Question

Hongtao is single and has a gross income of $85,300. His allowable deductions for adjusted gross income are $4,300, and his itemized deductions are $19,450. The standard deduction for 2019 is $12,200.

Round all amounts to the nearest dollar. Refer to the Tax Rate Schedules to answer the following questions.

a. Hangtao's taxable income is $______ and his tax liability is $_______ for 2019.

b. If Hongtao has $10,100 withheld from his salary during 2019 then Hongtao has (refund or additional tex due) of $______.

c. Assume the same facts as in part a and part b, except that Hongtao is married. His wife's salary is $27,700, and she has $800 withheld from her paycheck. They file jointly. The standard deduction for 2019 is $24,000. Their taxable income is $______ and their tax liability is $_____ for 2019. They will (refund or additional tex due) of $_______.

Answer 1

1. Gross income = $85,300

Less: Allowable deductions for Adjusted gross income = $4,300

Adjusted Gross income = $85,300 - $4,300 = $81,000

Now, a taxpayer is given a choice under the IRS, he or she can claim standard deduction allowed under the federal tax rules which is a fixed amount each year stated by the IRS, or he or she can itemize deductions and claim itemized deductions. Usually, taxpayers calculate their itemized deductions and if it exceeds standard deduction allowed, they claim itemized deductions, else they claim standard deduction.

So, the higher amount here is of itemized deductions ($19,450) as against standard deduction ($12,200).

So, Hongtao should claim itemized deductions, after which his taxable income will be $81,000 - $19,450 = $61,550

Further, the tax liability for Hongtao based on taxable income of $61,550 and tax brackets for 2019 is as follows: (Further, tax slabs for 2019 are attached for reference):

Tax rate	Single	Calculation	Tax amount
10%	$0 to $9,700	10%*$9,700	$970
12%	$9,701 to $39,475	12%*($39,475-$9,700)	$3,573
22%	$39,476 to $84,200	22%*($61,550-$39,475)	$4,857
24%	$84,201 to $160,725	NA	NA
32%	$160,726 to $204,100	NA	NA
35%	$204,101 to $510,300	NA	NA
37%	$510,301 or more	NA	NA
	Total tax liability		$9,399.50

Tax rate	Single	Married, filing jointly	Married, filing separately	Head of household
10%	$0 to $9,700	$0 to $19,400	$0 to $9,700	$0 to $13,850
12%	$9,701 to $39,475	$19,401 to $78,950	$9,701 to $39,475	$13,851 to $52,850
22%	$39,476 to $84,200	$78,951 to $168,400	$39,476 to $84,200	$52,851 to $84,200
24%	$84,201 to $160,725	$168,401 to $321,450	$84,201 to $160,725	$84,201 to $160,700
32%	$160,726 to $204,100	$321,451 to $408,200	$160,726 to $204,100	$160,701 to $204,100
35%	$204,101 to $510,300	$408,201 to $612,350	$204,101 to $306,175	$204,101 to $510,300
37%	$510,301 or more	$612,351 or more	$306,176 or more	$510,301 or

2. Tax withheld means tax already paid on his behalf, so it can be deducted from his tax liability for the year, which is $9,399.50 So, tax refund due to him since he has paid excess tax = $10,100 - $9,399.50 = $700.50
3. Total AGI for Hongtao and his wife = $81,000 + $27,700 = $1,08,700.

Here, their total standard deduction permitted is $24,000 and their itemized deductions is $19,450. Since standard deduction is higher, same should be claimed.

So, their taxable income will be $1,08,700-$24,000 = $84,700

Tax liability for married couple filing jointly for taxable income of $84,700 as per tax brackets in 2019 is calculated as below:

Tax rate	Married, filing jointly	Calculation	Tax amount
10%	$0 to $19,400	10%*$19,400	$1,940
12%	$19,401 to $78,950	12%*($78,950-$19,400)	$7,146
22%	$78,951 to $168,400	22%*($84,700-$78,950)	$1,265
24%	$168,401 to $321,450	NA	NA
32%	$321,451 to $408,200	NA	NA
35%	$408,201 to $612,350	NA	NA
37%	$612,351 or more	NA	NA
	Total tax liability		$10,351

Now, their total tax liability = $10,351 and total tax withheld from them = $10,100 + $8,00 = $10,900

So, tax refund due to them = $10,900 - $10,351 = $549