GROUP ASSIGNMENT #2: TAX FORMULA Demarco and Janine Jackson have been married for 12 years and...

GROUP ASSIGNMENT #2:

TAX FORMULA

Demarco and Janine Jackson have been married for 12 years and have four children who qualify as their dependents. Three of the children are under 17, thus qualify for the $2,000 child tax credit (per child). The oldest child is over 17 and qualifies for the child tax credit for other qualifying dependents. Their salaries for the year (2019) totaled $150,000 and they have $10,000 in qualified business income. The Jacksons incurred $26,500 of itemized deductions.

a. What is the Jacksons’ taxable income?

What would their taxable income be if their itemized deductions totaled $6,500 instead of $26,500?

c. Assume the same facts as in part b. except that the Jackson’s report $6,000 of for AGI deductions and $0 itemized deductions. What is the Jackson’s taxable income?

Assume the original facts except that the Jacksons owned investments that appreciated by $10,000 during the year. The Jacksons believe the investments will continue to appreciate, so they did not sell the investments during this year. What is the Jackson’s taxable income?

Assume the original facts except that the Jacksons had an $8,000 capital loss during the year. What is the Jackson’s taxable income?

Solutions

Expert Solution

Part A

1	Gross income
	salary	150000
	Gain on house sale (excluded)
	Qualified business income	10000
	Gross income	160000
2	For AGI Deductions
3	AGI (1-2)	160000
4	Standard deduction for married filing jointly	24000
5	Itemized deductions	26500
6	Greater of standard deduction and itemized deduction	26500
7	Qualified business income deduction (10000*20%)	2000
8	From AGI deductions	28500
	Taxable income (3-8)	131500

Part B

1	Gross income
	salary	150000
	Gain on house sale (excluded)
	Qualified business income	10000
	Gross income	160000
2	For AGI Deductions
3	AGI (1-2)	160000
4	Standard deduction for married filing jointly	24000
5	Itemized deductions	6500
6	Greater of standard deduction and itemized deduction	24000
7	Qualified business income deduction (10000*20%)	2000
8	From AGI deductions	26000
	Taxable income (3-8)	134000

Part C

1	Gross income
	salary	150000
	Gain on house sale (excluded)
	Qualified business income	10000
	Gross income	160000
2	For AGI Deductions	6000
3	AGI (1-2)	154000
4	Standard deduction for married filing jointly	24000
5	Itemized deductions	6500
6	Greater of standard deduction and itemized deduction	24000
7	Qualified business income deduction (10000*20%)	2000
8	From AGI deductions	26000
	Taxable income (3-8)	128000

Part D

1	Gross income
	salary	150000
	Gain on house sale (excluded)
	Qualified business income	10000
	Gross income	160000
2	For AGI Deductions
3	AGI (1-2)	160000
4	Standard deduction for married filing jointly	24000
5	Itemized deductions	26500
6	Greater of standard deduction and itemized deduction	26500
7	Qualified business income deduction (10000*20%)	2000
8	From AGI deductions	28500
	Taxable income (3-8)	131500

No change because investment is not sold at appreciated value

Part E

1	Gross income
	salary	150000
	Gain on house sale (excluded)
	Qualified business income	10000
	Capital loss	(3000)
	Gross income	157000
2	For AGI Deductions
3	AGI (1-2)	157000
4	Standard deduction for married filing jointly	24000
5	Itemized deductions	26500
6	Greater of standard deduction and itemized deduction	26500
7	Qualified business income deduction (10000*20%)	2000
8	From AGI deductions	28500
	Taxable income (3-8)	128500

ekkarill92 answered 1 year ago

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