Question

Demarco and Janine Jackson have been married for 20 years and have four children who qualify as their dependents (Damarcus, Janine, Michael, and Candice). The couple received salary income of $125,000 and qualified business income of $20,000 from an investment in a partnership, and they sold their home this year. They initially purchased the home three years ago for $250,000 and they sold it for $300,000. The gain on the sale qualified for the exclusion from the sale of a principal residence. The Jacksons incurred $18,500 of itemized deductions, and they had $4,550 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 only claim the child tax credit for other qualifying dependents for Candice. (Use the tax rate schedules.)

Schedule Y-1-Married Filing Jointly or Qualifying Widow(er)

If taxable income is over:	But not over:	The tax is:
$           0	$ 19,400	10% of taxable income
$ 19,400	$ 78,950	$1,940 plus 12% of the excess over $19,400
$ 78,950	$168,400	$9,086 plus 22% of the excess over $78,950
$168,400	$321,450	$28,765 plus 24% of the excess over $168,400
$321,450	$408,200	$65,497 plus 32% of the excess over $321,450
$408,200	$612,350	$93,257 plus 35% of the excess over $408,200
$612,350	—	$164,709.50 plus 37% of the excess over $612,350

a. What is the Jacksons’ taxable income, and what is their tax liability or (refund)? (Do not round intermediate calculations.)

Answer 1

Answer:

$117,000 taxable income and $6,407 tax due.

Step by step explanation:

	Description		Amount		Computation
(1)	Gross income	$	145,000		$125,000 Salary income + $20,000 qualified business income (QBI). Gain home sale of $50,000 is excluded.
(2)	For AGI deductions		0
(3)	Adjusted gross income		145,000		(1) − (2)
(4)	Standard deduction		24,000		Married filing jointly;
(5)	Itemized deductions		18,500
(6)	Greater of standard deductions or itemized deductions		24,000		Greater of (4) or (5)
(7)	Deduction for qualified business income		4,000		$20,000 QBI × 20%
(8)	Total deductions from AGI		28,000		(6) + (7)
(9)	Taxable income	$	117,000		(3) − (8)
(10)	Income tax liability	$	17,457		(117,000 – 78,950) × 22% + $9,086 (see tax rate schedule for married filing jointly).
(11)	Other taxes		0
(12)	Total tax	$	17,475		(10) + (11)
(13)	Credits		(6,500	)	Child credits for four children (3 × $2,000 + 1 × $500)
(14)	Prepayments		(4,550	)
	Tax due with return	$	6,407		(12) + (13) + (14)