2. This question is worth 20 points Tracy and Brian (both age 28), are married a
ID: 2520900 • Letter: 2
Question
2. This question is worth 20 points Tracy and Brian (both age 28), are married and file a joing tax returm. They are cash basis taxpayers. 2017 income includes: 1. salary of $202,000 2. Tracy receives health insurance benefits at work. Her employer paid $25,000 for family health coverage for she and Brian. 3*. Tracy had a student loan. In 2017, when the balance was $23,000, the lender accepted a one time payme of $8,000 as full payment, discharging $15,000 of debt. Tracy was solvent at the time. Is this income taxab or not? Why? 4. interest income from Wayne Township bonds in the amount of $2,000 5*. refund of 2016 NJ Income Taxes of $1,000 (the couple itemized their deductions in 2016; itemized deductions exceeded the standard deduction by $3,000). Is this income taxable or not? What rule would apply? Apply it to the facts and explain wi Tracy and Bryan also incurred and paid the following expenses during the year: 6 NJ income tax withheld 7 Parking tickets 8 Alimony (Bryan was previously married and pays Alimony to his ex-wife) 12,000 9 Legal fees associated with divorce proceedings-not tax related 10 Charitable contributions- paid on 12/30/17 with a credit card. The credit 2,000 $ 2,300 400 5,000 card bill was paid 1/15/18. When can this be deducted? Why? 11 Contribution to a ROTH IRA 12 Mortgage payment on principal residence: principal only 13 Mortgage payment on principal residence: interest expense 14 Property taxes (real estate taxes) on personal residence 15* Nephew, Angel, owns a home and could not make his real estate tax 4,000 10,000 14,500 4,200 6,000 payment as he is unemployed. The couple paid Angel's taxes. Can they deduct these costs? Why or why not? 16 Federal income tax payments withheld 17* Medical expenses - State the rule for deducting expense & show 13,000 4,000 calculation. A. Identify items 1 through 17 as follows: if income, your response should be: "taxable" or "not taxable, OR if an expense, your response should be: a deduction for AGI, a deduction from AGI or not deductible. FYI: An item can NOT be classified as both income en NOTE: When preparing your answer in Part A, do not re-type every item and dollar amount. Number your responses 1-17 and provide your answer tain items above require special attention. Provide a sentence or two explaining limitations, rules, calculations of income/deductions, etc, for the following items:3, 5, 10, 15, 17. Please put the explanation next to your response in Part A. B. Using the tax couple's 2017 taxable income. Your answer MUST follow the tax formula (do not simply include totals, list formula, beginning with Income Broadly Conceived, provide a detailed calculation of the l items), or points will be deducted! Be certain to compare the standard deduction amount to total itemized deductions.Explanation / Answer
Item no.
Classification
Response
Remark
1
Income
Taxable
Salary is a taxable income
2
Income
Taxable
Family health coverage paid by employer is taxable income
3
Income
Taxable
Liability in respect of loan amount discharged is taxable income
4
Income
Non-taxable
Interest on Wayne Township bonds is not taxable
5
Income
Taxable
Refund of NJ income taxes in taxable as the couple itemized deduction and the deduction exceeded the standard deduction.
6
Expense
Non-deductible
Non-deductible as the NJ income tax withheld is tax to be deducted from the amount of tax payable and not related to AGI.
7
Expenses
Deduction for AGI
This is an expense to be deducted from income to calculate AGI.
8
Expenses
Deduction for AGI
This is an expense to be deducted from income to calculate AGI.
9
Expenses
Non-deductible
As the expense is not tax related
10
Expenses
Deduction from AGI
Since the amount is charitable donation hence, it will be allowed as deduction from AGI
11
Expenses
Deduction from AGI
Since the amount is charitable donation hence, it will be allowed as deduction from AGI
12
Expenses
Non-deductible
As the payment has been made for the repayment of principal.
13
Expenses
Deduction for AGI
This is an expense to be deducted from income to calculate AGI as it is interest expense.
14
Expenses
Non-deductible
As the expense is personal in nature
15
Expenses
Deduction for AGI
This is an expense to be deducted from income to calculate AGI. The amount will be allowed as the nephew in this case will be considered as dependent for the tax purposes.
16
Expense
Non-deductible
Non-deductible as the Federal income tax withheld is tax to be deducted from the amount of tax payable and not related to AGI.
17
Expenses
Deduction for AGI
This is an expense to be deducted from income to calculate AGI. In respect of medical expenses the following expenses are allowed as deduction:
Item no.
Classification
Response
Remark
1
Income
Taxable
Salary is a taxable income
2
Income
Taxable
Family health coverage paid by employer is taxable income
3
Income
Taxable
Liability in respect of loan amount discharged is taxable income
4
Income
Non-taxable
Interest on Wayne Township bonds is not taxable
5
Income
Taxable
Refund of NJ income taxes in taxable as the couple itemized deduction and the deduction exceeded the standard deduction.
6
Expense
Non-deductible
Non-deductible as the NJ income tax withheld is tax to be deducted from the amount of tax payable and not related to AGI.
7
Expenses
Deduction for AGI
This is an expense to be deducted from income to calculate AGI.
8
Expenses
Deduction for AGI
This is an expense to be deducted from income to calculate AGI.
9
Expenses
Non-deductible
As the expense is not tax related
10
Expenses
Deduction from AGI
Since the amount is charitable donation hence, it will be allowed as deduction from AGI
11
Expenses
Deduction from AGI
Since the amount is charitable donation hence, it will be allowed as deduction from AGI
12
Expenses
Non-deductible
As the payment has been made for the repayment of principal.
13
Expenses
Deduction for AGI
This is an expense to be deducted from income to calculate AGI as it is interest expense.
14
Expenses
Non-deductible
As the expense is personal in nature
15
Expenses
Deduction for AGI
This is an expense to be deducted from income to calculate AGI. The amount will be allowed as the nephew in this case will be considered as dependent for the tax purposes.
16
Expense
Non-deductible
Non-deductible as the Federal income tax withheld is tax to be deducted from the amount of tax payable and not related to AGI.
17
Expenses
Deduction for AGI
This is an expense to be deducted from income to calculate AGI. In respect of medical expenses the following expenses are allowed as deduction:
- Medical insurance expenditures.
- Medicine costs for prescribed medicines.
- Hospital and nursing home expenses.
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