Question

David Miller (age 34) and his wife, Emily Miller (age 33), reside at 293 E. Main Street in Sterling, MA, 01564 with their two children whom they fully support: Catherine (age 13) and Michael (age 11).
During the year, Emily worked full-time as a customer service representative at a
local bank and earned $37,600. Her employer withheld the following from her
wages:
Federal income tax $2,250.00
State income tax 1,124.60
Social security tax 2,331.20
Medicare tax 545.20
ROTH IRA contribution 5,500.00
David attended college full-time for 5 months and part-time (at least half time) for
7 months in pursuit of a bachelor’s degree in accounting. He attended the
University of Massachusetts, which is located at 600 University Drive in Amherst,
MA 01003. David received a tax-free scholarship that paid for most of his college
expenses, however, he did pay $900 for tuition and fees. The college did not send
David a Form 1098-T for these payments, however, he does have documentation
to substantiate his expenditures. This will be the first year that David has claimed
any education credits; he does not have any other degrees.
The Millers had other income consisting of the following:
Interest on CDs at Platinum Savings Bank $600
Municipal bond interest (state of MA) $2,000
Qualified

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How many qualifying dependents do the taxpayers have?
Which filing status should the taxpayers use?
What is the amount of wages that the taxpayers should report on Form 1040?
What is the amount of taxable interest that the taxpayers should report on Form 1040?
What is the amount of tax-exempt interest that the taxpayers should report on Form 1040?
What is the amount of qualified dividends that the taxpayers should report on Form 1040?
What is the tax rate that should be applied to those qualified dividends?
What is the amount of the AGI?
What is the amount of the basic standard deduction?
What is the amount of the additional standard deduction?
What is the amount of taxable income that the taxpayers have?
What is their tax liability?

Answer 1

1) a) Dependents can have their own tax returns, and even be married, but they must not have filed a  tax return for the year unless it’s just to claim a refund. b) They must be a U.S. citizen, U.S. national, or a resident alien. c) They must have a taxpayer identification number. That’s usually a Social Security Number, but if the child doesn’t qualify for one, it can be an Individual Taxpayer Identification Number (ITIN) or an Adoption Taxpayer Identification Number (ATIN).

2) Married Filing jointly filing

3) Taxpayers will also need to prepare Form 1040 Schedule SE for self-employment taxes if the net profit exceeds $400 for a year. Do not report this income on Form 1040 Line 21 as Other Income. Independent contractors must report all income as taxable, even if it is less than $600.

4) An interest that you earn during the year isn't tax-free. It's income, subject to the ordinary income tax rates. It includes the obvious, such as what you earned on that money you put aside in a bank or money market account, as well as on a few not-so-obvious sources: bonds, loans you made to others and even that piddling little amount your home lease security deposit brought in.

5) Interest on U.S. treasury bonds and savings bonds is taxable on your federal return, but it's usually tax-free at the state level. And interest on municipal bonds is tax-free at the federal level. Municipal bond interest is also often tax-free at the state level if you invest in a bond that's issued in the same state in which you reside.

6) Over $1,500 of ordinary dividends or you received ordinary dividends in your name that actually belong to someone else, you must file Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends.

7) The dividend tax rate you will pay on ordinary dividends is 22%. The federal income tax brackets range from 10% to 37% for the 2018 tax year after being 10% to 39.6%in 2017. Qualified dividends, on the other hand, are taxed at the capital gains rates, which are lower.

8) In the United States income tax system, adjusted gross income (AGI) is an individual's total gross income minus specific deductions. Taxable income is adjusted gross income minus allowances for personal exemptions and itemized deductions. For most individual tax purposes, AGI is more relevant than gross income.

9) As of 2018, your standard deduction is limited to either $1,050 or your earned income plus $350, whichever is more. But the deduction is capped at the amount of the standard deduction for your filing status—it can't be more

10) Additional Standard Deduction Amounts for Current Tax Year 2017. Age: If you are age 65 or older, you may increase your standard deduction by $1,550 if you file Single or Head-of-Household. If you are Married Filing Jointly and you OR your spouse is 65 or older, you may increase your standard deduction by $1,250.

11) What is 'Taxable Income' Taxable income is the amount of income used to calculate how much tax an individual or a company owes to the government in a given tax year. It is generally described as gross income or adjusted gross income

12) A tax liability is the total amount of tax debt owed by an individual, corporation or other entity to a taxing authority like the Internal Revenue Service (IRS). It is thetotal amount of tax you're responsible for paying to the taxman.