Question

Demarco and Janine Jackson have been married for 20 years and have four children who qualify as their dependents (Damarcus, Janine Jr., Michael, and Candice). The couple received salary income of $100,000 and qualified business income of $10,000 from an investment in a partnership, and they sold their home this year. They initially purchased the home three years ago for $200,000 and they sold it for $250,000. The gain on the sale qualified for the exclusion from the sale of a principal residence. The Jacksons incurred $16,500 of itemized deductions, and they had $3,050 withheld from their paychecks for federal taxes. They are also allowed to claim a child tax credit for each of their children. However, because Candice is 18 years of age, the Jacksons may claim a child tax credit for other qualifying dependents for Candice. (Use the tax rate schedules.)

c. What would their taxable income be if their itemized deductions totaled $28,000 instead of $16,500? Amount Description (1) Gross income (2) For AGI deductions (3) Adjusted gross income (4) Standard deduction (5) Itemized deductions (6) (7) Deduction for qualified business income (8) Total deductions from AGI Taxable income

Answer 1

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As per tax year 2020: Solution: c) Amount 1 2 3 4 Description Gross Income (100000+10000) For AGI Deduction Adjusted Gross Income Standard Deduction (per 2020 TCJA) Itemized Deduction Greater of Standard or Itemized deduction Deduction for Qualified business income (10000*20%) Total Deduction from AGI (28000+2000) Taxable income (111000-30000) 5 110000 0 110000 $ 24,800 $ 28,000 $ 28,000 $ 2,000 $ 30,000 $ 80,000 6 7 00 w N d) Description 1 Gross Income (100000+10000) For AGI Deduction 3 Adjusted Gross Income Standard Deduction (per 2020 TCJA) Itemized Deduction 6 Greater of Standard or itemized deduction 7 Deduction for Qualified business income (10000*20%) 8 Total Deduction from AGI Taxable income (104000-26800) 4 Amount 110000 6000 104000 $ 24,800 $ $ 24,800 $ 2,000 $ 26,800 $ 77,200 5

e) Naming options are not given, can be slightly different: Decrease in Taxable Income $ 3,000 (capital loss is deductiable upto $3,000 against other income) f) Description Gross Income (100000+10000) For AGI Deduction Adjusted Gross Income Standard Deduction (per 2020 TCJA) Itemized Deduction Greater of Standard or itemized deduction Deduction for Qualified business income (10000*20%) Total Deduction from AGI Taxable income (110000-26800) Amount 110000 0 110000 $ 24,800 $ 16,500 $ 24,800 $ 2,000 $ 26,800 $ 83,200