Question

Dan and Maureen file a joint income tax return for 2017. They have two dependent children, ages 7 and 9. Together they earn wages of $152,000. They also receive taxable interest income of $8,000 and interest on private activity bonds issued by the City of Los Angeles of $12,000. During 2017, they received a state income tax refund of $3,000 relating to their 2016 state income tax return on which they itemized deductions. Their expenses for the year consist of the following: Home mortgage interest (on acquisition debt) $ 9,000 Interest on credit cards 2,000 Real property taxes 3,000 Cash contributions 15,000 Unreimbursed employee business expenses 20,000 State income taxes withheld 15,000 Instructions: 1. Prepare a schedule that shows the calculation of Dan and Maureen's regular income tax liability. 2. Prepare a schedule that shows the calculate Dan and Maureen's tentative minimum tax liability assuming an AMT exemption amount of $84,500, before any phase-outs.

Answer 1

Provisional income =Dividend income + taxable interest income + non taxable interest income + 50% of social security benefits.

= 12000 + 6000 + 19000 + 9000

= $46000

The gift does not enter into the calculation of provisional income as it is tax free to Joe and Kate

The amount of taxable social security benefits is equal to the lesser of:
a) 85% of social security benefits = 85% of $18000 = $15300 or
b) 85% of excess of provisional income over $44000 + lesser of $6000 or 50% of benefits
= 85% of (46000 - 44000) + lesser of $6000 or 50% of $18000
= 85% of 2000 + lesser of $6000 or $9000
= 1700 + $6000
= $7700