Question

Note: This problem is for the 2018 tax year. Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 2016. Alfred and Beulah will file a joint return for 2018. Alfred's Social Security number is 111-11-1112. Beulah's Social Security number is 123-45-6789, and she adopted "Old" as her married name. They live at 211 Brickstone Drive, Atlanta, GA 30304. Alfred was divorced from Sarah Old in March 2016. Under the divorce agreement, Alfred is to pay Sarah $1,250 per month for the next 10 years or until Sarah's death, whichever occurs first. Alfred pays Sarah $15,000 in 2018. In addition, in January 2018, Alfred pays Sarah $50,000, which is designated as being for her share of the marital property. Also, Alfred is responsible for all prior years' income taxes. Sarah's Social Security number is 123-45-6788. Alfred's salary for 2018 is $150,000, and his employer, Cherry, Inc. (Federal I.D. No. 98-7654321), provides him with group term life insurance equal to twice his annual salary. His employer withheld $24,900 for Federal income taxes and $8,000 for state income taxes. The proper amounts were withheld for FICA taxes. Beulah recently graduated from law school and is employed by Legal Aid Society, Inc. (Federal I.D. No. 11-1111111), as a public defender. She receives a salary of $42,000 in 2018. Her employer withheld $7,500 for Federal income taxes and $2,400 for state income taxes. The proper amounts were withheld for FICA taxes. Beulah has $500 in qualified dividends on Yellow Corporation stock she inherited. Alfred and Beulah receive a $1,900 refund on their 2017 state income taxes. They itemized deductions on their 2017 Federal income tax return (total of $15,000). Alfred and Beulah pay $4,500 interest and $1,450 property taxes on their personal residence in 2018. Their charitable contributions total $2,400 (all to their church). They paid sales taxes of $1,400, for which they maintain the receipts. Both spouses had health insurance for all months of 2018 and do not want to contribute to the Presidential Election Campaign. Provide the following that would be reported on Alfred and Beulah's Schedule A: 1. Calculate the deduction allowed for medical and dental expenses. $ 2. Calculate the deduction for taxes. $ 3. Calculate the deduction for interest. $ 4. Calculate the charitable deduction allowed. $ 5. Calculate total itemized deductions:

Answer 1

1)

The deduction allowed for medical and dental expenses will be $0.

_____

Explanation:

As per the applicable rules, the taxpayer can deduct medical expenses (incurred in a year) to the extent that such expenses exceed 7.5% of AGI (adjusted gross income) for 2018. In the given case, there is no information with respect to medical/dental expenses. Therefore, no deduction can be availed with respect to medical expenses and the amount of deduction will be $0.

______

2)

The deduction for taxes for the Year 2018 will be $10,000.

_____

Explanation:

As per the applicable rules, the taxpayers filing joint returns are entitled to claim a deduction of state income taxes or states taxes paid on purchases/expenses made/incurred during the year whichever is higher subject to a maximum limit of $10,000 (this cap is applicable from Year 2018). In the given case, the total amount of state income tax is $10,400 (8,000 + 2,400) which exceeds the sales tax of $1,400 paid on purchases. Therefore, for 2018, the maximum deduction that can be claimed for taxes would be $10,000 and not $10,400.

______

3)

The value of deduction for interest for 2018 would be equal to the amount of interest actually paid which is $4,500 in the given case.

______

4)

The amount of deduction for charitable contributions to church will be $2,400. This is based on the premise that the total value of charitable contributions made by  Alfred E. Old and Beulah A. Crane didn't exceed 50% of the AGI. Also, it has been assumed that  Alfred E. Old and Beulah A. Crane has maintained proper receipts for the contributions made by them.

______

5)

The total value of itemized deductions is calculated as below:

State Income Taxes	10,000
Home Mortgage Interest	4,500
Cash Contributions	2,400
Itemized Deductions	$16,900