Question

John and Sandy Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2020, John worked as a computer technician at a local university earning a salary of $152,000, 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). Use Exhibit 8-9, Tax Rate Schedule, Dividends and Capital Gains Tax Rates, 2020 AMT exemption for reference.

The Fergusons reported making the following payments during the year:

• State income taxes of $4,400. Federal tax withholding of $21,000.
• Alimony payments to John’s former wife of $10,000 (divorced on 12/31/2014).
• Child support payments for John’s child with his former wife of $4,100.
• $12,200 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.
• $3,600 to Kid Care day care center for Samantha’s care while John and Sandy worked.
• $14,000 interest on their home mortgage ($400,000 acquisition debt).
• $3,000 interest on a $40,000 home-equity loan. They used the loan to pay for a family vacation and new car.
• $15,000 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.

What is the Fergusons' 2020 federal income tax refund, including any self-employment tax and AMT, if applicable?

Note: 17134 is not the correct answer

Answer 1

Answer :

Reference	Gross Income:	$
1	Salary	152000+29000 = 181000
2	Qualifier Divident	800
3	State income tax refund	200
a	(1+2+3)	182000
	AGI deductions include:
4	Real property tax	-12200
5	Alimony payment made by John	-10000
b	(4+5)	-222000
	Itemized Deduction include:
6	State income taxes	-4400
7	Federal tax withholdings	-21000
8	Interest on home mortgage	-14000
9	Interest on home equity loan	-3000
10	Cash charitable contribution	-15000
11	Non cash donation (Lesser of fair value or adjusted basis)	-400
c	add(6 to 11)	-57800
12	Child tax credit (Available only upto $3000 per child)	-3000
13	Personal exemption	-18350
	Taxable income for the year 2019
d	add(a+b+c+12+13)	80650
e	Income tax of the year 2019(A)	16637
14	Self employment revenue	4000
15	Self Employment expense other than travelling expense	-750
f	add(14+15)	3250
	Self employment tax for the year 2019 @ 15.3% (B)
g	(f*15.3%)	497.25
	Alternative Minimum Tax(AMT)	0
	Total tax payable for the year 2019 (A+B)
	(e+g)	17134

Note: A taxpayer is allowed only to deduct the amount which is paid as a qualified alimony. Because child support is not considered as alimony, the person who is paying the child support, can not claim support payments as tax deductionTax rate on the self employment revenue is 15.3% for the income less than $132,900.