Question

I have to complete Form 1040, and Schedules 1, A, and B. I am fairly lost at this moment, so anything can help

Martin S. Albert (Social Security number 111-11-1111) is 39 years old and is married to Michele R. Albert (Social Security number 123-45-6789). The Alberts live at 512 Ferry Road, Newport News, VA 23601. They file a joint return and have two dependent children, Charlene, age 17, and Jordan, age 18. Charlene’s Social Security number is 123-45-6788, and Jordan’s Social Security number is 123-45-6787. In 2019, Martin and Michele had the following transactions:

1. Martin received $120,000 in salary from Red Steel Corporation, where he is a construction engineer. Withholding for Federal income tax was $10,750. The amounts withheld for FICA taxes were as follows: $7,049 ($113,700 × 6.2%) for Social Security and $1,740 ($120,000 × 1.45%) for Medicare. Martin worked in Mexico from January 1, 2018, until February 15, 2019. His $120,000 salary for 2019 includes $18,000 he earned for January and one-half of February 2019 while working in Mexico.

2. Martin and Michele received $400 interest on Montgomery County (Virginia) school bonds.

3. Martin received $2,300 interest from a Bahamian bank account.

4. Michele received 50 shares of Applegate Corporation common stock as a stock dividend. The shares had a fair market value of $2,500 at the time Michele received them, and she did not have the option of receiving cash.

5. Martin and Michele received a $1,200 refund on their 2018 Virginia income taxes. Their itemized deductions in 2018 totaled $34,000.

6. Martin paid $6,600 alimony to his former wife, Rose T. Morgan (Social Security number 123-45-6786). The divorce was finalized in 2016.

7. Martin and Michele kept the receipts for their sales taxes paid of $1,100.

8. Martin and Michele’s itemized deductions were as follows:

   • State income tax paid and withheld totaled $5,100.

   • Real estate taxes on their principal residence were $3,700.

   • Mortgage interest on their principal residence was $2,500.

   • Cash contributions to the church totaled $2,800.

     Part 1—Tax Computation

     Compute the Alberts’ net tax payable (or refund due) for 2019.

     Part 2—Tax Planning

     The Alberts are considering buying another house. Their house mortgage payments would increase by $500 (to $1,500) per month, which includes a $250 increase in interest and a $100 increase in property tax. The Alberts would like to know how much the mortgage payments would increase net of any change in their income tax. What will be your advice to the Alberts? Write an explanation and show all of your calculations.

Answer 1

	Part 1 - Computation of Net tax payable (or refund due) for 2019 the Alberts
		Amount not to be included in Total Income (in $)	Taxable Amount (in $)
	Salary		120000
Add:	Other Incomes
	Interest from Bank a/c		2300
	Refund on 2018 Virginia income taxes	1200
	Interest on bonds - Tax exempt interest	400
	Shares of Applegate Corporation	2500
	Total Income		122300
Less:	Alimony paid to his former wife		-6600
	Adjusted Gross Income		115700
Less:	Standard or itemized deduction:
	Standard deduction		-24400
	State income tax	-5100
	Real estate taxes	-3700
	Mortgage interest	-2500
	Cash contributions to the church	-2800
	Taxable income		91300
	Total tax before credits		11809
Less:	Total tax credits:
	Child tax credit ($ 2,000 per child)		-2000
	?Federal income tax withheld on Forms W-2		-10750
	Excess Social Security and RRTA tax withheld.		-7049
	Total tax after credits		9809
	Refundable credits		17799
	Part 2—Tax Planning
	Here monthly mortgage payments would increase by $500 per month, which includes
	a $250 increase in interest and a $100 increase in property tax. With these amounts
	itemized deductions will be increased further by $ 4200 per year ( $ 350 X 12 months).
	In such case also Standard deduction will be applied and there will be no change in the
	total taxable income.