Question

Matt and Carrie are married with two children and file a joint return. Their daughter Katie is 19 years old and is a full time student at state university during 2017 she completed her freshman year and one semester as a sophomore Katie’s expense while she was away at school during the year were as follows. Which mix of tax benefits provide the most tax savings what is the total tax savings for the alternative 2

Answer 1

Answer:

This alternative provides S1,325 of tax savings for Matt and Carrie, computed as follows: Description Tax savings Computation (1) $3,000 for AGI deduction $750 or Todd's expenses (2) $1,000 for AGI deduction250 for Katie's expenses $3,000 x 25% marginal tax rate $1,000 x 25% marginal tax rate. Note that Matt and Carrie may not claim any more tax benefits for Katie's expenses in excess of S1,000 (the S4,800 excess can't be used for anything else $1,300 x 25% marginal tax rate. Entire amount is in excess of 2% of AGI floor for miscellaneous itemized deductions (AGI before deducting the for AGI deductions for education expense is $112,000, $112,000 × 2%= $2,240 which is below the S2,300 of norn educational miscellaneous itemized deductions. Consequently, the 296 threshold does not limit the education miscellaneous itemized deduction (3) $1,300 from AGI deduction for Carrie's expenses 325 Total tax saving 1,325 Alternative 2: Claim $3,000 for AGI deduction for Todd's expense, claim $1,000 of Carrie's expense as a for AGI deduction, claim the remaining $300 of Carrie's expenses as a from AGI deduction, and claim the American opportunity credit (AOC) for Katie's expenses. This lternative provides $3,575 of tax savings. Description Tax savings Computation (1) $3,000 for AGI deduction$750 for Todd's expenses (2) $1,000 for AGI deduction 250 or Carries expenses (3) S300 from AGI deduction75 or Carrie's expenses 4) AOC for Katie's expenses 2,500 Total tax savings $3,000 x 25% marginal tax rate $1,000 x 25% marginal tax rate $300 x 25% marginal tax rate See below Sum of (1) thro

The AOC for Katie's expenses is S2,500, computed as follows: Description Amount Explanation ) Katie 's AOC before phase-ou (2) AGI after education interest deduction $2,500 112,000 $112,000 AGI minus $0 education interest expense for AGI deduction (Matt and Carrie did not borrow the money so they can't deduct the interest For Todd and Carrie's (3) For AGI deduction for qualified educational expenses 4) AGI 5) Phase-out threshold 6) Excess AGI (7) Phase-out range for taxpayer filing as Head of Household 8) Phase-out percenta 9) Phase-out amount AOC after phase-out 4,000 expenses 108,000 60,000 0 20,000 4)- (5), limited to SO 180,000- 160,000 0% 6)/(7 $2,500 It appears that Alternative 2 provides the combination of tax benefits providing the most tax savings.