Question

Molly and Mark are wife and husband and earned salaries this year of $12,000 and $64,000, respectively. In addition to their salaries, they received interest of $350 from municipal bonds and $500 from corporate bonds. Mark and Molly also paid $2,500 of qualifying moving expenses, and Marc paid alimony to a prior spouse in the amount of $1,500. Mark and Molly have a 10-year-old son, Matt, who lived with them throughout the entire year. Thus, Marc and Michelle are allowed to claim a $1,000 child tax credit for Matt. Mark and Molly paid $6,000 of expenditures that qualify as itemized deductions and they had a total of $5,500 in federal income taxes withheld from their paychecks during the course of the year. What is Molly and Mark’s gross income? What is Molly and Mark’s adjusted gross income? What is the total amount of Molly and Mark’s deductions from AGI? What is Molly and Mark’s taxable income? What is Molly and Mark’s taxes payable or refund due for the year (use the tax rate schedules)? Complete the first two pages of Molly and Mark’s Form 1040 (download forms from the IRS website). 2018 TAX LAW

Answer 1

1. What is Molly and Mark’s adjusted gross income?

$76500

2. What is the total amount of Molly and Mark’s deductions from AGI?

Deductions for arriving at AGI = $4000

AGI = $72500

3. What is Molly and Mark’s taxable income?

$61,100

4. What is Molly and Mark’s taxes payable or refund due for the year (use the tax rate schedules)?

Tax payable is $451.

Description	Amount	Computation
(1) Realized income from all sources	$76,850	64,000 salary + 12,000 salary + 350 municipal bond interest + 500 corporate bond interest
(2) Excluded or deferred income	350	Nontaxable municipal bond interest
(3) Gross income	76,500	(1) – (2)

(4) For AGI deductions	4,000	2,500 qualified moving expenses + 1,500 alimony paid
(5) Adjusted gross income	72,500	(3) – (4)
(6) Standard deduction	11,400	Married filing jointly
(7) Itemized deductions	6,000
(8) Greater of standard deductions or itemized deductions	11,400	(6) > (7)
(9) Personal and dependency exemptions	0	Starting in the 2018 tax year, personal and tax exemptions are suspended until 2025
(10) Total deductions from AGI	(11,400)	(8) + (9)
(11) Taxable income	$61,100	(5) + (10)
(12) Income tax liability	$6,951	(61,100 – 19050) x 15% + 1,905 (see tax rate schedule for married filing jointly) Amount rounded to whole dollar.
(13) Other taxes	0
(14) Total tax	$6,951	(12) + (13)
(15) Credits	(1,000)	Child credit for 10-year old son Matt

(16) Prepayment

(5,500)