Question

  

John and Sandy Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2020, John worked as a computer technician at a local university earning a salary of $152,000, and Sandy worked part time as a receptionist for a law firm earning a salary of $29,000. John also does some Web design work on the side and reported revenues of $4,000 and associated expenses of $750. The Fergusons received $800 in qualified dividends and a $200 refund of their state income taxes. The Fergusons always itemize their deductions, and their itemized deductions were well over the standard deduction amount last year. Assume that the Fergusons received an advance rebate of $2,400 in 2020. The Fergusons had qualifying insurance for purposes of the Affordable Care Act (ACA). Use Exhibit 8-9, Tax Rate Schedule, Dividends and Capital Gains Tax Rates, 2020 AMT exemption for reference.

 

The Fergusons reported making the following payments during the year:

• State income taxes of $4,400. Federal tax withholding of $21,000.
• Alimony payments to John’s former wife of $10,000 (divorced in 2014).
• Child support payments for John’s child with his former wife of $4,100.
• $12,200 of real property taxes.
• Sandy was reimbursed $600 for employee business expenses she incurred. She was required to provide documentation for her expenses to her employer.
• $3,600 to Kid Care daycare center for Samantha’s care while John and Sandy worked.
• $14,000 interest on their home mortgage ($400,000 acquisition debt).
• $3,000 interest on a $40,000 home-equity loan. They used the loan to pay for a family vacation and new car.
• $15,000 cash charitable contributions to qualified charities.
• Donation of used furniture to Goodwill. The furniture had a fair market value of $400 and cost $2,000.

Download the Tax Form 1040 and enter the required values in the appropriate fields.
 

Answer 1

Answers:

Answer Tax Refund - $2,118 Explaination Description Amount Gross income: Salary $181,000 Self-employment revenues 4,000 Dividends 800 State income tax refund 200 (1) Gross income 1,86,000 For AGI deductions: Self-employment expenses 750 Employer portion of self-employment taxes (4000-750)*92.35%*2.9%/2 44 Alimony 10,000 (2) Total for AGI deductions 10,794 (3) AGI 1,75,206 Itemized deductions: Taxes (state income taxes + real property taxes, upto the limit of 10000) 10,000 Home mortgage interest expense 14,000 Charitable contributions cash 15,000 Charitable contributions property 400 (4) Total itemized deductions (itemized deduction is greater than standard deduction 24400) 39,400 (5) Deduction for qualified business income (4000-750)*20% 650 (6) Total from AGI deductions 40,050 Taxable income $135,156 (7) Tax on income other than qualified dividends ($135,156 - 800) = $134,356. $21,275 MFJ tax rate schedule ($9086 + (22% (134,356 - 78950))] (8) Tax on qualified dividends (800*15%) 120 (9) Total Federal income tax $21,395

(10) Self Employment tax (11) Alternative Minimum tax (12) Total taxes (13) Child and dependent care credit (14) Child tax credit (15) Federal tax withholding Tax payable (refund) Description (1) Child and dependent care expenditures (2) Limit on qualifying expenditures for one dependent (3) John's earned income (152000+3250) (4) Sandy's earned income (5) Expenditures eligible for credit Least of (1), (2), (3), and (4) (6) Credit percentage rate Child and dependent care credit Description (1) Taxable income Plus adjustments: (2) Taxes 87 0 $21,482 600 2,000 21,000 ($2,118) Amount $3,600 $3,000 $155,250 $29,000 $3,000 20% $600 Amount $135,156 10,000 Minus adjustments: (3) State income tax refund (4) Alternative minimum taxable income (5) AMT Exemption (6) AMT base (7) TMT (27256-800)*26%) + (800*15%) (8) Regular tax AMT (regular tax is greater than TMT) (200) $144,956 $117,700 $27,256 $6,999 21,395 $0