Question

Andy and Currie met in Tax class and were married. They have five children: Miranda age 6, Savannah age 10, Wenbo age 12, Rachel age 15, and Luke age 20. Luke has his own apartment but he works in the family business, he earned $25,000 last year.  Andy works for a CPA firm.  In 2020 he earned $77,000, $12,000 of federal income tax was withheld, and $3,000 of state income tax was withheld.  In addition, they earned $300 of interest on their joint savings account, they received dividends of $1,200 on stock that they own (all the dividends are qualified), and they sold 100 shares of stock for $20 a share (they paid $10 a share three years ago).

Currie operates a welding shop in a facility that she rents.  The business motto is “Still not as fun as Tax Class”. She operates as a sole proprietor, she has one part-time employee, plus Luke who does most of the welding (the rest of the children have to clean up the shop each evening before they get their supper).

Income and expenses of the welding business in 2020 were:

            Gross revenues                         $248,000

            Employee salaries                         54,000

            Employee payroll taxes                   5,400

            Building Insurance                         16,000

            Welding supplies                           55,000

            Rent                                             18,900

Currie paid estimated State income tax of $4,300 during the year, and estimated federal income tax of $15,000.

In addition the family also had the following expenses:

Family medical and dental expenses    $19,000

Real estate taxes                                   3,400

Home mortgage interest                       9,000 (their mortgage is $300,000)

Credit card finance charges                    2,600

Sales tax                                               4,200

Cash donations to their church              4,000

Assume that there is no Alternative Minimum Tax (AMT) for them.  

1. For the following questions please use the description of Andy and Currie's tax situation.

   What is Currie's Schedule C profit or loss?

   		88,700
   		78,700
   		98,700
   		none of the above

1 points   

QUESTION 5

1. Using the Schedule SE, what is her self employment tax?

   		15,101
   		13,946
   		12,532
   		12,239

1 points   

QUESTION 6

1. What is the total amount of their income subject to preferential rates?

   		300 interest
   		1,200 dividends
   		1,200 in qualified dividends and 1,000 capital gain
   		1,000 capital gain
   		0

1 points   

QUESTION 7

1. What income items do they have in addition to salary, self-employed earnings, and the items that are subject to preferential rates?

   		$300 interest
   		1,200 qualified dividends
   		1,000 capital loss
   		I don't know

1 points   

QUESTION 8

1. What is their Total Income for tax purposes, they file MFJ?

   		175,700
   		178,200
   		325,000
   		177,200

1 points   

QUESTION 9

1. Based on the facts given, do they have any Schedule 1 'Adjustments to Income' for AGI deductions (above the line)?

   		Yes, 1/2 of SE tax
   		No
   		Yes, 1/2 SE tax plus a tuition deduction
   		Yes, student loan interest deduction

2 points   

QUESTION 10

1. What is their AGI?

   		178,200
   		176,200
   		171,227
   		153,667

1 points   

Answer 1

Answer 4 Schedule C profit: $98,700

Particulars	Amount
Gross revenue	$248,000
Less: Expenses
Employee salaries	$54,000
Employee payroll taxes	$5,400
Building insurance	$16,000
Supplies	$55,000
Rent	$18,900
Net Profit	$98,700

Answer 5: Self employment tax on Schedule SE = $15,101

15.3% of net profit from schedule C = $98,700 x 15.3% = $15,101

Answer 6: Income subject to preferential rates = $1,200 dividend and $1,000 capital gain.

Answer 7: $300 Interest income

Answer 8: Total income for tax purpose = $178,200

Salary income + Interest income + Capital Gain + Self Employed income + Dividend income

$77,000 + $300 + $1,000 + $98,700 + $1,200

Answer 9: Yes, 1/2 of SE Tax paid.