Question

Please assume that his gross income is $172,900 (which consists only of salary) for purposes of this problem.

December 31, 2018 To the friendly student tax preparer: Hi, it’s Shady Sam again. I just got back from my 55th birthday party, and I’m told that you need some more information from me in order to complete my tax return. I’m an open book! I’ll tell you whatever I think you need to know. Let me tell you a few more things about my life. As you may recall, I am divorced from my wife, Mary. I know that it’s unusual, but I have custody of my son, Shady, Jr. The judge owed me a few favors and I really love the kid. He lives with me full-time and my wife gets him every other weekend. I pay the vast majority of my son’s expenses. I think Mary should have to pay some child support, but she doesn’t have to pay a dime. The judge didn’t owe me that much, I guess. I had to move this year after getting my job at Dr. Cola. We moved on February 3 of this year, and I worked my job at Dr. Cola for the rest of the year. I still live in the same state, but I moved 500 miles away from my old house. I hired a moving company to move our stuff at a cost of $2,300, and I drove Junior in my car. Junior and I got a hotel room along the way that cost us $65 (I love Super 8!). Can you believe I’m still paying off my student loans, even after 15 years? I paid a total of $900 in interest on my old student loans this year. Remember when I told you about that guy that hit me with his car? I had a bunch of medical expenses that were not reimbursed by the lawsuit or by my insurance. I incurred a total of $20,000 in medical expenses, and I was only reimbursed for $11,000. Good thing I can write off medical expenses, right? I contributed a lot of money to charity this year (and have receipt documentation for all contributions). I’m such a nice guy! I gave $1,000 in cash to the March of Dimes. I contributed some of my old furniture to the church. It was some good stuff! I contributed a red velvet couch and my old recliner. The furniture is considered vintage and is worth $5,000 today (the appraiser surprised me!), even though I only paid $1,000 for it back in the day. When I contributed the furniture, the pastor said he didn’t like the fabric and was going to sell the furniture to pay for some more pews in the church. Oh well, some people just have no taste, right? Dr. Cola had a charity drive for the United Way this year and I contributed $90. Turns out, I don’t even miss it, because Dr. Cola takes it right off my paycheck every month . . . $15 a month starting in July. My pay stub verifies that I contributed the $90 to the United Way. Oh, one other bit of charity from me this year. An old buddy of mine was down on his luck. He lost his job and his house. I gave him $500 to help him out. I paid a lot of money in interest this year. I paid a total of $950 in personal credit card interest. I also paid $19,000 in interest on my $500,000 home mortgage that helped me buy my dream home. I also paid $2,500 in real estate taxes for my new house. A few other things I want to tell you about this year. Someone broke into my house and stole my kid’s brand new bicycle and my set of golf clubs. The total loss from theft was $900. I paid $125 in union dues this year. I had to pay $1,200 for new suits for my job. Dr. Cola requires its managers to wear suits every day on the job. I spent a total of $1,300 to pay for gas to commute to my job this year. Oh, this is pretty cool. I’ve always wanted to be a firefighter. I spent $1,400 in tuition to go to the local firefighter’s school. I did this because someone told me that I can deduct the tuition as an itemized deduction, so the money would be coming back to me. That should be all the information you need right now. Oh yea, Dr. Cola has withheld a whopping $30,000 from my paycheck in Federal income taxes. Surely I’ll get some of that back. (Assume Shady lives in Texas where there is no state income tax).

REQUIRED:
(1) Determine Shady’s taxable income for 2018. In your response, list those items that are not deductible and explain why (Shady would want to know).

(2) Determine Shady’s tax liability assuming he is able to file as head of household. Use the 2018 Tax Rate Schedules.

(3) Will Shady get a refund or will he owe some additional Federal income tax?

Answer 1

Taxable Income $1,39,230.00 computed as follows:-

Gross Income				$ 1,72,900.00
less Moving Expences
	Mileage (500x 23)		$       115.00
	Moving Company		$   2,300.00
	Lodging		$         65.00	$     -2,480.00
AGI				$ 1,70,420.00
Itemized Deductions:
	Medical Expences		$                -
	Mortage Interest		$ 19,000.00
	Real Estate Taxes		$   2,500.00
	Charitable Contribution		$   2,090.00
	Misc. Itemized Deduction		$                -	$   -23,590.00
Taxable Income Before Exemptions				$ 1,46,830.00
Personal & Dependency Exemptions				$     -7,600.00
	Taxable Income			$ 1,39,230.00

Notes:-

1. House Hunting Trip, meals, movie , etc are not deductible moving expences

2. Student loan interest is not deductible because AGI exceeds the threshold amount of Income

3. Medical expenses do not exceed floor limitation

4. Personal credit card interest not deductible

5. He can deduct the 1000 cash donation and 90 payroll donation but furniture donation not allowed.

6. Casualty losses do not exceed floor limitation and not deductible