Bart and Elizabeth Forrest, both age 47, are married and have no dependents. The
ID: 2462065 • Letter: B
Question
Bart and Elizabeth Forrest, both age 47, are married and have no dependents. They have asked you to advise them whether they should file jointly or separately in information: 2015. They present you with the following information: If they file separately, Bart and Elizabeth will split the real estate tax and mortgage interest deductions equally. Write Bart and Elizabeth a letter in which you make and explain a recommendation on Filing status for 2015. Bart and Elizabeth reside at 2003 Highland Drive, Durham, NC 27707.Explanation / Answer
April 9, 2016
Mr. and Mrs. Bart Forrest 2003 Highland Drive
Durham, NC 27707
Dear Mr. and Mrs. Forrest:
I have reviewed the tax information you provided and have determined that you will save $726 in Federal income tax if you file a joint return for 2015. A detailed computation that supports my conclusion is enclosed.
Please let me know if you have any question or would like to discuss my recommendation in further detail. Thank you for consulting our firm on this matter. We look forward to serving you in the future.
Sincerely,
Rodney Rodriguez, CPA Partner
Bart and Elizabeth Forrest Comparison of Joint and Separate Tax Liabilities
Tax Year 2015
Separate and joint tax liabilities for 2015 are computed below. These computations are based on all information provided by Bart and Elizabeth Forrest.
Salary
Bart
$38,000
Elizabeth
Joint
$ 38,000
Business net income
$110,000
110,000
Interest income*
1,500
2,300
3,800
Gross income
$39,500
$112,300
$151,800
Deductions for AGI
(2,400)
(14,000)
(16,400)
AGI
$37,100
$ 98,300
$135,400
Medical expenses after 10% floor**
$ 6,717
$ –0–
$ 245
State income tax
800
1,800
2,600
Real estate tax
1,900
1,900
3,800
Mortgage interest
Unreimbursed employee expenses after 2% floor
2,100
458
2,100
–0–
4,200
–0–
Total itemized deductions or standard
$11,975
$ 5,800
$ 12,600
deduction***
Exemptions
4,000
4,000
8,000
Total deductions from AGI
($15,975)
($ 9,800)
($ 20,600)
Taxable income
$21,125
$ 88,500
$114,800
Tax
$ 2,708
$ 18,306
$ 20,288
Savings from filing jointly:
Tax filing separately ($2,708 + $18,306)
$ 21,014
Tax filing jointly
(20,288)
Savings from filing jointly
$ 726
*Interest income:
Bart’s interest
Bart
$ 400
Elizabeth
Elizabeth’s interest
$1,200
Their joint interest
1,100
1,100
$1,500
$2,300
**Calculation of medical expense deduction:
Medical expenses
Bart
$10,427
Elizabeth
$ 3,358
Joint
$13,785
Less: 10% of AGI
(3,710)
(9,830)
(13,540)
Medical expense deduction
$ 6,717
$ 0
$ 245
***If Bart and Elizabeth file separately and Bart chooses to itemize his deductions, Elizabeth also must itemize her deductions. She would not qualify to claim the standard deduction. If they file jointly, they will claim the standard deduction because it exceeds the available itemized deductions
Salary
Bart
$38,000
Elizabeth
Joint
$ 38,000
Business net income
$110,000
110,000
Interest income*
1,500
2,300
3,800
Gross income
$39,500
$112,300
$151,800
Deductions for AGI
(2,400)
(14,000)
(16,400)
AGI
$37,100
$ 98,300
$135,400
Medical expenses after 10% floor**
$ 6,717
$ –0–
$ 245
State income tax
800
1,800
2,600
Real estate tax
1,900
1,900
3,800
Mortgage interest
Unreimbursed employee expenses after 2% floor
2,100
458
2,100
–0–
4,200
–0–
Total itemized deductions or standard
$11,975
$ 5,800
$ 12,600
deduction***
Exemptions
4,000
4,000
8,000
Total deductions from AGI
($15,975)
($ 9,800)
($ 20,600)
Taxable income
$21,125
$ 88,500
$114,800
Tax
$ 2,708
$ 18,306
$ 20,288
Savings from filing jointly:
Tax filing separately ($2,708 + $18,306)
$ 21,014
Tax filing jointly
(20,288)
Savings from filing jointly
$ 726
*Interest income:
Bart’s interest
Bart
$ 400
Elizabeth
Elizabeth’s interest
$1,200
Their joint interest
1,100
1,100
$1,500
$2,300
**Calculation of medical expense deduction:
Medical expenses
Bart
$10,427
Elizabeth
$ 3,358
Joint
$13,785
Less: 10% of AGI
(3,710)
(9,830)
(13,540)
Medical expense deduction
$ 6,717
$ 0
$ 245
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