Question

Stacie and Ryan are married and file jointly for the 2018 tax year. They have two sons. Their sons are age 10 and 14. Stacie and Ryan’s wages in total for the year was $133,000. Their employers withheld $18,000 in tax from their wages. In addition to the above, the following occurred the 2018 tax year:

• They moved several states away because of career relocation for Ryan. Their unreimbursed moving costs were $10,000.

• Stacie and Ryan pay $3,500 of the interest on a loan Ryan’s postsecondary education.

• They paid $2,000 in medical insurance premiums for the year. In addition, they paid $1,000 for hospital stay after an emergency room trip for Stacie.

• The couple paid $250 for an accountant to prepare their taxes.

• Their accountant calculates that their total state income tax liability is $4,000. The couple pay all their state taxes during the 2018 tax year.

ANSWER THE FOLLOWING FOR EACH QUESTIONS:

A) Determine the AGI this year for the taxpayer(s).

B) Determine the amount of itemized deductions the taxpayer(s) has (have) available this year.

C) Using the 2018 standard deduction amounts (assuming no additional amounts for age or blindness) from Appendix D in of your book, state whether the taxpayer(s) itemize or take the standard deduction. I am not asking for you to state the amount of either the standard deduction or the itemized deductions chosen.

D) Use the individual tax formula and a flat 20% tax rate on all types of taxable income to determine the amount of taxes due or refund amount. Remember to clearly marking the answer as either the amount of tax due or a refund due (e.g. refunds are negative amounts as represented with parentheses or a negative sign, alternatively you can just write “refund” next to it). Assume AMT does not apply, and there are no tax credits available.

Answer 1

				Amount($)	Amount($)
Income computation for Stacie and Ryan			Incurred	Allowed	Total	Notes
Wages Income					133,000
					-
Total Gross Income					133,000
Adjustments
Student Loan Interest			3,500	2,500	2,500	Maximum deduction allowed would be $2,500 is income doesn’t exceed $165,000 for joint filers
Moving expenses			10,000	0	-	Starting 2018 no deduction allowed for moving expenses
Adjusted Gross Income					130,500
higher of
Standard deduction				24,000	(i)
Itemized deductions
Medical and dental			3,000	0		Deduction allowed for amount exceeding 7.5 % of AGI
State Taxes paid			4,000	4000		Allowed in full upto $10,000
Amount paid to the tax accountant			250	0		Not allowed following the TCJA
				4,000	(ii)
					24,000	Higher of $24,000 or the itemized deductions i.e $4,000. [ (i) or (ii) ]
Taxable Income					106,500
Taxes payable @20% flat	20% of $106,500				21,300
Taxes withheld					18,000
Net amount payable / (refund)					3,300
A	The AGI is $130,500
B	The itemized deduction is $4,000 as calculated above
C	The tax payer(s) should select the standard deduction of $24,000 as that is beneficial
D	Taking 20% as tax rate there would be a tax payable of $3,300
Note :
The original tax rate for individual are as follows and if tax is computed as per the slab the net amount would be different
Taxable Income					106,500
	tax slab for 2018	10%	0- 19050	1,905
		12%	19051 -77400	7,002
		22%	77401- 165000	6,402
Tax payable					15,309
Taxes withheld					18,000
Net amount payable / (refund)					(2,691)
If the actual slab is considered in place of 20% then there would be as case of refund of $(2,691)