The Fergusons reported making the following payments during the year: State inco
ID: 2515428 • Letter: T
Question
The Fergusons reported making the following payments during the year:
State income taxes of $4,400. Federal tax withholding of $4,000.
Alimony payments to John’s former wife of $10,000.
Child support payments for John’s child with his former wife of $4,100.
$3,200 of real property taxes.
Sandy was reimbursed $600 for employee business expenses she incurred. She was required to provide documentation for her expenses to her employer.
In addition to the $750 of Web design expenses, John attended a conference to improve his skills associated with his Web design work. His trip was for three days and he incurred the following expenses: airfare $370, total taxi fares for trip $180, meals $80, and conference fee of $200.
$3,600 to Kid Care day care center for Samantha’s care while John and Sandy worked.
$14,000 interest on their home mortgage.
$3,000 interest on a $40,000 home-equity loan. They used the loan to pay for family vacation and new car.
$6,000 cash charitable contributions to qualified charities.
Donation of used furniture to Goodwill. The furniture had a fair market value of $400 and cost $2,000.
a. What is the Fergusons’ 2017 federal income taxes payable or refund, including any self-employment tax and AMT, if applicable? (Use the 2017 AMT exemptions.) (Round your intermediate calculations and final answers to the nearest whole dollar.)
2017 Tax Rate Schedule Schedule X-Single Schedule Z-Head of Household If taxable income is over: If taxable income is over. But not But not over: $ 13,350 $ 50,800 over The tax is: The tax is: 10% of taxable income $ 1 ,335.00 plus 1 5% of the excess over $13,350 $6,952.50 plus 25% of the excess over $50,800 $27,052.50 plus 28% of the excess over $131,200 $49,816.50 plus 33% of the excess over $212,500 $117,202.50 plus 35% of the excess over $416,700 $ 1 26,950.00 plus 39.6% of the excess over $444,550 $ 10% of taxable income $932.50 plus 15% of the excess over $9,325 $5.226.25 plus 25% of the excess over $37,950 $ 1 8.7 13.75 plus 28% of the excess aver $91,900 $ 46,643.75 plus 33% of the excess over $191,650 $ 1 2091 0.25 plus 35% of the excess over $416,700 $12 1,505.25 plus 39.6% of the excess cver $418,400 0 9,325 0 $ 9,325 $37,950 $ 9 1 ,900 $ 1 9 1 ,650 $41 6,700 $418,400 $ 37,950 $ 91,900 $ 1 9 1 ,650 $41 6,700 $41 8,400 $ 13,350 $ 50,800 $ 1 3 1,200 $212,500 $416,700 $444,550 $ 1 3 1,200 $21 2,500 $416,700 $444,550 Schedule Y-1-Married Flling Jointly or Qualifying Widow(er) Schedule Y-2-Married Filing Separately If taxable income is over. But not If taxable income is over: But not over: The tax is: over: The tax is: 0 $ 9,325 10% of taxable income $ 1.865.00 plus 1 5% of the excess over $18,650 $ 10.452.50 plus 25% of the excess over $75,900 $29,752.50 plus 28% of the excess over $153,100 $52.222.50 plus 33% of the excess cver $233,350 $112,728.00 plus 35% of the excess aver $416,700 $13 1 ,628.00 plus 39.6% of the excess over $470,700 $ 9,325 $ 37,950 $ 76,550 $116,675 $208,350 $235,350 $ 37,950 $ 76,550 $116,675 $208,350 $235,350 10% of taxable income $932.50 plus 15% of the excess over $9,325 $5,226.25 plus 25% of the excess over $37,950 $14,876.25 plus 28% of the excess over $76,550 $26,1 11.25 plus 33% of the excess over $116,675 $56,364.00 plus 35% of the excess over $208,350 $65,814.00 plus 39.6% of the excess over $235,350 0 $ 18,650 $ 18,650 $ 75,900 $153,100 $233,350 $416,700 $470,700 $ 75,900 $153,100 $233,350 $416,700 $470,700Explanation / Answer
Answer: $1,601.10 refund, computed as follows:
Description
Amount
Explanation
Gross income:
Note: Sandy’s reimbursement for her employee business expenses is excluded from gross income.
Salary
$81,000
($52,000 + $29,000)
Self-employment revenues
4,000
Dividends
800
State income tax refund
200
(1) Gross income
86,000
For AGI deductions:
Self-employment expenses other than travel expenses
750
John’s self employment related travel expenses
590
$370 airfare, taxi fares $180, Meals $40 ($80 × 50%)
John’s conference fees
200
Employer portion of self-employment taxes
174
$2,460 × 92.35% × 7.65% = $174. See Note A below
Alimony
10,000
(2) Total for AGI deductions
11,714
(3) AGI
74,286
(1) - (2)
Itemized deductions:
State income taxes
4,400
Real property taxes
3,200
Home mortgage interest expense
14,000
Home equity loan interest expense
3,000
Charitable contributions cash
6,000
Charitable contributions property
400
Lesser of fair market value or basis
(4) Total itemized deductions
31,000
Standard deduction for MFJ is $12,600 so the Fergusons deduct itemized deductions
(5) Personal and dependency exemptions
12,000
$4,000 × 3
(6) Total from AGI deductions
43,000
(4) + (5)
Taxable income
31,286
(3) – (6)
(7) Tax on income other than qualified dividends
$3,650.40
$31,286 – 800 = $30,486.
Tax = $3,650.40.
from MFJ tax rate schedule $1,845 + 1,805.40 [15% × (30,486 – 18,450)]
(8) Tax on qualified dividends
0
$800 × 0%; all $800 would have been taxed at 15% if it had been ordinary income.
(9) Total Federal income tax
$3,650.40
(7) + (8)
(10) Self Employment tax
348
See Note A below:
(11) Alternative Minimum tax
0
See Note C below
(12) Total taxes
$3,998.40
(9) + (10) +(11)
(13) Child and dependent care credit
600
See Note B below
(14) Child tax credit
1,000
One qualifying child
(15) Federal tax withholding
4,000
Tax payable (refund)
($1,601.60)
(12) – (13) – (14)- (15)
Note A: John’s self employment taxes are computed as follows:
Description
Amount
Explanation
(1) Self-employment revenue
$4,000
Expenses:
Day to day expenses
750
Travel expenses
590
Education expenses
200
Conference fee
(2) Total self-employment expenses
1,540
Net self-employment income
$2,460
(1) – (2)
Tax on self-employment income (John is under wage base limit for social security portion) is $2,460 × 92.35% × 15.3% = $348.
Note B:
Child and dependent care credit:
Description
Amount
Explanation
(1) Child and dependent care expenditures
$3,600
(2) Limit on qualifying expenditures for one dependent
$3,000
(3) Ferguson’s earned income
$83,460
$81,000 salary + $2,460 net self-employment income = $83,460
(4) Expenditures eligible for credit
$3,000
Least of (1), (2), and (3)
(5) Credit percentage rate
20%
AGI over $43,000
Child and dependent care credit
$600
(4) × (5)
Note C: Alternative minimum tax
Note: This solution uses the 2015 AMT exemption amount
Description
Amount
Explanation
(1) Taxable income
$31,286
(2) Exemptions
12,000
(3) AMTI before other adjustments
$43,286
(1) + (2)
Plus adjustments:
(4) Real estate property taxes
3,200
(5) State income taxes
4,400
(6) Home-equity interest expense (loan
proceeds used to purchase car)
3,000
Minus adjustments:
(7) State income tax refund
(200)
(8) Alternative minimum taxable income
$53,686
(3) + (4) + (5) + (6)+(7)
(9) AMT Exemption
$83,400
MFJ 2014 exemption amount
AMT base
$0
(8) – (9), limited to $0
(10) TMT
$0
(11) Regular tax
3,650.40
AMT
$0
(11) > (10) so, $0
Description
Amount
Explanation
Gross income:
Note: Sandy’s reimbursement for her employee business expenses is excluded from gross income.
Salary
$81,000
($52,000 + $29,000)
Self-employment revenues
4,000
Dividends
800
State income tax refund
200
(1) Gross income
86,000
For AGI deductions:
Self-employment expenses other than travel expenses
750
John’s self employment related travel expenses
590
$370 airfare, taxi fares $180, Meals $40 ($80 × 50%)
John’s conference fees
200
Employer portion of self-employment taxes
174
$2,460 × 92.35% × 7.65% = $174. See Note A below
Alimony
10,000
(2) Total for AGI deductions
11,714
(3) AGI
74,286
(1) - (2)
Itemized deductions:
State income taxes
4,400
Real property taxes
3,200
Home mortgage interest expense
14,000
Home equity loan interest expense
3,000
Charitable contributions cash
6,000
Charitable contributions property
400
Lesser of fair market value or basis
(4) Total itemized deductions
31,000
Standard deduction for MFJ is $12,600 so the Fergusons deduct itemized deductions
(5) Personal and dependency exemptions
12,000
$4,000 × 3
(6) Total from AGI deductions
43,000
(4) + (5)
Taxable income
31,286
(3) – (6)
(7) Tax on income other than qualified dividends
$3,650.40
$31,286 – 800 = $30,486.
Tax = $3,650.40.
from MFJ tax rate schedule $1,845 + 1,805.40 [15% × (30,486 – 18,450)]
(8) Tax on qualified dividends
0
$800 × 0%; all $800 would have been taxed at 15% if it had been ordinary income.
(9) Total Federal income tax
$3,650.40
(7) + (8)
(10) Self Employment tax
348
See Note A below:
(11) Alternative Minimum tax
0
See Note C below
(12) Total taxes
$3,998.40
(9) + (10) +(11)
(13) Child and dependent care credit
600
See Note B below
(14) Child tax credit
1,000
One qualifying child
(15) Federal tax withholding
4,000
Tax payable (refund)
($1,601.60)
(12) – (13) – (14)- (15)
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