in addition to the byrds son john bruce s father sam qualifies as a dependent 239638

CUMULATIVE PROBLEMS
45. Part 1— Tax Computation
Bruce’s salary $ 61,500
Alice’s salary 52,600
Interest income 2,695
Adjusted gross income $ 116,795
Less: Itemized deductions (Note 1) (36,960)
Less: Personal and dependency exemptions
(Bruce, Alice, John, and Bruce’s father) (Note 2) (14,600)
Taxable income $ 65,235
Tax from Tax Table* $ 8,946
Less: Prepayments and credits
Income tax withheld ($5,990 + $4,180) (10,170)
Making Work Pay credit (800)
Net tax payable (or refund due) for 2010 ($ 2,024)
*The taxpayer is not subject to the AMT. For a complete discussion of the AMT, see Chapter 15.
See the tax return solution beginning on page 10-25 of the Solutions Manual.
Notes
(1) Itemized deductions are summarized below:
Medical expenses:
Medical insurance premiums $ 4,380
Doctor bill for Sam paid in 2010 for
services in 2009 7,760
Operation for Sam 7,310
Prescription medicines for Sam 860
Hospital expenses for Sam 2,850
Total medical expenses $23,160
Less: Reimbursement received in 2010 (3,000)
Less: 7.5% of $116,795 AGI (8,760)
Medical expenses deductible in 2010 $11,400
Taxes:
State income taxes ($2,990 + $2,280 + $950) $ 6,220
Property taxes on residence 4,720 10,940
Qualified interest on home mortgage 9,130
Charitable contributions:
Church contribution $ 4,800
Tickets to charity dinner dance
(Only the excess of the ticket price of $400
over the cost of comparable entertainment
of $160 is deductible) 240
Used clothing donated (limited to fair
market value) 450 5,490
Miscellaneous itemized deductions:
Uniforms ($482 cost + $211 laundry) $ 693
Professional journals 320
Total of deductible items $ 1,013
Less: 2% of $116,795 AGI (2,336)
Miscellaneous itemized deductions deductible in 2010 –0–
Total itemized deductions $36,960
Alice and Bruce would elect to itemize their deductions because the total exceeds the standard deduction of $11,400 for 2010 for married persons filing a joint return.
(2) In addition to the Byrds’ son John, Bruce’s father, Sam, qualifies as a dependent. Therefore, the deduction is $14,600 ($3,650 × 4). Cynthia cannot be claimed as a dependent because she is not under age 24.
(3) The Making Work Pay credit is calculated as follows:
Earned income ($61,500 + $52,600) $114,100
× Rate × 6.20%
= Tentative MWP credit $ 7,074
= Maximum MWP credit $ 800
– Phaseout:
Modified AGI $116,795
– Threshold (150,000)
= Excess –0–
× Phaseout rate × 2%
= Phaseout (–0–)
= Making Work Pay credit $ 800
Part 2— Tax Planning
Bruce’s salary $ 85,000
Interest income ($21,000 + $2,695) 23,695
Adjusted gross income $108,695
Less: Itemized deductions (Note 1) (31,558)
Less: Personal and dependency exemptions
(Bruce and Alice)(2 × $3,700) (7,400)
Taxable income $ 69,737
Tax from tax rate schedule for 2011 $ 9,684
Notes
(1) Itemized deductions are summarized below:
Medical expenses:
Medical insurance premiums $4,380
Estimated costs for Alice ($14,500 – $5,500
reimbursement) 9,000
Less: 7.5% of $108,695 AGI (8,152) $ 5,228
Taxes:
State income taxes ($2,990 + $4,000) $6,990
Property taxes on residence 4,720 11,710
Qualified interest on home mortgage 9,130
Charitable contributions 5,490
Miscellaneous itemized deductions:
Professional journals $ 320
Less: 2% of $108,695 AGI (2,174)
Miscellaneous itemized deductions deductible
in 2011 –0–
Total itemized deductions $31,558
46. Paul’s salary $ 60,000
Donna’s salary 61,000
Dividends 800
State income tax refund 1,600
Long-term capital gain (Note 1) 6,000
Adjusted gross income $129,400
Less: Itemized deductions (Note 2) (24,565)
Less: Personal and dependency exemptions
(Paul, Donna, Larry, Jane, Hannah)(Note 3) (18,500)
Taxable income $ 86,385
Tax (Note 5) $ 13,166
Less: Tax withheld ($7,000 + $7,200) (14,200)
Net tax payable (or refund due) for 2011 ($ 1,034)
Notes
(1) Sale price of 300 shares Acme Corp. stock (300 × $50) $ 15,000
Cost of stock (300 × $30) (9,000)
Recognized gain on sale (LTCG) $ 6,000

  1. Itemized deductions:

Medical expenses:
Doctor and hospital bills ($9,000 – $2,100) $ 6,900
Prescription drugs and medicine 700
Insurance premiums 2,810
Total medical $10,410
Less: 7.5% of $129,400 AGI (9,705)
Deductible medical $ 705
Taxes:
State income taxes paid ($950 + $1,000) $ 1,950*
Real estate taxes 3,700 5,650
Home mortgage interest 8,000
Contributions:
Church $ 4,500
Books 750 5,250
Casualty loss:
Fair market value $18,000
Less: Nondeductible floor (100)
Less: 10% of $129,400 AGI (12,940) 4,960
Miscellaneous itemized deductions:
Airfare $ 840
Hotel 270
Meals (50% × $125) 63
Registration fee 340
Total deductible items $1,513
Less: 2% of $129,400 AGI (2,588)
Deductible miscellaneous itemized deductions –0–
Total itemized deductions $ 24,565
*The Deckers will deduct the state income taxes paid because they exceeded the sales taxes paid (per table).
(3) Since Donna is the custodial parent, the Deckers qualify for the dependency deduction for both Larry and Jane. Since they provide over 50% of the support of Hannah, they also qualify for a dependency deduction for her. Thus, the personal and dependency exemptions are $18,500 ($3,700 × 5).
(4) Consumer interest is not deductible. Therefore, neither the interest on the auto loan of $1,490 nor the credit card interest of $870 is deductible.
(5) Tax on $ 6,800* × 15% = $ 1,020
69,000 = 9,500
10,585 × 25% = 2,646
$86,385 $13,166
*$800 dividend + $6,000 LTCG = $6,800

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