Itemized Deductions (LO. 4) Paula lives in Arkansas, which imposes a state incom

Question

Itemized Deductions (LO. 4) Paula lives in Arkansas, which imposes a state income tax. During 2018, she pays the following taxes: Federal tax withheld State income tax withheld State sales tax - actual receipts Real estate tax Property tax on car (ad valoreum) Social Security tax Gasoline taxes Excise taxes $5,125 1,900 370 1,740 215 4,324 124 112 a. If Paula's adjusted gross income is $35,000 what is her allowable deduction for taxes? 3,855 b. Assume the same facts as in part a, except that Paula pays $1,600 in sales tax on a motor vehicle she purchased during the year. What is Paula's allowable deduction for taxes? 3,855X

Explanation / Answer

a.

Paula is allowed to deduct the greater of the amount-
state income tax = $1900
or
sales tax deduction = Greater of [Actual Amount ($370) or IRS table amount ($630)] = $630

Here, state income tax is greater than sales tax deduction.

Allowable deduction for taxes -

b.

Assuming same face, if Paula pays $1600 in sales tax during on a motor vehicle she purchased during the year
Then her allowable sales tax deduction will be -
$630 + $1600 = $2230 (Which is greater than state income tax $1900)

So, Allowable deduction for taxes -

State income tax $ 1,900.00 Real estate tax $ 1,740.00 Property tax $     215.00 Total $ 3,855.00

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