Question

4) During all of 2018, Mr. and Mrs. Clay lived with their four children (all are under the age of 17). They provided over one-half of the support for each child. Mr. and Mrs. Clay file jointly for 2018. Neither is blind, and both are under age 65. They reported the following tax-related information for the year: (Use the tax rate schedules)

Salary income	$125,000
Prize from local radio station	1,500
Medical expenses (no health insurance)	4,000
Real estate taxes	4,200
Alimony paid by Mr. Clay (divorced in 2015)	12,000
State income taxes withheld in 2018	1,800
State income taxes paid with 2018 tax return (return was filed in April, 2019)	1,500
Federal income tax withholding	7,500
Qualified home mortgage interest (acquisition debt of $300,000)	15,000
Charitable contributions	4,000

A. What is the Clays' taxes payable or (refund due) (ignore the alternative minimum tax)?

B. What is the Clays' tentative minimum tax and alternative minimum tax?

Answer 1

The total income is as under:-

Salary Income= $125,000

Price from local radio station =$1,500

Total income =$1,26500

Less: Alimony = $12,000

Adjusted Gross Income $1,14500

Itemized deductions are as under:

Medical expenses are reduced by 7.5% of AGI( 114500*0.75=8587.5)

So there is no allowable deduction (4000-8587<0)

Deductible taxes are :

Real estate taxes 4200

State taxes withheld 1800

(the taxes paid with 2012 return are deducted on the 2012 return)

Mortgage interest 11000

Charitable contributions 4000

Total Itemized deduction 21000

From this personal exemptions is deducted (6 people *3700)=22200

Thus Taxable income=114500-21000-22200=71300

Tax on income =10075

(based on new IRS tables for 2011)

Further child tax credit for each eligible child (4*1000)=4000

Further amount of federal income tax withheld in 2011 to be deducted = 7500

Hence this leaves a refund due of 1425(10075-4000-7500)