Question

Tax Forms Problem

Decision Making

Critical Thinking

Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 2017. Alfred and Beulah will file a joint return for 2019. Alfred’s Social Security number is 111-11-1109. Beulah’s Social Security number is 123-45-6780, and she adopted “Old” as her married name. They live at 211 Brickstone Drive, Atlanta, GA 30304.

Alfred was divorced from Sarah Old in March 2016. Under the divorce agreement, Alfred is to pay Sarah $1,250 per month for the next 10 years or until Sarah’s death, whichever occurs first. Alfred pays Sarah $15,000 in 2019. In addition, in January 2019, Alfred pays Sarah $50,000, which is designated as being for her share of the marital property. Also, Alfred is responsible for all prior years’ income taxes. Sarah’s Social Security number is 123-45-6788.

Alfred’s salary for 2019 is $150,000. He is an executive working for Cherry, Inc. (Federal I.D. No. 98-7654321). As part of his compensation package, Cherry provides him with group term life insurance equal to twice his annual salary. His employer withheld $24,900 for Federal income taxes and $8,000 for state income taxes. The proper amounts were withheld for FICA taxes.

Beulah recently graduated from law school and is employed by Legal Aid Society, Inc. (Federal I.D. No. 11-1111111), as a public defender. She receives a salary of $42,000 in 2019. Her employer withheld $7,500 for Federal income taxes and $2,400 for state income taxes. The proper amounts were withheld for FICA taxes.

Alfred and Beulah had interest income of $500. They receive a $1,900 refund on their 2018 state income taxes. They claimed the standard deduction on their 2018 Federal income tax return. Alfred and Beulah pay $4,500 interest and $1,450 property taxes on their personal residence in 2019. Their charitable contributions total $2,400 (all to their church). They paid sales taxes of $1,400, for which they maintain the receipts. Alfred and Beulah have never owned or used any virtual currency, and they do not want to contribute to the Presidential Election Campaign.

Compute the Olds’ net tax payable (or refund due) for 2019. Suggested software: ProConnect Tax Online.

Answer 1

Computation of the Old’s net tax payable or refund due for 2019

Income from salary

a) Alfred E. Old                      $ 150,000

b) Buelah A. Crane                $ 42,000

Total Income from Salary                                            $ 192,000

Income from Interest                                                   $ 500

Gross Taxable Income                                                  $ 192,500

Less: Standard Deduction              $ 24,400

Net Taxable Income                                                     $ 168,100

Tax computed                                  $ 28,699

Less: Federal Tax withheld            $ 32,400

Refund due                                       $ 3,701

Note:

1) Standard deduction is more beneficial than itemize deduction in this case.

2) Tax rate for 2019 for joint return

0 to $ 19,400 = 10%

$ 19,401 to $78,950 = 12%

$ 78,950 to $ 168,400 = 22%