Federal Taxation I Module 8: Comprehensive Tax Return Project Jared and Ashley have come to you for help filing their 2019 tax return

Law Jan 24, 2022

Federal Taxation I Module 8: Comprehensive Tax Return Project Jared and Ashley have come to you for help filing their 2019 tax return. They are married on December 31, 2019 and are both age 40. They live with their three qualifying children, Nick, Betty, and Roger, who are 12, 14, and 17 years old, respectively. They have made the following requests: • They wish to file a joint tax return. • If they overpaid their taxes this year, they would like to receive half as a refund and have half applied to next year's federal tax return. Jared and Ashley have the following income items during 2018: • Jared's wages of $50,000 • Jared's unemployment compensation of $5,000 • Ashley's wages of $60,000 • Interest from a city of Chicago bond of $2,000 • Interest from a corporate bond of $3,000 • Ordinary dividends of $2,000 • Gift from Leonard's father of a new computer that cost $3,000 • A $3,000 refund from the State of Illinois for income taxes paid in 2018 Jared and Ashley incurred the following expenses/losses during 2019: • Contributions of $5,500 to each of Jared and Ashley's traditional IRAs, i.e., $11,000 total (they are not covered by any other qualified retirement plans) • Qualified medical expenses of $9,000 • Personal credit card interest expense of $8,000 • Charitable contributions of $4,000 • Ten $25 parking tickets totaling $250 • Mortgage interest on primary residence of $8,000 (mortgage is $200,000) • Property taxes on the primary residence of $6,500 • Illinois state and local income taxes paid of $5,500 • Federal tax withholding on Jared and Ashley's W-2s of $10,000 They also provide you with the following information about their prior year return: • On their prior year federal tax return, they claimed itemized deductions. • Jared and Ashley elected to have $139 of their 2017 tax refund applied to 2019.
I need help finding the total income for this exercises. I came up with multiple amount but it still not correct. I got the wages correct 50000+60000= 110000. But the total income is coming wrong on all of them
-first attempt: 110000+3000+3000=116000
-second : 110000+ 3000+3000+5000=121000
-third : 110000+3000+3000+5000+2000+139=123139

Please help me calculate the total tax, the amount they want refunded, the amount they overpaid, and the amount they want applied to 2019 taxes.

Expert Solution

Answer:

As per given details please refer below answer :-

In 2018 married filling joint tax return has standard deduction of $ 24,000.

Couple have 3 qualifying child's hence there child tax credit amount is $ 4,000 ( $ 2,000 each * 2 children under age of 17) and $ 500 as other dependent tax credit for child has age 17 years.

Interest received on city or municipal bond is tax free hence not considered while calculating taxes.

Gift is tax free for receiver hence not considered while calculating taxes.

State income tax refund is taxable if taxpayer has itemized its deductions. If taxpayer choose standard deduction then state income tax refund is considered as tax free. In 2017 couple has opted for itemized deduction hence in 2018 state income tax refund is taxable.

For each taxpayer $ 5,500 traditional IRA contribution is deduction from gross income in 2018.

Credit card interest expense is not tax deductible hence not considered while calculating taxes.

Parking tickets is not tax deductible hence not considered while calculating taxes.

Basis the above information please refer below tax worksheet and related workings.

Description	Amount	Amount	Reference
Javed Wages		$ 50,000
Javed Unemployment compensation		$ 5,000
Ashley's Wages		$ 60,000
Interest from Corporate bonds		$ 3,000
Ordinary Dividend		$ 2,000
State Tax Refund		$ 3,000
Gross Income		$ 123,000
Deductions before AGI :
IRA Contribution		$ (11,000)
Adjusted Gross Income		$ 112,000
Standard or Itemized Deductions :-
Standard Deductions	$ 24,000
Itemized Deductions :
Medical Expense	$ 600		Note 1
Charitable Contribution	$ 4,000
Mortgage Interest	$ 8,000
Property taxes and State & Income tax	$ 10,000		Note 2
Total Itemized Deductions	$ 22,600
Higher of Standard or Itemized Deductions		$ 24,000
Taxable income		$ 88,000
Tax Liability		$ 11,239	Note 3
Tax Credits & Withholdings :
Child Tax Credit	$ 4,000
Dependent Tax Credit	$ 500
Last year tax refund adjustment	$ 139
Federal Tax Withholding	$ 10,000	$ 14,639
Amount overpaid		$ (3,400)	Tax Liability - Tax credits & Withholding
Refund applied to next year return		$ (1,700)
Net Tax Refund		$ (1,700)

Total Tax Liability = $ 11,239
Amount overpaid = $ 3,400
Tax refund to own = $ 1,700
Tax refund applied to next year taxes = $ 1,700

Workings :-
Note 1 - Medical Expense
In 2018 medical expense are deductible if it is more than 7.5% of AGI.
Deduction for Medical Expense = Qualified medical expense - 7.5% of AGI
Deduction for Medical Expense = 9,000 - ( 112,000 * 7.5%)
Deduction for Medical Expense = 9,000 - 8,400
Deduction for Medical Expense = $ 600

Note 2 :- Property taxes and State & Income tax
After tax cut and Jobs act property taxes and State & income tax is deductible to maximum $ 10,000. In given details property taxes are $ 6,500 and state & local income taxes are $ 5,500. Total deductible amount is $ 12,000 ( 6,500 + 5,500) hence only maximum amount of $ 10,000 is considered in itemized deductions.

Note 3 :- Tax Liability

Income Range	Tax Rate	Taxable amount	Tax Amount
Up to $ 19,050	10%	$ 19,050	$ 1,905
$ 19,051 to $ 77,400	12%	$ 58,350	$ 7,002
$ 77,401 to $ 165,000	22%	$ 10,600	$ 2,332
Total		$ 88,000	$ 11,239

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