Question

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96. Tom and Alice Honeycutt, ages 45 and 46, respectively, live at 101 Glass Road, Delton, MI 49046. Tom is a county employee, and Alice is a self-employed accoun- tant. Tom's Social Security number is 111-11-1111; Alice's Social Security number is 123-45-6789. The income and expenses associated with Alice's accounting practice for 2019 are as follows: Revenues (cash receipts during 2019) $185,000 Expenses Salaries $ 45,000 Office supplies 3,200 Postage 2,900 Depreciation of equipment 42,000 Telephone 800 $ 93,900 Because Alice is a cash method taxpayer, she does not record her receivables as rev- enue until she receives cash payment. At the beginning of 2019, her accounts receiv- able were $48,000, and the balance had decreased to $8,000 by the end of the year. Alice used one room in their 10-room house as the office for her accounting practice (400 square feet out of a total square footage of 4,000). They paid the fol lowing expenses related to the house during 2019: Utilities $4,500 Insurance 2,100 Property taxes 5,200 Repairs 3,500 Tom and Alice purchased the house on September 1, 2018, for $400,000 (exclu- sive of land cost). Tom and Alice have one child, Connor, age 18. Connor's Social Security number is 123-45-6788. Tom received a salary of $50,000 during 2019. The appropriate amounts of Social Security tax and Medicare tax were withheld. In addition, $5,000 of Federal income taxes and $2,000 of state income taxes were withheld. Tom and Alice's allowable itemized deductions during 2019, excluding any item- ized deductions related to the house, were $20,600. They made estimated Federal income tax payments of $20,000. Part 1-Tax Computation Compute Tom and Alice's lowest net tax payable or refund due for 2019.

Answer 1

B Amount ($) 185000 50000 A. 1 part 1 2 Particulars 3 Net business income 4 T's Salary 5 Less: Adjustments 6 Office expenss 7 Hone office expenses(1530+1026) 8 Self employement tax (12511*50%) 9 Adjusted gross income 93900 2556 6256 102712 132288 10 15680 16200 31880 100408 11 Less: Itermized deductions 12 Personal exemption (4050*4) 13 Taxable income 14 15 Income tax computation: 16 Tax on taxable income (100408) 17 (10375.5+((100408-75300)*25%) 18 Self-employement tax 19 Tax liability before prepayments and credits 20 Less: Federal income taxes withheld 21 Estimated tax payments 22 Net tax refundable for 2019 16653 12511 29164 5000 25000 30000 -836

Working notes:

Home office deduction = 10%*(4500+2100+5200+3500)

= 1530

Total deduction = 11000+property taxes

= 11000+(5200*9/10)

= 15680

Net earnings from self emplyment (185000-93900-2556) = 88544

Multiply step 1 amount by 92.35% = 81770.38

If the amount step 2 is 118500 or less, multiply the step 2 = 12510.87

amount by 15.3%

Self employemnt tax = 12510.87 (12511 rounded)