Question

John and Sandy Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2019, John worked as a computer technician at a local university earning a salary of $152,600, and Sandy worked part-time as a receptionist for a law firm earning a salary of $29,600. John also does some Web design work on the side and reported revenues of $4,600 and associated expenses of $1,050. The Fergusons received $920 in qualified dividends and a $230 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 $4,550. Federal tax withholding of $21,000.
• Alimony payments to John’s former wife of $10,300 (divorced in 2014).
• Child support payments for John’s child with his former wife of $4,160.
• $12,260 of real property taxes.
• Sandy was reimbursed $630 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.
• $14,600 interest on their home mortgage ($400,000 acquisition debt).
• $3,090 interest on a $41,200 home-equity loan. They used the loan to pay for a family vacation and new car.
• $15,300 cash charitable contributions to qualified charities.
• Donation of used furniture to Goodwill. The furniture had a fair market value of $460 and cost $2,300.

a. What is the Fergusons' 2019 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

Tax refund - $1982

Description	Amount
Gross income:
Salary	$        182,200
Self-employment revenues	$            3,550
Dividends	$                920
State income tax refund	$                230
(1) Gross income	$        186,900
For AGI deductions:
Self-employment expenses	$            1,050
Employer portion of self-employment taxes (4600-1050)*92.35%*2.9%/2	$                  48
Alimony	$          10,300
(2) Total for AGI deductions	$          11,398
(3) AGI	$        175,502
Itemized deductions:
Taxes (state income taxes + real property taxes, upto the limit of 10000)	$          10,000
Home mortgage interest expense	$          14,600
Charitable contributions cash	$          15,300
Charitable contributions property	$                460
(4) Total itemized deductions (itemized deduction is greater than standard deduction 24400)	$          39,900
(5) Deduction for qualified business income (4600-1050)*20%	$                710
(6) Total from AGI deductions	$          40,610
Taxable income	$        134,892
(7) Tax on income other than qualified dividends ($134,892 – 920) = $133,972	$21,393
MFJ tax rate schedule [$9086 + (22% × (134,892 – 78950))]
(8) Tax on qualified dividends (920*15%)	$                138
(9) Total Federal income tax	$          21,531
(10) Self Employment tax	$                  87
(11) Alternative Minimum tax	0
(12) Total taxes	$          21,618
(13) Child and dependent care credit	$                600
(14) Child tax credit	$            2,000
(15) Federal tax withholding	$          21,000
Tax payable (refund)	($1,982)