Question

Marc and Michelle are married and earned salaries this year of $67,600 and $13,350, respectively. In addition to their salaries, they received interest of $350 from municipal bonds and $950 from corporate bonds. Marc contributed $2,950 to an individual retirement account, and Marc paid alimony to a prior spouse in the amount of $1,950. Marc and Michelle have a 10-year-old son, Matthew, who lived with them throughout the entire year. Thus, Marc and Michelle are allowed to claim a $2,000 child tax credit for Matthew. Marc and Michelle paid $6,900 of expenditures that qualify as itemized deductions and they had a total of $5,950 in federal income taxes withheld from their paychecks during the course of the year. (Use the tax rate schedules.)

a. What is Marc and Michelle’s gross income?

b. What is Marc and Michelle’s adjusted gross income?

c. What is the total amount of Marc and Michelle’s deductions from AGI?

d. What is Marc and Michelle’s taxable income?

e. What is Marc and Michelle’s taxes payable or refund due for the year?

Answer 1

We have not been provided with the tax year in the given case. Therefore, I have taken 2018 as the tax year and solved the question with reference to tax rules for 2018. There is a possibility of difference in answers.

________

Part a)

The value of Marc and Michelle’s gross income is derived as below:

Salaries (67,600 + 13,350)	80,950
Interest from Municipal Bonds	350
Interest from Corporate Bonds	950
Income from All Sources	82,250
Less Non-Taxable Interest from Municipal Bonds	350
Gross Income	$81,900

______

Part b)

The value of Marc and Michelle’s adjusted gross income is calculated as follows:

Gross Income	81,900
Less AGI Deductions
Contribution of Individual Retirement Account	2,950
Alimony Paid to Prior Spouse	1,950
Adjusted Gross Income	$77,000

______

Part c)

The total amount of Marc and Michelle’s deductions from AGI is arrived as below:

Standard Deduction for 2018 (for married couple filing jointly)	24,000
Itemized Deductions	6,900
Greater of Standard Deduction or Itemized Deductions	24,000
Personal and Dependency Exemptions	0
Total Deductions from AGI	$24,000

______

Part d)

The value of Marc and Michelle’s taxable income is calculated as follows:

Adjusted Gross Income	77,000
Less Total Deductions from AGI	24,000
Taxable Income	$53,000

______

Part e)

The value Marc and Michelle’s taxes payable or refund due for the year is arrived as below:

Income Tax Liability [1,905 + 12%*(53,000 - 19,050)]	5,979
Other Taxes (if any)	0
Less Credits
Child Tax Credit	2000
Tax Prepayments	5,950
Income Tax Refund for the Year 2018 (Excess of Credits and Prepayments over Income Tax Liability)	$1,971

Marc and Michelle’s taxes refund for the year would be $1,971.