1. Carly’s adjusted gross income in 2018 is $45,000. She had the following expen

Question

1.

Carly’s adjusted gross income in 2018 is $45,000. She had the following expenses:

Medical expenses

$4,500 (limited to amount over 7.5% of AGI)

Mortgage interest

$7,500

Property taxes

$1,800

State income tax

$1,000

Charitable gifts

$ 500

Should Carly take the standard deduction ($12,000) or itemize her deductions?

Answer: _______________

Explain:

2.

2. Eric has the following information for the current tax year. Assume he does not itemize.

Income from wages, $71,605

Interest earned on savings, $50

IRA contribution, $3,000

Checking account interest earned, $45

Standard deduction for Head of Household: $18,000

Tax credit for child care, $1,050

Child tax credit, $2,000

Filing status: Head of Household

Amount his employer already withheld for federal income tax, $4,825

Calculate

taxable income

:

(show how you arrived at the number)

3.

3. Assume Eric owes is $6,925 before the tax credits,

what is tax owed

after subtracting the tax

credits?

(show how you arrived at the number)

Hint: if you included tax credits in your #2

calculation, that is incorrect. Tax credits are subtracted from tax owed, not from taxable income.

4.Eric’s employer withheld $4,825 during the year. Calculate Eric’s refund: ______________

Explanation / Answer

1. We all want to lower our taxes. The trick is to find out which option gives us the most tax savings.

In this case, its better for Carly to itemize her deductions as it ($ 15,300) comes more than her standard deductions ($12,000). It will help her in getting the bigger tax break.

2. Taxable income = Gross Salary + Interest earnings + dividend - ( All deductions & Exemptions)

So, the taxable income of Eric will be:

$71,605 + $50 + $45 - ($3000 + $18,000) = $50,700

3. Assume Tax Owed by Eric before the tax credit is $6,925.

So, after subtracting the tax credits i.e. ($1,050 + $2,000 = $3,050) from the tax owed amount, we get:

$6,925 - $3,050 = $3,875.

$3,875 is the tax owed by Eric.

4. As Eric's employer has already withheld $4,825 during the year for federal income tax and the tax owed by Eric is $3,875. The refund which he should get back is:

$4,825 - $3,875 = $950.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.