Question

John and Sandy Ferguson got married eight years ago and have a seven-year-old daughter Samantha. In 2018, John worked as a computer technician at a local university earning a salary of $52,000, and Sandy worked part-time as a receptionist for a law firm earning a salary of $29,000. John also does some Web design work on the side and reported revenues of $4,000 and associated expenses of $750. The Fergusons received $800 in qualified dividends and a $200 refund of their state income taxes. The Fergusons always itemize their deductions and their itemized deductions were well over the standard deduction amount last year. The Fergusons had qualifying insurance for purposes of the Affordable Care Act (ACA).

The Fergusons reported making the following payments during the year:

State income taxes of $4,400. Federal tax withholding of $4,000.

Alimony payments to John’s former wife $10,000.

Child support payments for John’s child with his former wife $4,100.

$3,200 of real property taxes.

Sandy was reimbursed $600 for employee business expenses she incurred. She was required to provide documentation for her expenses to her employer.

In addition to the $750 of web design expenses, John attended a conference to improve his skills associated with his web design work. His trip was for three days and he incurred the following expenses: airfare $370, total taxi fares for trip $180, meals $80, and conference fee of $200.

$3,600 to Kid Care daycare center for Samantha’s care while John and Sandy worked.

$14,000 interest on their home mortgage (principal = $800,000)

$3,000 interest on a $40,000 home-equity loan. They used the loan to pay for family vacation and new car.

$6,000 cash charitable contributions to qualified charities.

Donation of used furniture to Goodwill. The furniture had a fair market value of $400 and cost $2,000.

1a: Calculate the Ferguson’s 2018 federal income taxes payable or refund, including any self-employment tax, if applicable. Please consider child and dependency credits, but ignore others. Please note that you completed this problem under 2017 tax law during the midterm review.

1b: If state income taxes were instead $13,000, what would the Ferguson’s 2018 taxable income be?

Answer 1

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