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

Salaries	$150000
Interest income	$25000
Dividend income	$5000
Net STCG	$2500( 4000-1500)
AGI	$182500
Less: Itemized deduction(41500)
Taxable income	$141000

Itemized deduction:-

Medical expenses [$8000-(182500×7.5%)] = $0

State income and property taxes limited to = 10000

Interest on residence =9000

Investment interest deduction - limited to net investment income

(27500 interest income and STCG) = 7500

Contribution limited to 60% × AGI of

182500 15000

Itemized deductions = 41500

B) Tax liability or gross tax = taxable income - tax deduction

= $141000 - $41500 = $ 99500

C) Tax due or refund = 141000 ×24%(marginal tax rate) - 18387

$33840 - $18387 = $15453