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Problem 4-28 (LO 4-1)

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Jeremy earned $101,300 in salary and $7,300 in interest income during the year. Jeremy’s employer withheld $11,000 of federal income taxes from Jeremy’s paychecks during the year. Jeremy has one qualifying dependent child who lives with him. Jeremy qualifies to file as head of household and has $28,700 in itemized deductions. (Use the tax rate schedules.)

Problem 4-28 Part-a

a. Determine Jeremy’s tax refund or taxes due.

Problem 4-28 Part-b

b. Assume that in addition to the original facts, Jeremy has a long-term capital gain of $10,050. What is Jeremy’s tax refund or tax due including the tax on the capital gain? (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

c. Assume the original facts except that Jeremy has only $7,000 in itemized deductions. What is Jeremy’s tax refund or tax due?

    

    

Answer 1

Case - (a) -- Determine Jeremy’s tax refund or taxes due.

Answer -

Computation of Jeremy's (Tax Refund) / Tax Due for Tax Year 2019

	Description	Explanation	Amount ($)
(1)	Gross income	Salary + Interest income	108600
(2)	For AGI deductions	-	0
(3)	Adjusted gross income	(1) + (2)	108600
(4)	Standard deduction	Standard deduction for head of household	18350
(5)	Itemized deductions	Given in question	28700
(6)	Greater of standard deduction or itemized deductions	Greater of: (4) or (5)	28700
(7)	Taxable income	(3) - (6)	79900
(8)	Income tax liability	Refer working note - (1)	12016
(9)	Child tax credit	$2000 per child	2000
(10)	Tax withholding	Given in question	11000
Tax Refund		(8) - (9) - (10)	(984)

# Working note - (1) - Computation of Jeremy's Tax Liability for Tax Year 2019 -

	Tax Rate	Taxable Income ($)	Calculation	Amount ($)
I.	10%	0 - 13850	$13850 * 10%	1385
II.	12%	13851 - 52850	($52850 - $13850) * 12%	4680
III.	22%	52851 - 84200	($79900 - $52850) * 22%	5951
Jeremy's Tax Liability			I + II + III	12016

.

Case - (b) -- Assume that in addition to the original facts, Jeremy has a long-term capital gain of $10050. What is Jeremy’s tax refund or tax due including the tax on the capital gain?

Answer -

Computation of Jeremy's (Tax Refund) / Tax Due for Tax Year 2019

	Description	Explanation	Amount ($)
(1)	Gross income	Salary + Interest income + Long-term capital gains	118650
(2)	For AGI deductions	-	0
(3)	Adjusted gross income	(1) + (2)	118650
(4)	Standard deduction	Standard deduction for head of household	18350
(5)	Itemized deductions	Given in question	28700
(6)	Greater of standard deduction or itemized deductions	Greater of: (4) or (5)	28700
(7)	Taxable income	(3) - (6)	89950
(8)	Income tax liability	Refer working note - (1)	13524
(9)	Child tax credit	$2000 per child	2000
(10)	Tax withholding	Given in question	11000
Tax Due		(8) - (9) - (10)	524

# Working note - (1) - Computation of Jeremy's Tax Liability for Tax Year 2019 -

	Tax Rate	Taxable Income ($)	Calculation	Amount ($)
I.	10%	0 - 13850	$13850 * 10%	1385
II.	12%	13851 - 52850	($52850 - $13850) * 12%	4680
III.	22%	52851 - 84200	($79900 - $52850) * 22%	5951
Regular income tax			I + II + III	12016
Add: Long-term capital gains tax			$10050 * 15%	1508
Jeremy's Tax Liability			$12016 + $1508	13524

.

Case - (c) -- Assume the original facts except that Jeremy has only $7000 in itemized deductions. What is Jeremy’s tax refund or tax due?

Answer -

Computation of Jeremy's (Tax Refund) / Tax Due for Tax Year 2019

	Description	Explanation	Amount ($)
(1)	Gross income	Salary + Interest income	108600
(2)	For AGI deductions	-	0
(3)	Adjusted gross income	(1) + (2)	108600
(4)	Standard deduction	Standard deduction for head of household	18350
(5)	Itemized deductions	Given in question	7000
(6)	Greater of standard deduction or itemized deductions	Greater of: (4) or (5)	18350
(7)	Taxable income	(3) - (6)	90250
(8)	Income tax liability	Refer working note - (1)	14414
(9)	Child tax credit	$2000 per child	2000
(10)	Tax withholding	Given in question	11000
Tax Due		(8) - (9) - (10)	1414

# Working note - (1) - Computation of Jeremy's Tax Liability for Tax Year 2019 -

	Tax Rate	Taxable Income ($)	Calculation	Amount ($)
I.	10%	0 - 13850	$13850 * 10%	1385
II.	12%	13851 - 52850	($52850 - $13850) * 12%	4680
III.	22%	52851 - 84200	($84200 - $52850) * 22%	6897
IV.	24%	84201 - 160700	($90250 - $84200) * 24%	1452
Jeremy's Tax Liability			I + II + III + IV	14414