Question

During 2019, Richard and Denisa, who are married and have two dependent children, have the following income and losses: Total salaries $150,000 Bank account interest 25,000 Dividend income 5,000 Short-term capital gains 4,000 Short-term capital losses (1,500) They also incurred the following expenses: Qualified medical expenses $ 8,000 State income taxes paid 12,000 Property taxes on home 2,300 Qualified residence interest 9,000 Investment interest expense 7,500 Cash charitable contributions 15,000 a. Compute Richard and Denisa’s taxable income for the year. b. What is the amount of their tax liability (gross tax), rounded to the nearest dollar? c. What is the amount of their tax due or (refund) if their federal income tax for the 2019 tax year was $18,387.00

Answer 1

Income:

Wages 150,000

Interest 25,000

Net capital gain 2,500

Adjusted Gross Income $177,500

Itemized deductions:

Medical expenses $0 (Can only deduct the amount that exceeds 7.5% of AGI)

State income taxes 10,000

Property taxes 2,300

Mortgage interest 9,000

Investment interest 7,500

Charitable contributions 15,000

AGI minus itemized deductions = $1,33,700 taxable.

Taxable income $133,700

Effective tax rate of 9.65%

Estimated federal taxes $17,131

Federal taxes withheld $18,387

you will get back $1,256