Question

Required information Comprehensive Problem 8-85 (LO 8-1, LO 8-2, LO 8-3, LO 8-4, LO 8-5) [The following information applies to the questions displayed below.] 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 $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 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 in 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' 2018 federal income taxes payable or refund, including any self-employment tax and AMT, if applicable? (Round your intermediate computations to the nearest whole dollar amount.)

Answer 1

Description	Amount	Explanation
Gross income:
Salary	182000	(152500+29500)
Self-employment revenues	4500
Dividends	900
State income tax refund	225
(1) Gross income	187625
For AGI deductions:
Self-employment expenses other than travel expenses	1000
John’s self employment related travel expenses		$370 airfare, taxi fares $180, Meals$40 (80 ×50%)
John’s conference fees
Employer portion of self-employment taxes	247	$430 ×57.51% = $247
Alimony	10250
(2) Total for AGI deductions	11497
(3) AGI	176128	(1) - (2)
Itemized deductions:
State income taxes	4525
Real property taxes	12250
Home mortgage interest expense	14500
Home equity loan interest expense	3075
Charitable contributions cash	15250
Charitable contributions property	450	Lesser of fair market value or basis
(4) Total itemized deductions	50050
(5) Total from AGI deductions	50050	Standard deduction for MFJ is $24000 so the Fergusons deduct itemized deductions
Taxable income	126078	(3) – (5)
(6) Tax on income other than qualified dividends	19418.16	$126078 – 900 = $125178.Tax = $3,792.90. from MFJ tax rate schedule $8907 + 2,052.90 [22% ×(125178 – 77400)]
(7) Tax on qualified dividends	0	$900 ×0%; all $800 would have been taxed at 15% if it had been ordinary income.
(8) Total Federal income tax	19418.16	(6) + (7)
(9) Self Employment tax	430
(10) Alternative Minimum tax	19418.16
(11) Total taxes	39266.32	(8) + (9) +(10)
(12) Child and dependent care credit	600
(13) Child tax credit	2000	One qualifying child
(14) Federal tax withholding	21000
Tax payable (refund)	15666.32	(11) – (12) – (13)- (14)

Description	Amount	Explanation
(1) Self-employment revenue	4500
Expenses:
Day to day expenses	1000
Travel expenses
Education expenses		Conference fee
(2) Total self-employment expenses	1000
Net self-employment income	3500	(1) – (2)

Tax on self-employment income = $3500 × 92.35% × 13.3% = $430

Description	Amount	Explanation
(1) Child and dependent care expenditures	3600
(2) Limit on qualifying expenditures for one dependent	3000
(3) Ferguson’s earned income	185500	182000+3500
(4) Expenditures eligible for credit	3000	Least of (1), (2), and (3)
(5) Credit percentage rate	20%
Child and dependent care credit	600

Description	Amount	Explanation
(1) Taxable income	126078
(2) Exemptions	50050
(3) AMTI before other adjustments	176128	(1) + (2)
Plus adjustments:
(4) Real estate property taxes	12250
(5) State income taxes	4525
(6) Home-equity interest expense (loan proceeds used to purchase car)	3075
Minus adjustments:
(7) State income tax refund	(225)
(8) Alternative minimum taxable income	195753	(3) + (4) + (5) + (6)+(7)
(9) AMT Exemption	109400	MFJ 2011 exemption amount
AMT base	86353	(8) – (9), limited to $0
(10) TMT	24178.84	(9) x 28%
(11) Regular tax	19418.16
AMT	19418.16	(10) > (11)