Question

John and Sandy Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2020, John worked as a computer technician at a local university earning a salary of $152,000, and Sandy worked part time as a receptionist for a law firm earning a salary of $29,000. John also does some Web design work on the side and reported revenues of $4,000 and associated expenses of $750. The Fergusons received $800 in qualified dividends and a $200 refund of their state income taxes. The Fergusons always itemize their deductions, and their itemized deductions were well over the standard deduction amount last year. The Fergusons had qualifying insurance for purposes of the Affordable Care Act (ACA).

The Fergusons reported making the following payments during the year:

State income taxes of $4,400. Federal tax withholding of $21,000. Alimony payments to John’s former wife of $10,000 (divorced on 12/31/2014). Child support payments for John’s child with his former wife of $4,100. $12,200 of real property taxes. Sandy was reimbursed $600 for employee business expenses she incurred. She was required to provide documentation for her expenses to her employer. $3,600 to Kid Care day care center for Samantha’s care while John and Sandy worked. $14,000 interest on their home mortgage ($400,000 acquisition debt). $3,000 interest on a $40,000 home-equity loan. They used the loan to pay for a family vacation and new car. $15,000 cash charitable contributions to qualified charities. Donation of used furniture to Goodwill. The furniture had a fair market value of $400 and cost $2,000.

What is the Fergusons' 2020 federal income taxes payable or refund, including any self-employment tax and AMT, if applicable?

Answer 1

Tax Refund - $2,118

Explaination

Description	Amount
Gross income:
Salary	$181,000
Self-employment revenues	4,000
Dividends	800
State income tax refund	200
(1) Gross income	186,000
For AGI deductions:
Self-employment expenses	750
Employer portion of self-employment taxes (4000-750)*92.35%*2.9%/2	44
Alimony	10,000
(2) Total for AGI deductions	10,794
(3) AGI	175,206
Itemized deductions:
Taxes (state income taxes + real property taxes, upto the limit of 10000)	10,000
Home mortgage interest expense	14,000
Charitable contributions cash	15,000
Charitable contributions property	400
(4) Total itemized deductions (itemized deduction is greater than standard deduction 24400)	39,400
(5) Deduction for qualified business income (4000-750)*20%	650
(6) Total from AGI deductions	40,050
Taxable income	$135,156
(7) Tax on income other than qualified dividends ($135,156 – 800 = $134,356.	$21,275

MFJ tax rate schedule [$9086 + (22% × (134,356 – 78950))]
(8) Tax on qualified dividends (800*15%)	120
(9) Total Federal income tax	$21,395
(10) Self Employment tax	87
(11) Alternative Minimum tax	0
(12) Total taxes	$21,482
(13) Child and dependent care credit	600
(14) Child tax credit	2,000
(15) Federal tax withholding	21,000
Tax payable (refund)	($2,118)
Description	Amount
(1) Child and dependent care expenditures	$3,600
(2) Limit on qualifying expenditures for one dependent	$3,000
(3) John’s earned income (152000+3250)	$155,250
(4) Sandy’s earned income	$29,000
(5) Expenditures eligible for credit Least of (1), (2), (3), and (4)	$3,000
(6) Credit percentage rate	20%
Child and dependent care credit	$600
Description	Amount
(1) Taxable income	$135,156
Plus adjustments:
(2) Taxes	10,000

Minus adjustments:
(3) State income tax refund	(200)
(4) Alternative minimum taxable income	$144,956
(5) AMT Exemption	$117,700
(6) AMT base	$27,256
(7) TMT ((27256-800)*26%) + (800*15%)	$6,999
(8) Regular tax	21,395
AMT (regular tax is greater than TMT)	$0