Question

Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 2014. Alfred and Beulah will file a joint return for 2016. Alfred's Social Security number is 111-11-1112. Beulah's Social Security number is 123-45-6789, 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 2014. 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 2016. In addition, in January 2016, 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 2016 is $150,000, and his employer, Cherry, Inc. (Federal I.D. No. 98-7654321), 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 $40,000 in 2016. Her employer withheld $7,500 for Federal income taxes and $2,400 for state income taxes. The proper amounts were withheld for FICA taxes. Beulah has $2,500 in qualified dividends on Yellow Corporation stock she inherited. Alfred and Beulah receive a $1,900 refund on their 2015 state income taxes. They itemized deductions on their 2015 Federal income tax return (total of $15,000). Alfred and Beulah pay $4,500 interest and $1,450 property taxes on their personal residence in 2016. Their charitable contributions total $2,400 (all to their church). They paid sales taxes of $1,400, for which they maintain the receipts. Both spouses had health insurance for all months of 2016 and do not want to contribute to the Presidential Election Campaign. Compute the Olds' net tax payable (or refund due) for 2016. If you use tax forms for your solution, you will need Form 1040 and Schedules A and B. Suggested software: H&R BLOCK Tax Software.

Answer 1

Income: Total Salary will be for Financial year 2016- 150000 for Alfred and 40000 for Beulah, Thus total Joint Salary will be 190000. Adding further to their income will be amount of 2500 as Qualified Dividends on Yellow Corporation Stock inherited by Beulah. Further, they receive a joint income of 1900 as a refund on their State income taxes for FY 2015. Thus the total income amounts to 194400 (150000+40000+2500+1900).

Group Term Life Insurance is not an income but is one of the non cash employee benefits, thus will not be added in the income.

Deductions:

1. The total taxes already paid by them amounts to 45650 (24900 (Federal Income Tax for Alfred) +8000 (State Income Tax for Alfred)+7500 (Federal Income Tax for Beulah)+2400 )State Income Tax for Beulah)+1400 (Sales Tax)+1450 (Property Tax for 2016).  

2. The interest paid by them amounts to 4500.

3. The charitable contibutions amounts to 2400.

Above are the expenses/ contributions which are allowed as deductions. The rest of the expenses incurred example payment to Sarah as per divorce agreement does not qualify as deduction. Standard Dedcution if 6300 and Itemized deduction is 45650

Thus the total admissible expenses/ deduction amounts to 45650

Thus the taxable income is 194400-45650= 148750

For Financial Year 2016, the above income will fall in the tax bracket of 25%. Tax on the above income will amount to 37188.