Question

Required: Use the information below to complete the taxpayer’s taxable income and tax. Make assumptions regarding any information not given.

Dr. Ivan Incisor and his wife Irene are married and file a joint return for 2018. Ivan is age 48 and his wife Irene is 39. They live at 1234 Main Street, Modesto, CA 95350.

The Incisors have three children. Seth is 15 years old, Sara is 18 years old, and Shawn is 3 years old.

The Incisors lived in California the entire year. In 2017, the Incisors filed a form 1040 and filed as MFJ.

The Incisors all had health insurance provided by Ivan’s employer for the entire year.

Ivan and Irene have savings account interest income of $1,000 from Bank of America.

Ivan and Irene have City of Modesto Bond interest of $300.

Dr. Incisor is a dentist and his form W-2 from Bitedown Dental Group is as follows:

Wages                            110,000

Federal withholding           11,000

Social Security withholding 6,500

Medicare withholding          1,540

State (CA) withholding       6,800

Irene works at a dental lab “Teeth are Us” and her W-2 is as follows:

Wages                            45,000

Federal withholding            4,500

Social Security withholding 2,790

Medicare withholding          650

State (CA) withholding       2,500

Ivan and Irene have the following expenses:

Medical and dental expenses                           2,000

Prescription eyeglasses                                  500

Mortgage interest (Wells Fargo Bank)                2,500

Credit card interest                                      800

Contributions to Catholic Church                       10,000

Noncash contributions to Salvation Army            350

Property tax on home                                   2,000

Auto insurance                                             700

Auto loan interest                                         450

State tax due and paid on 2017 return             1,000 paid April 2018

Sara started her first year of college at State University in September of 2018. Ivan and Irene paid 7,000 for her tuition and 800 for books. Sara also received a 1,000 scholarship, which was entirely used for tuition. Determine the best alternative educational tax benefit.

Compute the following:

Total includable gross income:

AGI:

Itemized Deductions:

Which should they choose (itemized or standard):

Taxable income:

Tax:

Credits:

Tax Due/Refund:

Answer 1

Required a

Calculation of total includable gross income

Particulars	Ivan	Irene	Total
Wages	$      110,000	$      45,000	$      155,000
Interest Income			$           1,000
City of Modesto Bond interest - Not taxable			$ -
Sholarship - Not taxable			$ -
Total includable gross income			$      156,000

Required b

Calculation of Adjusted Gross Income (AGI)

Gross Income	$      156,000
Less: Adjustments
Tuition Deduction	$         (4,000)
Adjusted Gross Income	$      152,000

Required c

Calculation of Itemized deduction

Itemized Deduction
Medical and dental expenses
Medical and dental expenses	$   2,000.00
Prescription eyeglasses	$      500.00
Less: expenses upto 7.5% of AGI not allowed	$ (2,500.00)	$               -
Taxes Paid
State (CA) withholding	$   9,300.00
Property tax on home	$   2,000.00
State Tax	$   1,000.00	$ 12,300.00
Charitable contribution
Contributions to Catholic Church	$ 10,000.00
Noncash contributions to Salvation Army	$      350.00	$ 10,350.00
Total deduction		$ 22,650.00

Required d

Since standard deduction for married filling jointly status is = $24,400

Taxpayer should choose standard deduction

Required e

Taxable Income = AGI - Standard Deduction = $152,000 - $24,400 = $127,600

Required f

Calculation of tax	Tax rate	Amount
$0 to $19,400	10%	$         1,940
$19,401 to $78,950	12%	$         7,146
$78,951 to $127,600	22%	$      10,703
Total tax		$      19,789

Required g

Calculation of credits

Child tax credit	$   6,000.00
Education Credit	$   2,500.00
Total credit	$   8,500.00

Required h

Tax due = $19,789 - $8500 = $11,289

Feel free to ask for any clarification, if required. Kindly provide feedback by thumbs up. It would be highly appreciated. Thank You.