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 2018. 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	900	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. Write Bart and Elizabeth a letter in which you make and explain a recommendation on filing status for 2018. Bart and Elizabeth reside at 2003 Highland Drive, Durham, NC 27707.

Answer 1

Mr. and Mrs. Forrest

2003 Highland Drive

Durham, NC 27707

Dear Mr. and Mrs. Forrest

After reviewing the tax information provided by you, it has been determined that you will save $2859 in federal income tax if tax returned is file using the filing status as married filing jointly for 2018. The computation of tax is enclosed herewith.

In case of any queries, kindly inform, I will be available to discuss suggestions in detail.

Looking forward to serve you in future too.

Sincerely,

Enclosure:

Bart and Elizabeth Forrest

Comparison of Joint and Separate Tax Liabilities

Tax Year 2018

	Bart	Elizabeth	Joint
Salary	38000		38000
Business net income		110000	110000
Interest income	1500	2300	3800
Gross income	39500	112300	151800
Less: deductions for AGI	-2400	-14000	-16400
AGI	37100	98300	135400
Medical expenses after 7.5% of AGI floor	7645	0	3630
State income tax	900	1800	2700
Real estate tax	1900	1900	3800
Mortgage interest	2100	2100	4200
Total itemized deductions (MFS) or standard deduction (MFJ)	12545	5800	24000
Total deductions from AGI	-12545	-5800	-24000
Taxable income	24555	92500	111400
Tax	2756 (952.50+(12%*(24555-9525)))	16490 (14089.50+(24%*(92500-82500)))	16387 (8907+(22%*(111400-77400)))
Savings from filing jointly
Tax fillings separately			19246 (2756+16490)
Tax filings jointly			-16387
savings			$2859

Medical expenses after 7.5% of AGI floor:

For Bart: 10427-(7.5%*37100) = 7645

For Joint: (10427+3358)-(7.5%*135400) = 3630

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Tax:

For Bart: (952.50+ (12 %*( 24555-9525))) = 2756

For Elizabeth: (14089.50+ (24 %*( 92500-82500))) = 16490

For Joint: (8907+ (22 %*( 111400-77400))) = 16387

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Tax Filings Separately:

For Joint: (2756+16490) = 19246