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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 $153,100, and Sandy worked part-time as a receptionist for a law firm earning a salary of $30,100. John also does some Web design work on the side and reported revenues of $5,100 and associated expenses of $1,300. The Fergusons received $1,020 in qualified dividends and a $255 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 $4,675. Federal tax withholding of $21,000.
• Alimony payments to John’s former wife of $10,550 (divorced in 2014).
• Child support payments for John’s child with his former wife of $4,210.
• $12,310 of real property taxes.
• Sandy was reimbursed $655 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.
• $15,100 interest on their home mortgage ($400,000 acquisition debt).
• $3,165 interest on a $42,200 home-equity loan. They used the loan to pay for a family vacation and new car.
• $15,550 cash charitable contributions to qualified charities.
• Donation of used furniture to Goodwill. The furniture had a fair market value of $510 and cost $2,550.

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

Tax refund - $1834

Description	Amount
Gross income:
Salary	183200
Self-employment revenues	5,100
Dividends	1020
State income tax refund	255
(1) Gross income	1,89,575
For AGI deductions:
Self-employment expenses	1300
Employer portion of self-employment taxes (5100-1300)*92.35%*2.9%/2	51
Alimony	10,550
(2) Total for AGI deductions	11,901
(3) AGI (1 - 2)	1,77,674
Itemized deductions:
Taxes (state income taxes + real property taxes, upto the limit of 10000)	10,000
Home mortgage interest expense	15,100
Charitable contributions cash	15,550
Charitable contributions property	510
(4) Total itemized deductions (itemized deduction is greater than standard deduction 24400)	41,160
(5) Deduction for qualified business income (5100-1300)*20%	760
(6) Total from AGI deductions	41,920
Taxable income	1,35,754
(7) Tax on income other than qualified dividends (135754 – 1020 = 134734)	21358
MFJ tax rate schedule [9086 + (22% * (134734 – 78950))]
(8) Tax on qualified dividends (1020*15%)	153
(9) Total Federal income tax	21511
(10) Self Employment tax	102
(11) Alternative Minimum tax	0
(12) Total taxes	21766
(13) Child and dependent care credit *	600
(14) Child tax credit	2,000
(15) Federal tax withholding	21,000
Tax payable (refund)	-1,834

*

(1) Child and dependent care expenditures	3600
(2) Limit on qualifying expenditures for one dependent	3000
(3) John’s earned income (153100+5100-1300)	156900
(4) Sandy’s earned income	30100
(5) Expenditures eligible for credit Least of (1), (2), (3), and (4)	3000
(6) Credit percentage rate	20%
Child and dependent care credit	600

Description	Amount
(1) Taxable income	135754
Plus adjustments:
(2) Taxes	10,000
Minus adjustments:
(3) State income tax refund	-255
(4) Alternative minimum taxable income	145499
(5) AMT Exemption	111700
(6) AMT base	33799
(7) TMT ((33799-1020)*26%) + (1020*15%))	8676
(8) Regular tax	21,511
AMT (regular tax is greater than TMT)	0