Question

Jack, age 66, and Jill, age 59, are married and file a joint return. During the year they received:

o   $262,000 in wages
o   $2,000 in interest on their savings account
o   $1,500 in interest from City of Boston Bonds

They paid:
o   $3,000 in student loan interest
o   $8,000 in mortgage interest
o   $5,000 in charitable donations
o   $3,000 in real estate taxes
o   4,000 in state income taxes

They support Jack’s mother since she has no income. She lives in an assisted living center in town because she is legally blind. They also support their daughter Lauren who lives with them while she goes to school full-time. She is 26 years old and has a part-time job waitressing once a week where she earns $3,000.

What is Jack and Jill’s taxable income and tax due/(refund)?
Please submit your answer in a proper tax formula format.

Answer 1

Ans:

Calculating taxable income of married couple Jack and Jill filing jointly:

Gross Income (Working Note-1)	$265500
Less: deductions (Working Note-2)	$3000
Adjusted Gross Income	$262500
Less: Standard deduction (Working Note-3)	$24800
Taxable Income	$237700

Working Note:

1. Computation of Gross Income

Income from Wages	$262000
Interest on Savings Account	$2000
Interest from Bonds	$1500
Total Gross Inome	$265500

One of the spouses i.e., Jack is 66 years old and their gross income is more than $25300 as per the draft of March 2020, so they have to file the return.

2. Computation of deductions:

you can reduce your income with the help of contributions to a traditional IRA, student loan interest, self-employment deductions, and other expenses.

Student Loan Interest

$3000

3. Computation od Itemized deductions:

Itemized deductions cover a wide range of expenses incurred over the course of a year..Typical itemized deductions include:

• Mortgage interest;
• Health care expenses;
• Property taxes;
• Charitable expenses;
• Investment interest expense;
• Tax preparation fees;
• State and local taxes.

Mortgage Interest	$8000
Charitable donations	$5000
Property taxes (Real Estate Taxes)	$3000
State Income Taxes	$4000
Total Itemized seductions available	$20000

4. Jack and Jill cannot claim their daughter Lauren as dependent as she is not a qualifying child because she is 26 years old i.e., older than 24. Lauren is not eligible for Child Tax Credit but she is a qualifying relative as she lives with them and earns less than $4200 as of 2019.

5. Jack's mother is blind and they provide her support because she has no income. Therefore, Jack's mother is a qualifying relative. Therefore, Both daughter and mother can be claimed as dependent

6. Jack and Jill can either opt for itemized deduction of standard deduction. The standard deduction for married filing jointly rises to $24,800 for tax year 2020. Itemized deduction is less than the standard deduction and hence they will opt for standard deduction.

7. Lauren who do not qualify for the Child Tax Credit may still qualify for the Credit for Other Dependents. This is a non-refundable tax credit of up to $500 per qualifying person. The qualifying dependent must be a U.S. citizen, U.S. national, or U.S. resident alien.

Jack's mother is also eligible for other dependant