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In: Accounting
Required information [The following information applies to the questions displayed below.] Demarco and Janine Jackson have...
Required information
[The following information applies to the questions displayed below.]
Demarco and Janine Jackson have been married for 20 years and have
four children who qualify as their dependents (Damarcus, Janine
Jr., Michael, and Candice). The couple received salary income of
$103,000 and qualified business income of $17,500 from an
investment in a partnership, and they sold their home this year.
They initially purchased the home three years ago for $237,500 and
they sold it for $287,500. The gain on the sale qualified for the
exclusion from the sale of a principal residence. The Jacksons
incurred $18,000 of itemized deductions, and they had $3,800
withheld from their paychecks for federal taxes. They are also
allowed to claim a child tax credit for each of their children.
However, because Candice is 18 years of age, the Jacksons may claim
a child tax credit for other qualifying dependents for Candice. The
Jacksons are also allowed to claim a $2,400 recovery rebate credit
for themselves and a $500 credit for each of their three youngest
children. Assume they did not receive the rebate credit in advance.
(Use the tax rate schedules.)
c. What would their taxable income be if their itemized deductions totaled $29,500 instead of $18,000?
d. What would their taxable income be if they had
$0 itemized deductions and $9,000 of for AGI
deductions?
e. Assume the original facts but now suppose the
Jacksons also incurred a loss of $5,750 on the sale of some of
their investment assets. What effect does the $5,750 loss have on
their taxable income?
f. Assume the original facts but now suppose the Jacksons own investments that appreciated by $10,000 during the year. The Jacksons believe the investments will continue to appreciate, so they did not sell the investments during this year. What is the Jacksons’ taxable income?
Solutions
Expert Solution
Part c:
| 1 | gross income(working note 1) | $120500 |
| 2 | For AGI deductions | $0 |
| 3 | AGI(1-2) | $120500 |
| 4 | Standard deduction for married filing jointly | $24400 |
| 5 | itmized deduction | $29500 |
| 6 | greater of standard deduction and itemized deduction | $29500 |
| 7 | Deduction for qualified business income($17500×20%) | $3500 |
| 8 | Total deduction from AGI (6+7) | $33000 |
| TAXABLE INCOME (3-8) | $90500 |
Working note 1:
Calculation of gross income
| Salary | $103000 |
| Gain on house sale (excluded) | |
| Qualified business income | $17500 |
| GROSS INCIME | $120500 |
(D)
| 1 | gross income | $120500 |
| 2 | for AGI Deductions | $9000 |
| 3 | AGI(1-2) | $111500 |
| 4 | standard deduction for married filing jointly | $24400 |
| 5 | itemized deduction | $0 |
| 6 | greater of standard deduction and itemized deduction | $24400 |
| 7 | deduction for qualified business income($17500×20%) | $3500 |
| 8 | total deduction from AGI(6+7) | $27900 |
| TAXABLE INCOME(3-8) |
$83600 |
(E)
| 1 | gross income(working note 2) | $114750 |
| 2 | for AGI deductions | $0 |
| 3 | AGI(1-2) | $114750 |
| 4 | Standard deduction for married filing jointly | $24400 |
| 5 | itemized deduction | $18000 |
| 6 | greater of Standard deduction and itemized deduction | $24400 |
| 7 | deduction for qualified business income (17500×20%) | $3500 |
| 8 | total deduction from AGI(6-7) | $27900 |
| TAXABLE INCOME(3-8) | $86850 |
Working note 2:
Calculation of gross income :
| Salary | $103000 |
| Gain on house sale (excluded) | |
| Qualified business income | $17500 |
| Capital loss | ($5750) |
| Gross income | $114750 |
(F)
| 1 | gross income | $120500 |
| 2 | for AGI deductions | 0 |
| 3 | AGI(1-2) | $120500 |
| 4 | Standard deduction for married filing jointly | $24400 |
| 5 | itemized deduction | 0 |
| 6 | greater ofstandard deduction and itemized deduction | $24400 |
| 7 | deduction for qualified business income(17500×20%) | $3500 |
| 8 | total deduction from AGI | $27900 |
| 9 | TAXABLE INCOME(3-8) |
$92600 |
No change because investment is not sold at appreciated value . The asset will not be recognized as income until sold.
ekkarill92 answered 1 year agoRelated Solutions
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