Question

Dave and Sally Tufts, both age 35, are married with two children and file a joint return. Assume the children do not qualify for the child tax credit, and the mortgage is not over $750,000. From the following information, compute their tax owed or refund due for 2020.

Dave's Salary = $50,000

Federal income tax withheld = 4,000

Sally's Salary= 42,000

Federal income tax withheld = 5,000

Andy's contribution to an IRA (assume IRA is deductible for AGI)= 2,000

Dividends received from domestic corporations= 950

Medical expenses for doctors and hospitals= 8,200

Premiums for health insurance= 2,600

Prescription drugs and medicines= 800

Eyeglasses for one of children= 175

interest on home mortgage= 12,800

interest on credit cars= 300

real property taxes on residence= 6,300

state income taxes= 5,800

fee for preparation of tax returns= 125

Union dues and subscriptions= 480

*Please adds explanations so I can take good notes thank you**

Answer 1

STEP I :

For computing the amount of tax payable or refund owed to Dave and Sally, it is necessary to compute the taxable income initially.

Computation of Taxable Income will be as follows:

Explanations for the above table:

1. Medical expenses include the medical expenses for doctors and hospitals, eyeglasses and prescribed medicines and drugs and the premium on health insurance.

2. Interest on home mortgage and real property tax can be claimed as deductions.

STEP II :

As the taxable income amounts to $60,075, it falls under the 12% tax bracket.

Computation of Tax to be paid/refunded:

Upto $19,400 - 10% = 19,400 x 10% = $ 1,940

$19,401-$ 60,075 = $ 40,674 - 12% =40,674 x 12% = $ 4,880

Total tax to be paid   $ 6,820.

Less : Federal tax withheld $ 9,000

Amount of tax refund due for 2020   $ 2,180