Question

Maria is a Paralegal at Dewey, Cheatham & Howe, a law firm in Arizona. Information about her 2018 income and expenses is as follows:

Income received

Salary                                                                                      $150,000

Taxes withheld from Salary:

Federal Income tax                 $30,000

State Income Tax                         9,000

Social Security Tax                      7,961

Medicare Tax 2,175

Interest income from bank                                                            6,000

Dividend income from U.S. Stocks                                                4,000

Short-Term Capital Gain 2,000

Long-Term Capital Gain 3,000

State income tax refund from last year 500

Expenses Paid:

Unreimbursed dental and eye-care costs 1,800

Property taxes on her home                                                          3,900

Fees paid to town for garbage pickup 400

Stock donated to American Red Cross; FMV $5,000;

Purchased in 2014 for $2,500

Home mortgage interest 10,000

Interest on car loan 300

In addition, she operates a small pottery activity to try to make some money. This year she reported the following income and expenses from this activity:

Revenue from sale of pottery $ 9,000

Depreciation on potter's wheel (3,000)

Property taxes on shed where she does pottery (1,200)

Supplies used such as clay, etc. (6,500)

COMPUTE Maria's TAXABLE INCOME for 2018. Show all supporting computations.

Maria is single, and she elects to itemize her deductions each year. Also assume that her tax profile was similar in the preceding year.

Use U.S. tax laws from 2018.

Answer 1

	Computation of taxable income
	Filling status-single
	Based on US tax laws 2018
A	Computation of ordinary income
	Salary		$150,000
	Interest income from bank		$6,000
	Short-Term Capital Gain		$2,000
	State income tax refund from last year		$500	$158,500
B	Pottery activity income
	Revenue from sale of pottery		$9,000
	Depreciation on potter's wheel		($3,000)
	Property taxes on shed where she does pottery		($1,200)
	Supplies used such as clay, etc.		($6,500)	($1,700)
	Net income
C	Gross Total income (A+B)			$156,800
D	Above the line deductions
	No deductions			$0
E	Adjusted gross income (C-D)			$156,800
F	[-] Itemized Deductions
	Home mortgage interest		$10,000
	Property taxes on her home		$3,900
	Stock donated to American Red Cross; FMV		$5,000	($18,900)
G	Taxable income [E-F]			$137,900
H	If taxable income is falls in the brackte of $82500 to $157500 then
	Tax amount is
	Base tax value		$14,089.50
	24% tax on over $82500		$13,296	$27,386
I	Long-Term Capital Gain		$3,000
	Dividend income from U.S. Stocks		$4,000	$7,000
	tax rate		15%
	Tax amount			$1,050
J	Total Tax liability (H+I)			$28,436
K	Withholding taxes
	Federal income tax		$30,000
	State income tax		$9,000
	Social security tax		$7,961
	medicare tax		$2,175	$49,136
L	Tax payable(Refund)			($20,701)
	Since taxable income falls In the brackte of $38600 to $425800 hence tax rate of 15% would be
	Applicable on long term capital gain and dividend income