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John and Sandy Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In...

John and Sandy Ferguson got married eight years ago and have a seven-year-old daughter, Samantha. In 2018, John worked as a computer technician at a local university earning a salary of $152,000, and Sandy worked part-time as a receptionist for a law firm earning a salary of $29,000. John also does some Web design work on the side and reported revenues of $4,000 and associated expenses of $750. The Fergusons received $800 in qualified dividends and a $200 refund of their state income taxes. The Fergusons always itemize their deductions and their itemized deductions were well over the standard deduction amount last year. The Fergusons had qualifying insurance for purposes of the Affordable Care Act (ACA). Use Exhibit 8-9, Tax Rate Schedule, Dividends and Capital Gains Tax Rates for reference. The Fergusons reported making the following payments during the year: State income taxes of $4,400. Federal tax withholding of $21,000. Alimony payments to John’s former wife of $10,000 (divorced in 2014). Child support payments for John’s child with his former wife of $4,100. $12,200 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. $3,600 to Kid Care day care center for Samantha’s care while John and Sandy worked. $14,000 interest on their home mortgage ($400,000 acquisition debt). $3,000 interest on a $40,000 home-equity loan. They used the loan to pay for a family vacation and new car. $15,000 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. rev: 01_21_2019_QC_CS-152477 a. What is the Fergusons' 2019 federal income taxes payable or refund, including any self-employment tax and AMT, if applicable? (Round your intermediate computations to the nearest whole dollar amount.)

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Answer #1

Tax refund

$2118

Explanation:

Description

Amount

Gross income:

Salary

$181,000

Self-employment revenues

4,000

Dividends

800

State income tax refund

      200

(1) Gross income

186,000

For AGI deductions:

Self-employment expenses

750

Employer portion of self-employment taxes (4000-750)*92.35%*2.9%/2

44

Alimony

10,000

(2) Total for AGI deductions

10,794

(3) AGI

175,206

Itemized deductions:

Taxes (state income taxes + real property taxes, upto the limit of 10000)

10,000

Home mortgage interest expense

14,000

Charitable contributions cash

15,000

Charitable contributions property

     400

(4) Total itemized deductions (itemized deduction is greater than standard deduction 24400)

39,400

(5) Deduction for qualified business income (4000-750)*20%

650

(6) Total from AGI deductions

40,050

Taxable income

$135,156

(7) Tax on income other than qualified dividends ($135,156 – 800 = $134,356.

MFJ tax rate schedule [$9086 + (22% × (134,356 – 78950))]

$21,275

(8) Tax on qualified dividends (800*15%)

120

(9) Total Federal income tax

$21395

(10) Self Employment tax

87

(11) Alternative Minimum tax

        0

(12) Total taxes

$21,482

(13) Child and dependent care credit

600

(14) Child tax credit

2,000

(15) Federal tax withholding

21,000

Tax payable (refund)

($2118)

Description

Amount

(1) Child and dependent care expenditures

$3,600

(2) Limit on qualifying expenditures for one dependent

$3,000

(3) John’s earned income (152000+3250)

$155,250

(4) Sandy’s earned income

$29,000

(5) Expenditures eligible for credit Least of (1), (2), (3), and (4)

$3,000

(6) Credit percentage rate

20%

Child and dependent care credit

$600

Description

Amount

(1) Taxable income

$135,156

Plus adjustments:

(2) Taxes

10,000

Minus adjustments:

(3) State income tax refund

    (200)

(4) Alternative minimum taxable income

$144,956

(5) AMT Exemption

$117700

(6) AMT base

$27256

(7) TMT ((27256-800)*26%) + (800*15%)

$6999

(8) Regular tax

21,395

AMT (regular tax is greater than TMT)

$0

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