Question

Felton J. (SSN 322-95-1426, born 5/26/1973) and Mary I. Smith (SSN 236-09-2784, born 6/7/1976) are married and live at 22 Fancy Avenue, Richmond, VA 23240. Felton is a computer programmer and Mary is a school clerk. They have three children - Peter, Marie, and Martin. Felton and Mary provided all of the support for their children. Peter (SSN 091-46-5912), born 5/26/2000) is a full-time college student and worked at a pet store part-time where he earned $5,100. Marie (SSN 233-12-6464, born 2/10/2003) is a full-time high school student and worked at a supermarket earning $2,100. Peter and Marie had no other income. Martin (SSN 131-44-2687, born 7/4/2010) had no income.

The Smiths paid $3,200 to Genesis Learning Center for Martin’s after school program. The EIN is 20-6548732 and it is located at 35 Lilly Drive, Richmond VA 23241. They received ordinary interest of $59.40 from Bank of Richmond. Felton earned $31,200 and paid Federal Income tax of $2,260. Mary earned $20,400 and paid $986 in Federal Income Tax. In addition, they run a lawn mowing business that yielded gross receipts of $6,500 and had the following expenses: maintenance, $250; advertising, $75; supplies, $750; and fuel, $275. The business uses the cash basis for accounting purposes and the Smiths both materially participated in its operation.

The Smiths filed a joint return in 2016 and had itemized deductions of $13,850. Their 2016 state income tax deduction was $2,990. In 2017, the Smiths paid the following expenses:

Dental bills                                                                                           $ 415

Mortgage Interest                                                                                 $ 7,850

Real estate taxes                                                                                   $1,850

Home Insurance Premiums                                                                   $ 2,100

Medical bills                                                                                         $ 825

Hearing aid (Marie)                                                                              $ 225

Goodwill contribution (clothing FMV)                                                   $ 180

Toothpaste and other toiletries                                                               $ 115

Athletic club membership                                                                      $ 650              

Family health insurance                                                                        $1,350

Cash donated to a Church                                                                      $ 580

Prescription drugs                                                                                 $ 195

Personal property taxes                                                                         $ 405

Back brace (Peter)                                                                                $ 185

Junior Sluggers baseball league                                                             $ 20

Prepare the Smith’s Income Tax Return for 2019.

Answer 1

Peters Income Tax Return

Peters Income= $5,100

Peters individual Expense= $185

Peters Taxable income= $ 4,915 (Income-expense)

Tax Rate=10%

Hence tax paid by Peter= $491.5

Marie's Income Tax Return

Marie's Income= $2,100

Marie's Expenses= $225

Marie's Taxable Income= $1,875 (Income-Expense)

Tax Rate=10%

Hence, tax paid by Marie= $187.5

Combined Income Tax of Felcon and Mary

Combined Income from Salaries= $51,600

Income from business= $6,500

Total Income= $ 58,100

Regular Expenses except of individual expense of Peter and Marie= $16,535 (W.N.1)

Business Expense= $1,350 (W.N.2)

Total Expense= $ 17,885

Total income to be considered for tax= total income-total expense

= $58,100 - $17,885

= $40,215

Total Income to be considered for Tax before deduction = $40,215

Deduction = $24,400

Income on which tax will be charged = $15,815

Tax Rate = 12%

Tax Payable = $1,897.80

Hence combined tax payble for Felcon and Mary= $1,897.80

W.N.1: Details of Regular Expenses

Dental Bills = $415

Mortgage Interest= $7,850

Real Estate taxes= $1,850

Home Insurance Premium= $2,100

Medical Bills= $825

Goodwill Contribution (clothing FMV)= $180

Toiletries= $115

Club membership= $650

Family Health Insurance= $1,350

Cash Donated to chruch= $580

Prescription Drugs= $195

Property Taxes= $405

Baseball Charges= $20

Total regular expense= $16,535

W.N. 2: Details of Business Expense

Maintaince= $250

Advertising= $75

Supplies= $750

Fuel= $275

Total Business Expense= $1,350