Question

Marc and Michelle are married and earned salaries this year of $69,200 and $13,950 respectively. In addition to their salaries, they received interest of $350 from municipal bonds and $1,150 from corporate bonds. Marc contributed $3,150 to an individual retirement account, and Marc paid alimony to a prior spouse in the amount of $2,150. Marc and Michelle have a 10-year-old son, Matthew, who lived with them throughout the entire year. Thus, Marc and Michelle are allowed to claim a $2,000 child tax credit for Matthew. Marc and Michelle paid $7,300 of expenditures that qualify as itemized deductions and they had a total of $6,330 in federal income taxes withheld from their paychecks during the course of the year. (Use the 2018 tax rate schedules.)

What is the total amount of Marc and Michelle's deductions from AGI?

Answer 1

In the given question, Marc and Michelle are married and presumably filing a joint tax return.

The combined salaries = $69200+$13950 i.e $ 83150

They also received interest on municipal and corporate bonds.The interest on corporate bonds ie $1150 is taxable and included in their income whereas interest on municipal bonds is exempt and hence not added.

Thus, total income of Marc and Michelle is $ 83150+$1150= $84300

Now lets move to deductions:

1) The IRA contribution of $ 3150 by Marc is tax deductible

2) The alimony paid by Marc to ex wife is tax deductible for him and income for ex wife.Thus $ 2150 is deductible

Thus by far the total deduction is $ 5300

which makes the Agreegate income $ 79000

Now Marc and Michelle have two options,either to opt for standard deduction of $24000 or have the itemised deduction which is again limited to 2% of 79000 ie $ 1580. So it is more beneficial to adopt standard deduction of $ 24000 which makes their taxable income ($79000-$24000) $55000

Therefore total deductions from AGI is $24000 for Marc and Michelle

As per the 2018 tax brackets the income will be taxable as follows:

upto 19050 at 10% ie Rs 1905

For the remaining (55000-19050) $ 35950 at 12% ie 4314

thus total tax payable is $6219

Now they are also eligible for child tax credit ie $ 2000 which reduces the tax liability to $4219

Also it is given that they had income tax withheld $ 6330 which will be deducted from tax payable thus getting a negative tax payable ie refund applicable of $ 2111