.00

Total tax payment = $14,597

Taxes already paid = $7,000 + $3,000 = $10,000

Additional tax due = $14,597 - $10,000 = $ 4,597