Question

Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 2016. Alfred and Beulah will file a joint return for 2018. 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 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 2018. In addition, in January 2018, 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 2018 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 $42,000 in 2018. 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 2017 state income taxes. They itemized deductions on their 2017 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 2018. 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 2018 and do not want to contribute to the Presidential Election Campaign. Compute the Olds’ net tax payable (or refund due) for 2018. If you use tax forms for your solution, you will need Form 1040 and Schedules A

Answer 1

Gross Income
Alfred - Salary	150,000
Beulah - Salary	42,000
Interest Income	500
State income tax refund	1,900
Group Insurance (See note 1)	300
Income	194,700
less: Exclusions	-
Gross Income	194,700
Less: Deductions for AGI
Alimony paid	15,000
Adjusted Gross Income	179,700
Less: Itemized deductions
Itemized deductions (See note 2)	18,750
Less: Personal and Dependancy Exemptions (2*4,150)	8,300
Taxable Income	152,650
Tax on taxable Income (See note 3)	25,462
Less: Federal Witholding
Alfred	24,900
Beulah	7,500
Tax Payable / (Refundable)	(6,938)

Notes:

1.

Group term Life Insurance
Coverage	300,000.00
Exempt	50,000.00
Taxable	250,000.00
Cost per $1,000 of protection, per month (40-44 Age group)	0.10
Income (0.23*(250000/1000)*12)	300.00

Note 2:

itemized deductions
Interest paid	4,500
Property taxes	1,450
State Income tax - Alfred	8,000
State Income tax - Bealah	2,400
Charitable Contributions	2,400
Total	18,750

Tax rate for 2018
Married Filing Jointly	2018 Tax Rate	152,650.00	Tax
$0 to $19,050	10%	19050	1,905
$19,050 to $77,400	12%	58350	7002
$77,400 to $165,000	22%	75,250.00	16,555.00
$165,000 to $315,000	24%		25,462
Other notes: a. State income tax or State sales tax, only one of the items are allowed as deduction b. Personal exemption is taken at $4,150 for 2 c. $50,000 paid to former wife as part of marital property is not treated as alimony and hence not deducted.