Question

Jane and Ed Rochester are married with a 2-year-old child, who lives with them and whom they support financially. In 2020, Ed and Jane realized the following items of income and expense: Item Amount Ed’s Salary $ 38,000 Jane’s Salary 70,000 Municipal bond interest income 400 Qualified business income 1,000 Alimony paid (pre-2019 divorce decree) (7,000) Real property tax (from AGI deduction) (10,000) Charitable contributions (from AGI) (18,000) The Rochester’s qualified for a $2,000 child tax credit and $2,900 in recovery rebate credit ($2,400 for themselves and $500 for their child). Assume the Rochesters did not receive the recovery rebate in advance. Their employers withheld $5,800 in federal income taxes from their paychecks (in the aggregate). Finally, the 2020 standard deduction amount for MFJ taxpayers is $24,800. What is the couple's tax due or tax refund? (Use the tax rate schedules, not tax tables.)

2020 Tax Rate Schedules

Individuals

Schedule X-Single

If taxable income is over:	But not over:	The tax is:
$          0	$    9,875	10% of taxable income
$    9,875	$ 40,125	$987.50 plus 12% of the excess over $9,875
$ 40,125	$ 85,525	$4,617.50 plus 22% of the excess over $40,125
$ 85,525	$163,300	$14,605.50 plus 24% of the excess over $85,525
$163,300	$207,350	$33,271.50 plus 32% of the excess over $163,300
$207,350	$518,400	$47,367.50 plus 35% of the excess over $207,350
$518,400	—	$156,235 plus 37% of the excess over $518,400

Schedule Y-1-Married Filing Jointly or Qualifying Widow(er)

If taxable income is over:	But not over:	The tax is:
$          0	$ 19,750	10% of taxable income
$ 19,750	$ 80,250	$1,975 plus 12% of the excess over $19,750
$ 80,250	$171,050	$9,235 plus 22% of the excess over $80,250
$171,050	$326,600	$29,211 plus 24% of the excess over $171,050
$326,600	$414,700	$66,543 plus 32% of the excess over $326,600
$414,700	$622,050	$94,735 plus 35% of the excess over $414,700
$622,050	—	$167,307.50 plus 37% of the excess over $622,050

Schedule Z-Head of Household

If taxable income is over:	But not over:	The tax is:
$          0	$ 14,100	10% of taxable income
$ 14,100	$ 53,700	$1,410 plus 12% of the excess over $14,100
$ 53,700	$ 85,500	$6,162 plus 22% of the excess over $53,700
$ 85,500	$163,300	$13,158 plus 24% of the excess over $85,500
$163,300	$207,350	$31,830 plus 32% of the excess over $163,300
$207,350	$518,400	$45,926 plus 35% of the excess over $207,350
$518,400	—	$154,793.50 plus 37% of the excess over $518,400

Schedule Y-2-Married Filing Separately

If taxable income is over:	But not over:	The tax is:
$          0	$    9,875	10% of taxable income
$    9,875	$ 40,125	$987.50 plus 12% of the excess over $9,875
$ 40,125	$ 85,525	$4,617.50 plus 22% of the excess over $40,125
$ 85,525	$163,300	$14,605.50 plus 24% of the excess over $85,525
$163,300	$207,350	$33,271.50 plus 32% of the excess over $163,300
$207,350	$311,025	$47,367.50 plus 35% of the excess over $207,350
$311,025	—	$83,653.75 plus 37% of the excess over $311,025

Answer 1

Answer:

Tax Due = $1,021

Explanation:

	Description	Amount	Explanation
(1)	Ed's salary	38,000
(2)	Jane's salary	70,000
(3)	Qualified business income	1,000
(4)	Municipal bond interest income		Municipal bond interest is excluded from gross income
(5)	Gross income	1,09,000	Sum (1) – (3)
(6)	Alimony paid	(7000)	For AGI deduction
(7)	Adjusted gross income	1,02,000	(5) + (6)
(8)	Standard deduction	-24,800	Married filing joint filing
(9)	Itemized deductions	-25,000	Real property tax and charitable contributions
(10)	Greater of (8) or (9)	-25,000	Itemized deductions exceed the standard deduction
(11)	Deduction for qualified business income	-200	$1,000 QBI × 20%
(12)	Total deductions from AGI	-25,200	(10) + (11)
(13)	Taxable income	76,800	(7) + (12)
(14)	Tax liability	8,821	$1,975 + 12% × ($76,800 – 19,750)
(15)	Tax credits	-2,000	Child tax credit
(16)	Tax withheld	-5,800
	Tax due	1,021	(14) + (15) + (16)