Question

Usamah and Katie are married and filing their taxes. They each earned $80,000 in 2019 from their jobs as analysts at separate research institutions. Usamah paid $2,500 in interest on student loans. Katie made a $1500 contribution to her HSA. What is their Adjusted Gross Income (AGI)? Assume there are no other possible adjustments. Enter answer as whole number.

Now they must decide if they are taking the standard deduction (worth $24,000) or itemized deduction. In 2019 they paid $15,000 in interest on their mortgage. They also donated $4,000 to the local children's hospital. Sadly, both their laptops were stolen during the year as well (each worth $1500).

Calculate the eligible itemized deductions and determine if they should itemize or take the standard deduction. Once you've made your decision, use the adjusted gross income from part 1 to calculate their taxable income (AGI - Deduction = Taxable Income). Enter as a whole number

Calculate taxes owed (before credits) using their taxable income from part 2. Use the table below to calculate (this table is from the book, section 18.2). Enter as a whole number

Taxable Income	Tax Rate
Below $19,050	10%
Between $19,050 and $77,400	12%
Between $77,400 and $165,000	22%
Between $165,000 and $315,000	24%

Using the taxes owed from part 3, we'll now calculate the final tax payment needed (or refund). Usamah and Katie have one child, and therefore qualify for the $2000 Child Tax Credit. They have daycare expenses, which qualifies them for a $600 Credit for Child and Dependent Care Expenses as well. Make sure to reduce the taxes owed by these amounts.

Assume that between Usamah and Katie they had $20,000 in witholdings. What do they owe in taxes? If they will get a refund, enter that number as a negative number (i.e. if they owed $17,000 then enter -3000, which would be a $3,000 refund).

Answer 1

Calculation of Federal Tax Liability

Particulars	Amount($)
Gross salary	160000	usamah 80000 Katie = 80000
Less interest on student Loan	2500	Interest on student Loan is allowed if Modified Joint return income is less than $170000 and allowed upto $2500
Less HSA	1500	HSA is allowed as deduction as per pub 969
Adjusted Gross Income	156000
less Standard  deduction	-24000	As standard deduction is more than itemized deduction i,e ($19000) so we will consider standard deduction
Taxable income	132000
Tax liability on base bracket	8907	upto $19050 @ 10% = 1905 77400-19050 @ 12% = 7002
Tax liability on excess over base@22%	$12012	$132000-$77400 =$54600
Tax on Taxable income	$20919
Less Child Tax credit	$2000
Less child & dependent care expenses	$600
Tax liability	18319
Less With holding tax	20000
Refund	-1681	20000- 18319 =1681

Refund = $1681

Statement showing calculation of Itemized Deduction

Charitable Donation	$4000	60% of AGI is allowed As charitable deduction as per irs rules p 526
Interest on mortgage	$15000	Allowed
Theft loss	0	Total loss = $ 3000 (1500*2) less = $100 (as per $ 100 rule of calculation theft loss provided By IRS) Net Loss = 2900 10% of AGI (156000 *10%) = 15600 As loss is not greater than $15600 so its not allowed as per IRS rules amount greater then 10% of AGI is allowed
Itemized deduction	$19000