Question

84. Reba Dixon is a fifth-grade schoolteacher who earned a salary of $38,000 in 2019. She is 45 years old and has been divorced for four years. She receives $1,200 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental. Reba and her daughter Heather (20 years old at the end of the year) moved to Georgia in January of this year. Reba provides more than one-half of Heather's support. They had been living in Colorado for the past 15 years, but ever since her divorce, Reba has been wanting to move back to Georgia to be closer to her family. Luckily, last December, a teaching position opened up and Reba and Heather decided to make the move. Reba paid a moving company $2,010 to move their personal belongings, and she and Heather spent two days driving the 1,426 miles to Georgia. Reba rented a home in Georgia. Heather decided to continue living at home with her mom, but she started attending school full-time in January and throughout the rest of the year at a nearby university. She was awarded a $3,000 partial tuition scholarship this year, and Reba helped out by paying the remaining $500 tuition cost. If possible, Reba thought it would be best to claim the education credit for these expenses. Reba wasn't sure if she would have enough items to help her benefit from item- izing on her tax return. However, she kept track of several expenses this year that she thought might qualify if she was able to itemize. Reba paid $5,800 in state in- come taxes and $12,500 in charitable contributions during the year. She also paid the following medical-related expenses for herself and Heather: Insurance premiums $7,952 Medical care expenses 1,100 Prescription medicine 350 Nonprescription medicine 100 New contact lenses for Heather 200 Shortly after the move, Reba got distracted while driving and she ran into a street sign. The accident caused $900 in damage to the car and gave her whiplash. Because the repairs were less than her insurance deductible, she paid the entire cost of the repairs. Reba wasn't able to work for two months after the accident. Fortu- nately, she received $2,000 from her disability insurance. Her employer, the Central Georgia School District, paid 60 percent of the premiums on the policy as a nontax- able fringe benefit and Reba paid the remaining 40 percent portion. A few years ago, Reba acquired several investments with her portion of the divorce settlement. This year she reported the following income from her investments: $2,200 of interest income from corporate bonds and $1,500 interest income from City of Denver municipal bonds. Overall, Reba's stock portfolio appreciated by $12,000 but she did not sell any of her stocks.

Answer 1

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2019 Explanation 500 (500*100%) 86300 80000 6300 (2-3) 10000 (90000-80000) 63% (4/5) 315 (1*6) 185 (1-7) $ Required answers are highlighted in yellow: As per Tax year 2019 limit, answer will be different for different year: Solution: a) Description Amount AGI: $86,300. Single or HOH: Gross Income: Particulars Salary 38,000 1) AOC before phase out Alimony received (1200*12) 14,400 2) AGI Rental receipts 50,000 3) Phaseout threshold begins Disability insurance payments (2000*60%) 1,200 4) Excess AGI Interest income from corporate bonds 2,200 5) Phaseout range Interest income from municipal bonds 0 6) Phaseout percentage 1 Gross income 105800 7) Phaseout amount Deductions for AGI: American Op. Credit after phaseout Expenses for rental property 19,500 2 Total for AGI deductions 19,500 3 AGI 86,300 From AGI deductions: Medical expenses 972 State income taxes 5,800 Charitable contributions 12,500 4 Total itemized deductions 19,272 5 Standard deduction 18,350 6 Greater of itemized deductions or standard deduction 19,272 7 Taxable income (86300-19272) 67,028 8 Tax on taxable income (6065)+(67028-52850)*22% 9,184 9 Credits (500 for other dependents +185 AOTC) 685 Sign can be +/- 10 Tax prepayments 10,000 0.37 Tax Refund (9184-685-10000) -1,501

b) Reba allowed to file as a Head of household c) FICA taxes = (38000*7.65%) = $ 2,907 Heather has more than $2200 unearned income, kiddle tax rates will be applicable on her income: Earned Income $. Interest Income (Unearned) $ 6,200 AGI $ 6,200 Standard deduction Greater or 1050 or (earned income +350) $-1,100 Gross Unearned Income or Taxable income $ 5,100 Statutory Deduction - subjec to ordinary rates $ 1,100 (2200-1100) Net Earned Income, subject to kiddle tax rates $ 4,000 $ 110 Tax on first 2200 at ordinary rate (2200-1100) *10% Tax on Income subjec to kiddle tax: first 2600 * 10% 2601 to 4000 @ 24% (4000-2600)*24% Tax on taxable income Tax Prepayments Tax Refund $ 260 $ 336 $ 706 $ 1,000 $ 294 d)