Question

1. Paul and Sonja, who are married, had itemized deductions of $14,200 and $400, respectively, during 2018. Paul suggests that they file separately—he will itemize his deductions from AGI, and she will claim the standard deduction.

1. Evaluate Paul’s suggestion.
2. What should they do?

2. Compute the taxable income for 2018 for Emily on the basis of the following information. Her filing status is single.

Salary	$85,000
Interest income from bonds issued by Xerox	1,100
Alimony payments received (divorce occurred in 2014)	6,000
Contribution to traditional IRA	5,500
Gift from parents	25,000
Short-term capital gain from stock investment	2,000
Amount lost in football office pool	500
Age	50

3. Determine the amount of the standard deduction allowed for 2018 in the following independent situations. In each case, assume that the taxpayer is claimed as another person’s dependent.

1. Curtis, age 18, has income as follows: $700 interest from a certificate of deposit and $12,200 from repairing cars.
2. Mattie, age 18, has income as follows: $600 cash dividends from a stock investment and $4,700 from handling a paper route.
3. Jason, age 16, has income as follows: $675 interest on a bank savings account and $800 for painting a neighbor’s fence.
4. Ayla, age 15, has income as follows: $400 cash dividends from a stock investment and $500 from grooming pets.
5. Sarah, age 67 and a widow, has income as follows: $500 from a bank savings account and $3,200 from babysitting.

Answer 1

Q 1:

a.

If either spouse itemizes deductions from AGI, the other spouse also must itemize. Consequently, Paul’s suggestion is not proper.

b.

Presuming that they file separately and itemize, their total deduction is $14,600 ($14,200 + $400). If they claim the standard deduction, $24,000 ($12,000 + $12,000) is allowed. The same result takes place on a joint return. For tax purposes, therefore, the standard deduction is the better choice.

Q 2:

Salary $ 85,000

Interest on bonds 1,100

Alimony received 6,000

Capital gain 2,000

IRA contribution (5,500)

AGI $ 88,600

Standard deduction (12,000)

Taxable income $ 76,600

The alimony payments and bond interest are taxable. The gift is a nontaxable exclusion. The $2,000 of the capital gain is taxable. Net gambling losses are not deductible.

Q 3:

a.

$12,000. Although $12,200 (earned income) + $350 = $12,550, the amount allowed cannot exceed the standard deduction available in 2018 for single taxpayers.

b.

$5,050. $4,700 (earned income) + $350.

c.

$1,150. The greater of $1,050 or $1,150 [$800 (earned income) + $350].

d.

$1,050. The greater of $1,050 or $850 [$500 (earned income) + $350].

e.

$5,150. $3,200 (earned income) + $350 + $1,600 (additional standard deduction).