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.)

Answer 1

Description	Amount
Gross income:
Salary	$181,000
Self-employment revenues	$4,000
Dividends	$800
State income tax refund	$200
1. Gross income	$186,000
For AGI deductions:
Self-employment expenses	$750
Employer portion of self-employment taxes ($4,000- $750) * 92.35% * 2.9% / 2	$44
Alimony	$10,000
2. Total for AGI deductions	$10,794
3. AGI	$175,206
Itemized deductions:
Taxes (state income taxes + real property taxes, upto the limit of 10000)	$10,000
Home mortgage interest expense	$14,000
Charitable contributions cash	$15,000
Charitable contributions property	$400
4. Total itemized deductions (itemized deduction is greater than standard deduction $24,400)	$39,400
5. Deduction for qualified business income ($4,000-$750) * 20%	$650
6. Total from AGI deductions	$40,050
Taxable income	$135,156
7. Tax on income other than qualified dividends ($135,156 – $800 = $134,356) MFJ tax rate schedule [$9,086 + (22% * ($134,356 – $78,950))]	$21,275
8. Tax on qualified dividends ($800 * 15%)	$120
9. Total Federal income tax	$21,395
10. Self Employment tax	$87
11. Alternative Minimum tax	$0
12. Total taxes	$21,482
13. Child and dependent care credit	$600
14. Child tax credit	$2,000
15. Federal tax withholding	$21,000
Tax payable (refund)	-$2,118

Workings:

Description	Amount
1. Child and dependent care expenditures	$3,600
2. Limit on qualifying expenditures for one dependent	$3,000
3. John’s earned income ($152,000 + $3,250)	$155,250
4. Sandy’s earned income	$29,000
5. Expenditures eligible for credit (least of 1, 2, 3 and 4)	$3,000
6. Credit percentage rate	20%
Child and dependent care credit	$600

Description	Amount
Taxable income	$135,156
Plus: Taxes	$10,000
Less:
State income tax refund	-$200
Alternative minimum taxable income	$144,956
AMT Exemption	$117,700
AMT base	$27,256
AMT [($27,256 - $800) * 26%] + ($800 * 15%)	$6,999
Regular tax	$21,395
AMT (regular tax is greater than TMT)	$0