Question

David K. Gibbs, age 37 and his wife Barbara, age 33, have two children Chris and Ellen, ages 4 and 12, David is employed as an engineer for an oil company, and his wife recently completed a degree in accounting and will begin working for a public firm next year. David has compiled the following information for his 2018 tax return. For the current year, David received a salary of $170,000. His employer withheld Federal income taxes of $9,000 and the appropriate amount of FICA taxes. At the annual Christmas party, he received a card indicating that he would receive a bonus of $3,000 for his good work during the year. The bonus check was placed in his mailbox at work on December 30. Since David was out of town for the holidays, he did not pick up the bonus check until January 2. David and Barbara sold a bond issued by AM&T Inc. on May 30, 2018 for $9,700. Of the $9,700 proceeds, $700 represented the interest accrued to the date of the sale. The Gibbs had purchased the bond (issued at par value of $10,000 on March 1, 2012 for $10,000 . The couple has a $500 U.S. Savings Bond, which they purchased for $300 and gave their daughter two years ago. The proper election was made to report the interest income from the bond annually. The bond's redemption value increased $30 this year David was an instant winner in the state lottery and won $50. . The Gibbs sold 100 shares of stock in JB Corporation for $10,000 on May 1,2018. They purchased the stock on Junl 2009 The couple's itemized deductions were medical expenses of $7.468, interest on their home mortgage of $8,500, state income Required: Note: Do not calculate the tax on tax forms; instead, you may either complete this assignment as a word document or use for $14,000 taxes of $3,750, property taxes on their home of $5.000, and charitable contributions of $2,000. the excel spreadsheet (provided in the additional materials section) a. Determine their gross income and adjusted gross income. For partial credit, list each item of income separately b. Determine whether they itemize or tax the standard deduction. Support your decision with numerical calculations (in other words, compare their itemized deductions to the standard deduction).

Answer 1

Particulars David K. GIbbs Barbara

Income from Salary (WN1) 53,000 4,900

Income from House Property (WN2) (7,500)

Income from Capital gains (WN3) (4,000)

Income from Other sources (WN4) 771

Gross Total Income 46,271 4,900

Less: Deductions under chap VIA:

U/S 80C - Medical Expenses (LIC) 1,500 1,500

Taxable Income 44,771 3,400

Dollar rate for fy 2009-10 46.29/-

Conversion of Dollars into Indian rupees 20,72,450 1,57,386

Tax there on 5,25,734

Add: Education cess @ 3% 15,773

  Tax Liability 5,41,507

Less: TDS 4,16,610 (9000*46.29)

Less: TDS on Lottery 20 (71*30/100)

Tax Payable 1,24,597 NIL

Working notes:

1. Salary Income 50,000

Add: Bonus 3,000

53,000

2. Net Annual value 0

Less: Interest on housing loan 7500

Income from house property (7500)

3. Sale Consideration 10,000

Less: Purchase cost 14,000

Long term capital loss (4,000)

4. Interest accured on bond 700

Lottery 71 (100*50/70)

Income from other sources 750

5. Interest on housing loan is taken as assuming the property is self occupied property.