Question

Shauna Coleman is single. She is employed as an architectural designer for Streamline Design (SD). Shauna wanted to determine her taxable income for this year. She correctly calculated her AGI. However, she wasn’t sure how to compute the rest of her taxable income. She provided the following information with hopes that you could use it to determine her taxable income.

1. Shauna paid $4,680 for medical expenses for care related to a broken ankle. Also, Shauna’s boyfriend, Blake, drove Shauna (in her car) a total of 115 miles to the doctor’s office so she could receive care for her broken ankle.
2. Shauna paid a total of $3,400 in health insurance premiums during the year (not through an exchange). SD did not reimburse any of this expense. Besides the health insurance premiums and the medical expenses for her broken ankle, Shauna had Lasik eye surgery last year and paid $3,000 for the surgery (she received no insurance reimbursement). She also incurred $450 of other medical expenses for the year.
3. SD withheld $1,800 of state income tax, $7,495 of Social Security tax, and $14,500 of federal income tax from Shauna’s paychecks throughout the year.
4. In 2019, Shauna was due a refund of $250 for overpaying her 2018 state taxes. On her 2018 state tax return that she filed in April of 2019, she applied the overpayment toward her 2019 state tax liability. She estimated that her state tax liability for 2019 will be $2,300.
5. Shauna paid $3,200 of property taxes on her personal residence. She also paid $500 to the developer of her subdivision, because he had to replace the sidewalk in certain areas of the subdivision.
6. Shauna paid a $200 property tax based on the state’s estimate of the value of her car.
7. Shauna has a home mortgage loan in the amount of $220,000 that she secured when she purchased her home. The home is worth about $400,000. Shauna paid interest of $12,300 on the loan this year.
8. Shauna made several charitable contributions throughout the year. She contributed stock in ZYX Corp. to the Red Cross. On the date of the contribution, the fair market value of the donated shares was $1,000 and her basis in the shares was $400. Shauna originally bought the ZYX Corp. stock in 2009. Shauna also contributed $300 cash to State University and religious artifacts she has held for several years to her church. The artifacts were valued at $500 and Shauna’s basis in the items was $300. Shauna had every reason to believe the church would keep them on display indefinitely. Shauna also drove 200 miles doing church-related errands for her minister. Finally, Shauna contributed $1,200 of services to her church last year.
9. Shauna paid $250 in investment advisory fees and another $150 to have her tax return prepared (that is, she paid $150 in 2019 to have her 2018 tax return prepared).
10. Shauna is involved in horse racing as a hobby. During the year, she won $2,500 in prize money and incurred $10,000 in expenses. She has never had a profitable year with her horse-racing activities, so she acknowledges that this is a hobby for federal income tax purposes.
11. Shauna sustained $2,000 in gambling losses over the year (mostly horse-racing bets) and had only $200 in winnings.

a. Assume Shauna’s AGI is $107,000. Determine Shauna’s taxable income. (Round your intermediate calculations to the nearest whole dollar

Answer 1

Solution:

The computation is as follows:

Medical expenses = $4,680 (medical expenses for broken ankle), + $21 (115 miles x 18¢ per mile) + 3,400 (unreimbursed health insurance premiums) + 3,000 (Lasik eye surgery) + 450 (other medical expenses) - $8,025 (AGI of 107,000 x 7.5 percent) = $3,526.

Charitable contribution: Capital gain property generally in the form of stock deductible at FMV; Thus, Shauna can deduct $1,000 for her ZYX stock donation to the Red Cross. Cash contributions of $300 are fully deductible. Religious artifacts are used by church in its normal function as a non-profit organization and thus are deductible at FMV of $500. Note that the value of services donated is not deductible. Accordingly, Shauna’s charitable contribution deduction is $1,800 (1,000 + 300 + 500) = $1,800.

Description	Amount ($)	Explanation
(1) AGI	107,000
Deductions:
a) and b) Medical expenses	3,526	Medical expenses in excess of 7.5% of AGI are deductible. See Note A below.
c) and d) State taxes	2,050	State income taxes paid are deductible $1,800 withheld and 250 over-payment applied on last year’s return treated as paid last year.
e) Real property taxes	3,200	Real property taxes deductible from AGI. Payment to developer is not a tax.
f) Personal property taxes	200	Property tax on personal property based on value deductible from AGI
g) Interest on loans secured by her home	12,300	Primary home loan interest deductible from AGI
h) Charitable contributions	1,800	See Note B below
i) Investment expenses and tax return preparation fees	0	Nondeductible expenses
j) Horse racing activities	0	Nondeductible hobby expenses
k) Gambling losses	200	Gambling losses are limited to earnings from gambling deductible as a miscellaneous itemized deduction
(2) Total itemized deductions	23,276
(3) Standard deduction	12,000	Single taxpayer
(4) Greater of Itemized deductions or standard deduction	23,274	Greater of (2) or (3). Shauna should choose to itemize deductions.
Taxable income	$83,726	(1) - (4)

Total itemized deductions = $23,276

Standard deduction = $12,000

Shauna should choose to itemize deductions as the deduction is more in Itemized deductions as compared to general deduction.

So, taxable income is AGI- Itemized deduction: 107,000 – 23,276 = $83,726

Hence, $83,696 is the taxable income.