Question

Tax Brackets & Rates - Individuals Taxable income Between Tax Due $0 $9,875 10% $9,876 $40,125 $988 plus 12% of the amount over $9,875 $40,126 $85,525 $4,617 plus 22% of the amount over $40,125 $85,526 $163,300 $14,605 plus 24% of the amount over $85,525 $163,301 $207,350 $33,271 plus 32% of the amount over $163,300 $207,351 - $518,400 $47,367 plus 35% of the amount over $207,350 $518,400 and Over $156,234 plus 37% of the amount over $518,400 Tax Brackets & Rates - Married Filing Jointly and Surviving Spouses Taxable Income Between Tax Due $0 - $19,750 10% $19,751 $80,250 $1,975 plus 12% of the amount over $19,750 $80,251 $171,050 $9,235 plus 22% of the amount over $80,250 $171,051 $326,600 $29,211 plus 24% of the amount over $171,050 $326,601 $414,700 $66,542 plus 32% of the amount over $326,600 $414,701 $622,050 $94,734 plus 35% of the amount over $414,700 $622,050 and Over $167,306 plus 37% of the amount over $622,050 Tax Brackets & Rates - Heads of Households Taxable income Between Tax Due $0 $14,100 10% $14, 101 $53,700 $1,410 plus 12% of the amount over $14,100 $53,701 $85,500 $6,162 plus 22% of the amount over $53,700 $85,501 $163,300 $13,158 plus 24% of the amount over $85,500 $163,301 $207,350 $31,829 plus 32% of the amount over $163,300 $207,351 $518,400 $45,925 plus 35% of the amount over $207,350 $518,400 and Over $154,792 plus 37% of the amount over $518,400

During 2020, James, a single taxpayer incurred the following expenditures:

Qualified medical expenses $ 8,000 ($1,000 of which were reimbursed)

Student loan interest 1,700

Charitable contributions (all cash) 3,000

Qualified mortgage interest (on $200,000 debt) 12,000

State income taxes withheld from paycheck 2,000

Real Estate taxes paid on personal residence 7,000

Personal property taxes paid 4,000

Federal income tax withheld from paycheck 19,000

James also earned the following income:

Salary $70,000

Share of Partnership Income 20,000

Inheritance 4,000

Compute James’ total itemizable deduction, taxable income and tax liability for the year of 2020.

Answer 1

In the given case James wants to know the Itemized deductions that can be available to him for the year 2020. Itemized deductions can be defined as the  individual tax deductions that can be availed instead of the standard deduction. If the standadrd deduction is taken up, the itemized deductions is not available.

From the given information , the following chart of itemizable deductions is prepared .

Particulars	Amount	Remarks
Qualified medical expenses $ 8,000 ($1,000 of which were reimbursed)	7,000 but restricted to 7.5 of Adjusted Gross total income ( Calculated in computation)	The medical expenses that have been paid in the year can be deducted as expenses under the itemized deductions. It is alloweable for self, spouse and dependents . The amount deductible = Excess of otal medical expenses over 7.5% of the gross adjusted income .
Student loan interest 1,700	1700	Student loan interest is not an itemized deduction . It means that the interest can be deducted in order to reduce the taxable income. It is assumed that the student loan has been taken for purposes as specfified to be eligible for deduction. Ex: Own education . Maximum deduction allowed upto 2500. However if the AGI is more than 85,000 the deduction will not be allowed . Here the MAGI is 58,250.
Charitable contributions (all cash) 3,000	3000	Chartitable donations are fully allowed under itemized deduction. They should be made to qualified organisations and not to individuals
Qualified mortgage interest (on $200,000 debt) 12,000	12000	The mortgage interest upto the first 7,50,000 of the loan is allowed as deduction So James will get the deduction of the interest paid.
State income taxes withheld from paycheck 2,000	Adjusted against tax payable	A withholding tax means an amount of money , held out of an employee's paycheck and paid directly to the government by the employer. This mony is taken a s acredit against the annual taxes payable by the employee and can be adjusted against the annual income tax.
Real Estate taxes paid on personal residence 7,000	10000	Property and Real estate taxes paid maximum upto 10,000 are allowed for individuals.
Personal property taxes paid 4,000	Property and Real estate taxes paid maximum upto 10,000 are allowed for individuals.
Federal income tax withheld from paycheck 19,000	Adjusted against tax payable 19000	Federal income tax withheld will be allowed to be adjusted from taxes payable. It is withheld with the federal government . In case of excessive deduction, refund can be claimed.
Chargeability of Income
Salary	Taxable	70,000
Share of Income form Partnership	Taxable . Partnership firm does not pay tax on its income , but the partners need to pay tax on theor shar of income	20,000
Inheritance	It is not taxable under US Tax Laws	-
Tax Computation of James for the year 2020
	USD	USD
Gross income:
Salary		70,000.00
Income from Partnership		20,000.00
Total gross income		90,000.00
Adjustments		-
Adjusted gross income (AGI)		90,000.00
Less:
Itemized deductions
Medical expenses (7.5/100 x 90000)	6,750.00
Charitable contributions	3,000.00
Motgage loan interest	12,000.00
Real estate and property taxes	10,000.00
( Maximum upto 10,000)
[7000+4000] or 10,0000 whichever is less		31,750.00
Modified Adjusted Gross Income ( MAGI)		58,250.00
Less: Student Loan Interest		1,700.00
Taxable Income		56,550.00
Tax thereon: ( Refer Individual tax rate chart)
(56,550-40126) @ 22 percent	3,613.00
Upto 40126	4,617.00
Upto 9875	988.00	9,218.00
Less:
State Tax withheld	2,000.00
Federal tax withheld	19,000.00	21,000.00
Refund due		11,782.00