Question

Marc and Michelle are married and earned salaries this year of $64,000 and $12,000, respectively. In addition to their salaries, they received interest of $350 from municipal bonds and $500 from corporate bonds. Marc contributed $2,500 to an individual retirement account, and Marc paid alimony to a prior spouse in the amount of $1,500 (under a divorce decree effective June 1, 2005). Marc and Michelle have a 10-year-old son, Matthew, who lived with them throughout the entire year. Thus, Marc and Michelle are allowed to claim a $2,000 child tax credit for Matthew. Marc and Michelle paid $6,000 of expenditures that qualify as itemized deductions and they had a total of $3,500 in federal income taxes withheld from their paychecks during the year. (Use the tax rate schedules.)

Filing status & dependents: Income: $76,850 $72,850 Adjusted gross income: $24,400 Standard or itemized deduction: $48,450 Taxable income: $5,429 Total tax before credits: $2,000 Total tax credits: $3,429 Total tax after credits: $0 < Total payments & refundable credits:

Filing status Married filing jointly Wages, salaries, tips, etc. $64,000 Spouse wages, salaries, tips, etc. $12,000 Taxable interest $850 Tax-exempt interest $0 $0 Ordinary dividends (this includes any qualified dividends) Qualified dividends $0 $0 Taxable refunds or credits of state and local income taxes $0 Alimony received for separation or divorce agreements executed on or before December 31st, 2018 $0 Business income or loss (Schedule C & E subject to self-employment taxes) $0 Spouse's business income or loss (Schedule C & E subject to self-employment taxes)

Total income $76,850 Adjusted Gross Income Educator expenses $0 $0 Certain business expenses (form 2106) $0 Health Savings Account (HSA) deduction (form 8889) $0 Self-employment tax deduction (Schedule SE) $0 Self-employed SEP, SIMPLE and qualified plans Self-employed health insurance deduction $2,500 $0 Penalty on early withdrawal of savings $1,500 Alimony paid for separation or divorce agreements executed on or before December 31st, 2018 IRA deduction $0 Student loan interest deduction $0 Based on a

a. What is Marc and Michelle's gross income?

b. What is Marc and Michelle's adjusted gross income? 

c. What is the total amount of Marc and Michelle's deductions from AGI? 

d. What is Marc and Michelle's taxable income? 

e. What is Marc and Michelle's taxes payable or refund due for the year? 

Answer 1

Filing status & dependents: Income: $76,850 $72,850 Adjusted gross income: $24,400 Standard or itemized deduction: $48,450 Taxable income: $5,429 Total tax before credits: $2,000 Total tax credits: $3,429 Total tax after credits: $0 < Total payments & refundable credits:

Filing status Married filing jointly Wages, salaries, tips, etc. $64,000 Spouse wages, salaries, tips, etc. $12,000 Taxable interest $850 Tax-exempt interest $0 $0 Ordinary dividends (this includes any qualified dividends) Qualified dividends $0 $0 Taxable refunds or credits of state and local income taxes $0 Alimony received for separation or divorce agreements executed on or before December 31st, 2018 $0 Business income or loss (Schedule C & E subject to self-employment taxes) $0 Spouse's business income or loss (Schedule C & E subject to self-employment taxes)

Total income $76,850 Adjusted Gross Income Educator expenses $0 $0 Certain business expenses (form 2106) $0 Health Savings Account (HSA) deduction (form 8889) $0 Self-employment tax deduction (Schedule SE) $0 Self-employed SEP, SIMPLE and qualified plans Self-employed health insurance deduction $2,500 $0 Penalty on early withdrawal of savings $1,500 Alimony paid for separation or divorce agreements executed on or before December 31st, 2018 IRA deduction $0 Student loan interest deduction $0 Based on a

Total adjustments $4,000 Adjusted gross income (AGI) $72,850 Standard Deduction 65 or older? no Blind? no Spouse 65? no Spouse blind? no Total checked above 0 Married filing separately no no Can someone claim you as a dependent? Standard deduction $24,400 Itemized Deduction Medical and dental expenses Actual expenses $6,000 Allowed deduction $0 Tavaa naid laanavallu atata Conn

Itemized Deduction Medical and dental expenses Actual expenses $6,000 Allowed deduction $0 $3,500 Taxes paid (generally state and local) Interest paid $0 Gifts to charity $0 Itemized deduction $3,500 Tax Adjusted gross income (AGI) $72,850 $24,400 Standard or itemized deduction to use (higher of two options) $0 Qualified business income deduction (Form 8995) Taxable income $48,450 Tax* $5,429 All taxable

Total tax before credits $5,429 Credits $0 Foreign tax credit (form 1116) $0 Credit for child and dependent care credit expenses (form 2441) $0 Education credits (form 8863, line 23) $0 Retirement savings contributions credit (form 8880) Child tax credit $2,000 Based on 1 qualifying dependents. $0 Residential energy credits (Form 5695) $0 American opportunity credit (Form 8863, non-refundable portion) $0 Other credits that are not refundable

Total credits that are non- refundable $2,000 Total tax after credits $3,429 Other Taxes $0 Self-employment tax (Schedule SE) $0 Unreported Social Security and Medicare tax (forms 4137 & 5329) $0 Additional tax on IRAs and other retirement plans (form 5329) $0 Household employment taxes (Schedule H) and Advanced earned income credit (W-2 box 9) $0 First time home buyer credit repayment (Form 5405) $0 Health care: individual responsibility Medicare tax sur-tax on earned income (Form 8959) $0 (0.9% X $0) Net Investment Income Tax $O (3.8% X

Medicare tax sur-tax on earned income (Form 8959) $0 (0.9% X $0) Net Investment Income Tax (NIIT) (Form 8960) $0 (3.8% X $0) Total other taxes $0 Total tax before refundable credits $3,429 Refundable Tax Credits Earned income credit $0 Non-taxable combat pay $0 $0 Reduction for Scholarships, penal income, and retirement income Number of qualifying children 0 Lived in the U.S? yes Qualified child of another? no Age 25 to 65? yes $0 Additional child tax credit (form 8812)

refundable, including credit for prior year AMT (Form 8801) and other refundable credits and payments Total refundable credits $0 Total Tax Due and Tax Payments $0 Federal income tax withheld on Forms W-2 and 1099 $0 Estimated tax payments and amount applied on last year's return $0 Excess Social Security and RRTA tax withheld $0 Any other payments including amount paid with request for extension Total tax $3,429 Total payments $0 Your outstanding tax bill $3,429

Answer 2

a) What is Marc and Michelle’s gross income?

$76,500. See analysis below.

b) What is Marc and Michelle’s adjusted gross income?

$72,500. See analysis below.

c) What is the total amount of Marc and Michelle’s deductions from AGI?

$23,900. See analysis below.

d) What is Marc and Michelle’s taxable income?

$48,600. See analysis below.

e) What is Marc and Michelle’s taxes payable or refund due for the year (use the tax rate schedules)?

$102.50 tax refund. See analysis below.

Description. Amount. Computation

(1) Gross income. 76,500. $64,000 salary + $12,000 salary + $500 corporate bond interest

(2) For AGI deductions. 4,000. 2,500 qualified moving expenses + 1,500 alimony paid

(3) Adjusted gross income. 72,500 (1) – (2)

(4) Standard deduction. 12,200. Married filing jointly

(5) Itemized deductions. 6,000

(6) Greater of standard deductions or itemized deductions. 12,200. (4) > (5)

(7) Personal and dependency exemptions

11,700. 3,900 × 3 (two personal exemptions and one dependency exemption)

(8) Total deductions from AGI 23,900. (6) + (7)

(9) Taxable income. $48,600. (3) - (8)

(10) Income tax liability. $6,397.5. (48,600 – 17,850) × 15% + 1,785 (see tax rate schedule for married filing jointly).

(11) Other taxes 0

(12) Total tax $6,397.5. (10) + (11)

(13) Credits. (1,000) Child credit for 10-year old son Matthew

(14) Prepayments. (5,500)

(15) Taxes (refund) with return. ($102.5) (12) + (13)+ (14)