Question

Joyce is a single, cash-method taxpayer. On April 11, 2017, Joyce paid $120 in state income taxes with her 2016 state income tax return. During 2017, Joyce had $1,600 in state income taxes withheld. On April 13, 2018, Joyce paid $200 with her 2017 state tax return. During 2018, she had $2,100 in state income taxes withheld from her paycheck. Upon filing her 2018 tax return on April 15, 2019, she received a refund of $450 for excess state income taxes withheld. Joyce had total AGI in 2018 and 2019 of $51,000 and $53,500, respectively. In 2018, Joyce also paid $10,500 in qualified residence interest.

a. What is the amount of state income taxes Joyce may include as an itemized deduction for 2017?

b. What is Joyce’s allowed itemized deduction for state income taxes for 2018?

c. What is Joyce’s taxable income for 2018?

Answer 1

a) Amount of state income taxes Joyce may include as an itemized deduction for 2017 :

= Income tax paid along with 2016 return + Income taxes withheld during the year 2017

= $120 + $1600

= $1720

b) Joyce' allowed itemized deduction for state income taxes for 2018 :

= Income tax paid along with 2017 return + Income taxes withheld during the year 2018

= $200 + $2100

= $2300

c) Joyce’s taxable income for 2018 :

(I) AGI = (Higher of AGI in 2018 or in 2019) + Refund of excess tax withheld :

Therefore, AGI = (Higher of $51000 or $53500) + $450

AGI = $53500 + $450

AGI = $53950

(II) Higher of Standard deduction or itemized deduction

Standard deduction = $12000

Itemized deduction = $10500 (qualified interest)

Since, standard deduction is higher, Joyce can claim standard deduction instead of itemized deduction

(III) Taxable Income

= AGI - Standard deduction

= $53950 - $12000

=$41950