Question

Joe and Susan are married. They have two children, Jack and Jill ages 4 and 6. In 2020, they had the following transactions

1 Joe has taxable wages of $125,000.

2 Susan has taxable wages of $200,000

3 Interest income of $700

4 Their joint stock portfolio was valued at $39,000 on January 1, 2019. On December 31, 2019 it was valued at $47,000.

5. They paid mortgage interest of $22,000 on their primary residence.

6. They paid $6,000 of state income taxes

7 They paid $3,000 of real estate taxes.

8 They donated $6000 to their local church.

9 Susan’s mother passed away and they received $15,000 of life insurance proceeds. They used $7,500 of the proceeds to pay for the funeral.

10 Joe purchased a new SUV for $45,000. He paid $7,000 and received loan proceeds of $38,000 for the remaining purchase price.

11 Jill contributed $5,000 to her Individual Retirement Account and $3,000 to her qualified Health Savings account.

a. What is Joe and Susan’s AGI assuming they file married filing joint?

b. What is their taxable income?

c. What is their total tax after allowable deductions and credits?

Answer 1

Particulars	Amount	Amount	Explanation
Wages:
Joe	125,000
Susan	200,000	325,000	As Joe and Susan are filing as Married filing jointly, wages of both will be taxed.
Interest		700	It is assumed that interest income is other than that from municipal bonds and hence treated as taxable.
Total Income		325,700
Less: Adjustments (Above the line deductions)
Contribution to IRA	5,000		Contribution to IRA is allowed. It is assumed that contribution is made to Traditional IRA.
Contribution to HSA	3,000	8,000	Contribution to Health Saving Account is eligible for deduction upto $7,000 in case of married filing jointly.
(A) Adjusted Gross Income		317,700
Less: Itemized Deductions
Interest Expense	22,000		It is assumed that interest is paid on loan taken for purchase of the home and the home is secured against the loan.
Charity	6,000		Charitable contribution is allowed upto 60% of Adjusted Gross Income.
State Taxes	9,000	37,000	State taxes are allowed upto $10,000 for married filing jointly.
(B) Net taxable income		280,700
Tax as per slab rate for 2020		55,527
Less: Child tax credit		4,000	Child tax credit is available for each qualifying child. Credit amount is $2,000 for each child.
(C) Net tax payable		51,527

Note:

1. Life insurance proceeds received on death is not taxable.

2. Unrealized gain is not taxable.