Question

In: Accounting

Charles and Joan Thompson file a joint return. In 2017 they had taxable income of $92,370...

Charles and Joan Thompson file a joint return. In 2017 they had taxable income of $92,370 and paid tax of $14,571. Charles is an advertising executive, and Joan is a college professor. During the fall 2018 semester, Joan is planning to take a leave of absence without pay. The Thompsons expect their taxable income to drop to $70,000 in 2018. They expect their 2018 tax liability will be $8,022, which will be the approximate amount of their withholding. Joan anticipates that she will work on academic research during the fall semester.

During September, Joan decides to perform consulting services for some local businesses. Charles and Joan had not anticipated this development. Joan is paid a total of $35,000 during October, November, and December for her work.

What estimated tax payments are Charles and Joan required to make, if any, for tax year 2018? Do you anticipate that the Thompsons will be required to pay an underpayment penalty when they file their 2018 tax return? Explain your answer.

Solutions

Expert Solution

Charles and Joan will be required to make estimated payments for tax year 2018 of $5459.

Estimated payments = lesser of 90% of the tax shown on the current year return or 100% of the prior year tax

Amount of estimated payments required for tax year 2018:

Estimated year 2018 taxable income

105000 (70000+35000)

Estimated 2018 tax liability (8907+(22%*(105000-77400))

14979

90%

90% of estimated year 2018 tax liability

13481

Charles and Joan will need to pay estimated taxes based on $13481

Tax withholdings = 8022

Estimated payments to be paid = 13481-8022 = $5459

It is suggested to pay one payment on or before January 15, 2019 as the shortfall in tax liability was due to income earned in the final quarter of the tax year. If all above discussed actions are undertaken on time, Charles and Joan are not likely to face any underpayment penalty on their year 2018 tax return.


Related Solutions

Charles and Joan Thompson file a joint return. In 2017, they had taxable income of $92,370...
Charles and Joan Thompson file a joint return. In 2017, they had taxable income of $92,370 and paid tax of $14,571. Charles is an advertising executive, and Joan is a college professor. During the fall 2018 semester, Joan is planning to take a leave of absence without pay. The Thompsons expect their taxable income to drop to $70,000 in 2018. They expect their 2018 tax liability will be $8,022, which will be the approximate amount of their withholding. Joan anticipates...
Charles and Joan Thompson file a joint return. In 2018, they had taxable income of $94,480...
Charles and Joan Thompson file a joint return. In 2018, they had taxable income of $94,480 and paid tax of $12,665. Charles is an advertising executive, and Joan is a college professor. During the fall 2019 semester, Joan is planning to take a leave of absence without pay. The Thompsons expect their taxable income to drop to $76,000 in 2019. They expect their 2019 tax liability will be $8,735, which will be the approximate amount of their withholding. Joan anticipates...
The Johnsons file a married, joint return. They had taxable income of $170,000 in 2020. Their...
The Johnsons file a married, joint return. They had taxable income of $170,000 in 2020. Their city tax rate is 3.876% and state tax rate is 6.21%. What was their total effective (marginal) tax rate? Assume they had $10,000 in short-term capital gains and $12,000 in long-term taxable gains. How much are their total taxes?
James and Mary are married and file a joint tax return. Together, their taxable income is...
James and Mary are married and file a joint tax return. Together, their taxable income is $80,000. How much will they pay in taxes? (Round answers to 0 decimal place, e.g. 5275.)
Mr. and Mrs. HenryHenry file a joint return and have taxable income of $ 380,000 without...
Mr. and Mrs. HenryHenry file a joint return and have taxable income of $ 380,000 without considering the following independent fact situations. a. They have a STCG of $ 31,000 and a LTCL of $ 20,000 b. They have a LTCG of $24,000 due to the sale of a collectible and a LTCG of $12,500 due to the sale of General Motors stock. c. Same as Part b except they also have a STCL of $4,500. Requirement Determine the increase...
Mr. and Mrs. Sedlock file a joint return and have a taxable income of $370,000 without...
Mr. and Mrs. Sedlock file a joint return and have a taxable income of $370,000 without considering the following information below. Determine the increase in their tax liability for the following independent fact situations. a. They have a STCG of $20,000 and a LTCL of $12,000. b. They have a LTCG of $30,000 due to the sale of a collectible and a LTCG of $9,000 due to the sale of General Motors stock. c. Same as part b except they...
1. George & Martha are married and file a joint income tax return. In 2017 the...
1. George & Martha are married and file a joint income tax return. In 2017 the couple had $ 250,000 of total income and $ 200,000 in taxable income. a. Calculate George & Martha’s Washington’s 2017 federal income tax liability (USE THE 2017 tax rate schedule in appendix D in your book). b. What is George & Martha’s marginal federal tax rate for 2017? c. What is the George & Martha’s average tax rate for 2017? d. What is the...
Chris and Kelly are married and file a joint return for 2017. Kelly does not work,...
Chris and Kelly are married and file a joint return for 2017. Kelly does not work, so she is eligible for a spousal IRA. Their AGI is $135,000. Chris is an active participant in a qualified plan. A deductible contribution of $5,500 may be made for Kelly because the AGI is below the applicable phase-out range for her ($186,000-$196,000). Chris may not make a deductible contribution because the AGI is above the phase-out range for him ($99,000-$119,000). What are Chris'...
Jack and Jane are married and file a joint return for 2020. Theyhave wage income...
Jack and Jane are married and file a joint return for 2020. They have wage income of $150,000; net long-term capital gains of $20,000; net short-term capital gains of $5,000; corporate bond interest of $3,000; share of S corporation income of $8,000; cash distributions from the S corporation of $3,000; ordinary cash dividends of $6,000; qualifying cash dividends of $5,000; inheritance received from deceased aunt’s estate of $18,000; deductions for AGI (Adjusted Gross Income) of $11,000; itemized deductions of $26,000;...
Ava and her husband, Leo, file a joint return and are in the 24% Federal income...
Ava and her husband, Leo, file a joint return and are in the 24% Federal income tax bracket. Ava’s salary is $75,000. Her employer offers a child and dependent care reimbursement plan that allows up to $5,000 of qualifying expenses to be reimbursed in exchange for a $5,000 reduction in the employee’s salary. Because Ava and Leo have two minor children requiring child care that costs $5,800 each year, Ava is wondering if she should sign up for the program...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT