Question

Andy and Currie met in Tax class and were married. They have five children: Miranda age 6, Savannah age 10, Wenbo age 12, Rachel age 15, and Luke age 20. Luke has his own apartment but he works in the family business, he earned $25,000 last year. Andy works for a CPA firm. In 2020 he earned $77,000, $12,000 of federal income tax was withheld, and $3,000 of state income tax was withheld. In addition, they earned $300 of interest on their joint savings account, they received dividends of $1,200 on stock that they own (all the dividends are qualified), and they sold 100 shares of stock for $20 a share (they paid $10 a share three years ago).

Currie operates a welding shop in a facility that she rents. The business motto is “Still not as fun as Tax Class”. She operates as a sole proprietor, she has one part-time employee, plus Luke who does most of the welding (the rest of the children have to clean up the shop each evening before they get their supper).

Income and expenses of the welding business in 2020 were:

            Gross revenues                         $248,000

            Employee salaries                         54,000

            Employee payroll taxes                   5,400

            Building Insurance                         16,000

            Welding supplies                           55,000

            Rent                                             18,900

Currie paid estimated State income tax of $4,300 during the year, and estimated federal income tax of $15,000.

In addition the family also had the following expenses:

Family medical and dental expenses    $19,000

Real estate taxes                                   3,400

Home mortgage interest                       9,000 (their mortgage is $300,000)

Credit card finance charges                    2,600

Sales tax                                               4,200

Cash donations to their church              4,000

Assume that there is no Alternative Minimum Tax (AMT) for them.

What is their taxable income? taxes before tax credits? total tax liability? refund?

Answer 1

First,it is needed to calculate to indvidual taxable income to arrive at Family taxable income:

		$	$
Andy's Total Income:
Salary from CPA Firm			77,000
Currie's Total Income:
Income from welding shop:
Gross Revenue			248,000
Less: Expenses:
Employee salaries		54,000
Employee payroll taxes		5,400
Building Insurance		16,000
Welding supplies		55,000
Rent		18,900	149,300
Income from welding shop			98,700
Luke's Total Income			25,000
TOTAL FAMILY INCOME
Andy's Total Income		77,000
Currie's Total Income		98,700
Luke's Total Income		25,000	200,700
Interest on Savings account			300
Dividend income			1,200
Profit on sale of shares:
Sale proceeds of 100 Shares @ 20 per share		2,000
Less: Cost of 100 shares @ 10 per share		1,000	1,000
Total Family income			203,200
Less: Family expenses
Family medical and dental expenses		19,000
Real estate taxes		3,400
Home mortgage interest		9,000
Credit card finance charges		2,600
Sales tax		4,200
Cash donations to their church		4,000	26,600
Total Taxable Income			176,600
Since there is no Alternative Minimum Tax (AMT) for them, there is no Tax
Liability. Accordingly , Tax withheld or paid by the family members are refundable
memers are rfundable.
Tax withheld on account of Andy:
- Federal Income tax		12,000
- State Income tax		3,000	15,000
Tax paid by Currie on account of welding shop:
- State Income tax		4,300
- Federal Income tax		15,000	19,300
Total Tax withheld and paid which is REFUNDABLE			34,300

Therefore,

(i) Total Taxable Income of the family: $ 1,76000

(ii) Taxes before tax credits and total tax liability are Nil since, it is mentioned in the question that there is no Alternative Minimum Tax (AMT) for them.

(iii) Tax Refundable amount: $ 34,300