Question

Bart and Elizabeth Forrest are married and have no dependents. They have asked you to advise them whether they should file jointly or separately in 2017. They present you with the following information:

Bart Elizabeth Joint Salary $38,000 Business net income $110,000 Interest income 400 1,200 $2,200 Deductions for AGI 2,400 14,000 Medical expenses 10,427 3,358 State income tax 800 1,800 Real estate tax 3,800 Mortgage interest 4,200 Unreimbursed employee expenses 1,200

If they file separately, Bart and Elizabeth will split the real estate tax and mortgage interest deductions equally.

If an amount is zero, enter "0". Do not round your intermediate computations and round your final answers to the nearest dollar.

a. Complete the comparison table through AGI, then compute the total amount of the itemized deductions on the separate schedule before completing the remainder of the table.

Bart and Elizabeth Forrest
Comparison of Joint and Separate Tax Liabilities
Tax Year 2017

Bart Elizabeth Joint Salary $ $ Business net income Interest income Gross income $ $ $ Less: deductions for AGI AGI $ $ $ Medical expenses after 10%-of-AGI floor $ $ $ State income tax Real estate tax Mortgage interest Unreimbursed employee expenses after 2%-of-AGI floor Total itemized deductions (MFS) or standard deduction (MFJ) $ $ $ Exemptions Total deductions from AGI $ $ $ Taxable income $ $ $ Tax $ $ $ Savings from filing jointly: Tax filing separately $ Tax filing jointly    Savings

b. Complete Bart’s Schedule A for 2017. Assume that Bart and Elizabeth file separate returns. Bart’s Social Security number is 123-45-6789

c. Complete the letter to Bart and Elizabeth.

January 23, 2018

Mr. and Mrs. Bart Forrest 2003 Highland Drive Durham, NC 27707

Dear Mr. and Mrs. Forrest:

I have reviewed the tax information you provided and have determined that you will save $( ) in Federal income tax if you file ( ) for 2017. A detailed computation that supports my conclusion is enclosed.

Please let me know if you have any question or would like to discuss my recommendation in further detail. Thank you for consulting our firm on this matter. We look forward to serving you in the future.

Sincerely,

Rodney Rodriguez, CPA Partner

Answer 1

	Bart	Elizabeth	Joint
Salary	38,000		38,000
Business net income		1,10,000	1,10,000
Interest income	400	1,200	1,600
Gross income	38,400	1,11,200	1,49,600
Less: deductions for AGI	2,400	14,000	16,400
AGI	36,000	97,200	1,33,200
Medical expenses after 7.5%-of-AGI floor	7,727	-	3,795
State income tax	800	1,800	2,600
Real estate tax	1,900	1,900	3,800
Mortgage interest	2,100	2,100	4,200
Unreimbursed employee expenses after 2%-of-AGI floor	480	-	-
Total itemized deductions (MFS) or standard deduction (MFJ)	13,007	5,800	14,395
Exemptions	4,050	4,050	8,100
Total deductions from AGI	17,057	9,850	22,495
Taxable income	18,943	87,350	1,10,705
Tax	2,373	17,907	19,154
Savings from filing jointly:
Tax filing separately	20,280
Tax filing jointly	(1,126)
Savings

Saving by filing separate is 1,126. AGI floor limit for medical for 2017 is 7.5% of AGI.