Question

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 2019, 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. John’s business is not a specified business for the purpose of QBI deduction. 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. rev: 10_30_2019_QC_CS-188424 Comprehensive Problem 8-85 Part a 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.)

EXHIBIT 8-9 Child and Dependent Care Credit Percentage

If AGI is over	But not over	Then the percentage is
$       0	15,000	35%
15,000	17,000	34
17,000	19,000	33
19,000	21,000	32
21,000	23,000	31
23,000	25,000	30
25,000	27,000	29
27,000	29,000	28
29,000	31,000	27
31,000	33,000	26
33,000	35,000	25
35,000	37,000	24
37,000	39,000	23
39,000	41,000	22
41,000	43,000	21
43,000	No limit	20

Source: §21(e)(6).

2019 Tax Rate Schedules

Individuals

Schedule X-Single

If taxable income is over:	But not over:	The tax is:
$           0	$    9,700	10% of taxable income
$    9,700	$ 39,475	$970 plus 12% of the excess over $9,700
$ 39,475	$ 84,200	$4,543 plus 22% of the excess over $39,475
$ 84,200	$160,725	$14,382.50 plus 24% of the excess over $84,200
$160,725	$204,100	$32,748.50 plus 32% of the excess over $160,725
$204,100	$510,300	$46,628.50 plus 35% of the excess over $204,100
$510,300	—	$153,798.50 plus 37% of the excess over $510,300

Schedule Y-1-Married Filing Jointly or Qualifying Widow(er)

If taxable income is over:	But not over:	The tax is:
$           0	$ 19,400	10% of taxable income
$ 19,400	$ 78,950	$1,940 plus 12% of the excess over $19,400
$ 78,950	$168,400	$9,086 plus 22% of the excess over $78,950
$168,400	$321,450	$28,765 plus 24% of the excess over $168,400
$321,450	$408,200	$65,497 plus 32% of the excess over $321,450
$408,200	$612,350	$93,257 plus 35% of the excess over $408,200
$612,350	—	$164,709.50 plus 37% of the excess over $612,350

Schedule Z-Head of Household

If taxable income is over:	But not over:	The tax is:
$           0	$ 13,850	10% of taxable income
$ 13,850	$ 52,850	$1,385 plus 12% of the excess over $13,850
$ 52,850	$ 84,200	$6,065 plus 22% of the excess over $52,850
$ 84,200	$160,700	$12,962 plus 24% of the excess over $84,200
$160,700	$204,100	$31,322 plus 32% of the excess over $160,700
$204,100	$510,300	$45,210 plus 35% of the excess over $204,100
$510,300	—	$152,380 plus 37% of the excess over $510,300

Schedule Y-2-Married Filing Separately

If taxable income is over:	But not over:	The tax is:
$           0	$    9,700	10% of taxable income
$    9,700	$ 39,475	$970 plus 12% of the excess over $9,700
$ 39,475	$ 84,200	$4,543 plus 22% of the excess over $39,475
$ 84,200	$160,725	$14,382.50 plus 24% of the excess over $84,200
$160,725	$204,100	$32,748.50 plus 32% of the excess over $160,725
$204,100	$306,175	$46,628.50 plus 35% of the excess over $204,100
$306,175	—	$82,354.75 plus 37% of the excess over $306,175

Tax Rates for Net Capital Gains and Qualified Dividends

Rate*	Taxable Income
	Married Filing Jointly	Married Filing Separately	Single	Head of Household	Trusts and Estates
0%	$0 - $78,750	$0 - $39,375	$0 - $39,375	$0 - $52,750	$0 - $2,650
15%	$78,751 - $488,850	$39,376 - $244,425	$39,376 - $434,550	$52,751 - $461,700	$2,651 - $12,950
20%	$488,851+	$244,426+	$434,551+	$461,701+	$12,951+

*This rate applies to the net capital gains and qualified dividends that fall within the range of taxable income specified in the table (net capital gains and qualified dividends are included in taxable income last for this purpose).

Answer 1

Wages
	John	152000
	Sandy	29000			181000
Business Income		4000
	Expenses	750			3250
Qualifed dividends					800
State tax refund					200
					185250
Standard deduction or itemized deduction
	Standard deduction			24000
	Itemized deduction
	Taxes paid
	Real property taxes(note 3)	12200	10000	10000
	Interest expenses		14000	14000
	Charitable contibutions
	Cash	15000
	Furniture(FMV)	400	15400	9240
	Itemized deduction				33240
	Qualifed business income deduction		4000*20%		800
	Taxable income				151210
	Tax rate				22%
	Federal income tax				33266
	Tax credit
	child tax credit			2000
	Child care credit(Kid day care expenses)	3600*20/100		720	2720
					30546
	Taxes withheld				21000
	Tax due				9546
1	Amlimony paid is not allowed as deduction
2	child support expenses paid to former wife child is disallowed because child is not living with tax payer
3	Taxes allowed upto $10000 only
4	employee business expenses reimbersed is disallowed
5	Home equity loan is disallowed as it is not used home

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