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8 homework problems

8-47.
taxable income = 75000

a. income tax liability = 12290

- single taxpayer
- tax liability = 4617.5 + [0.22(75000 - 40125)] ~ 12290

b. income tax liability = 8605

- mfj
- taxable income (combined) = 75000
- tax liability = 1975 + [0.12(75000 - 19750)] ~ 8605

c. income tax liability = 12290

- mfs
- taxable income (own, not spouse's) = 75000
- tax liability = 4617.5 + [0.22(75000 - 40125)] ~ 12290

d. income tax liability = 10848

- head of household (HoH)
- tax liability = 6162 + [0.22(75000 - 53700)] ~ 10848

8-48.
taxable income (combined) = 300000
- taxable income (lisa) = 125000
- taxable income (fred) = 175000
will be filing mfs

tax liability (if mfj) = 29211 + [0.24(300000 - 171050) ~ 60159

tax liability (mfs / lisa) = 14605.5 + [0.24(125000 - 85525)] ~ 24079.5 ~

24080
tax liability (mfs / fred) = 33271.5 + [0.32(175000 - 163300)] ~ 37015.5 ~
37016
combined tax liability (mfs) = 24079.5 + 37015.5 ~ 61095 / 24080 + 37016 ~
61096

marriage tax penalty (benefit) = 60159 - 61095 ~ (936)

8-50.
single taxpayer
taxable income = 42000

a. tax liability = 5030

- income is salary earned from employer
- tax liability = 4617.5 + [0.22(42000 - 40125)] ~ 5030

b. tax liability = 4960

- taxable income = 42000
- includes qualified dividends = 1000
- taxable income w/o dividends = 42000 - 1000 ~ 41000
- 40001 < taxable income w/ dividends (42000) < 441450
---> use 15% on dividends
- tax liability = 4617.5 + [0.22(41000 - 40125)] + (1000 * 0.15)
= 4617.5 + 192.5 + 150 ~ 4960

c. tax liability
- taxable income = 42000
 - includes qualified dividends = 5000
- taxable income w/o dividends = 42000 - 5000 ~ 37000
- 40001 < taxable income w/ dividends (42000) < 441450
- however, the dividends (5000) drops taxable income below 40001,
meaning 3000 will be have a 0% rate, while the remaining 2000
will use a 15% rate
- taxable income w/o dividends (37000) uses a 15% rate for
qualified dividends that exceed the current 0% limit
- i.e.: 37000 + 3000 dividend ---> 40000 (0% limit)
- multiply remaining 2000 with 15% because taxable limit
is greater than 40000, as taxable income with partial
qualified dividends (37000 + 3000) exceeds 40000
- tax liability = 987.5 + [0.12(37000 - 9875)] + (3000 * 0.00)
+ (2000 * 0.15)
= 987.5 + 3255 + 0 + 300 ~ 4542.5 ~ 4543

8-70.
mfj; 2 dependents (ages 14 & 17, year-end)

a. amount of child tax credit = 2000 + 500

- AGI = 100000
- AGI (100000) < 400000 (mfj limit) ---> no phase-out

b. amount of child tax credit = 1500

- AGI = 420000
- AGI (420000) < 400000 (mfj limit) ---> must phase-out
- [(420000 - 400000) / 1000] * 50 ~ 1000
- 2500 - 1000 ~ 1500
- use 2500 to account for total child tax credit
(2000 for 14 yr, 500 for 17 yr)

c. amount of child tax credit = 2950

- AGI = 420100
- AGI (420100) < 400000 (mfj limit) ---> must phase-out
- [(420100 - 400000) / 1000] * 50 ~ 1050
- (420100 - 400000) / 1000 ~ 20.1 ~ rounded up to 21
- 21 * 50 ~ 1050
- 4000 - 1050 ~ 2950
- use 4000 to account for total child tax credit
(2000 for 14 yr, 2000 for 17 yr)
- 2 dependents are ages 10 & 12
- both qualify for 2000 child tax credit (both are < 17 yr)

8-71.
a. child & dependent care credit = 400
- paid for day care center = 2000
- child is 2 yr
- AGI = 50000 (all salary)
- phase-out = 2000 * 0.2 ~ 400
- used 20% as AGI (50000) > 43000

b. child & dependent care credit = 600

- paid for day care center = 5000
- child is 2 yr
- AGI = 50000 (all salary)
- phase-out = 3000 * 0.2 ~ 600
- limited to 3000, therefore cannot phase-out entire amount

c. child & dependent care credit = 900

 - paid for day care center = 4000
- child is 2 yr
- AGI = 25000 (all salary)
- phase-out = 3000 * 0.3 ~ 900
- used 30% as 23000 < AGI (25000) < 25000

d. child & dependent care credit = 700

- paid for day care center = 2000
- child is 2 yr
- AGI = 14000 (all salary)
- phase-out = 2000 * 0.35 ~ 700
- used 35% as AGI (14000) < 15000

8-84.
HoH; 1 dependent (age 20)
- credit for other (qualified) dependents = 500
salary = 38000
alimony received = 1200 / month ~ 14400 / yr
rental apt bldg revenue = 50000
rental expenses = 19500
tuition cost paid (for daughter) = 500
- education credit ~ AOTC
state income taxes paid = 5800
charitable contributions = 12500
medical expenses: [total = 9602]
- insurance premiums = 7952
- medical care expenses = 1100
- prescription medicine = 350
- nonprescription / OTC medicine = 100 (excluded)
- new contact lenses for daughter = 200
disability insurance received (from employer) = 2000
- employer paid 60% ~ 2000 * 0.6 ~ 1200 (include in gross income)
- taxpayer paid 40% ~ 2000 * 0.4 ~ 800
interest income from corporate bonds = 2200
interest income from municipal bonds = 1500 (excluded)
gifted interest income (from father to daughter) = 6200 (excluded)
- only source of income for daughter this year
federal income taxes withheld = 10000
estimated tax payments (by daughter) = 1000 (excluded)

AGI = 86300
7.5% AGI = 6472.5 ~ 6473

total medical expenses = 9602

- exceeds 7.5% AGI (6473) ---> 9602 - 6473 ~ 3129
- medical expenses deductible = 3129

education credit (AOTC) = 185

- tuition cost paid = 500
- 80000 < AGI (86300) < 90000 ---> phase-out
- AOTC prior to phase-out = 1.00 * 500 ~ 500
- can deduct 100% of first 2000 eligible expenses
& 25% of the next 2000
- phase-out excess = 86300 - 80000 ~ 6300
- phase-out % = (86300 - 80000) / (90000 - 80000) ~ 0.63 ~ 63%
- phase-out amount = 500 * (1 - 0.63) ~ 185

income tax liability = 8620

- taxable income = 64871
 - tax liability = 6162 + [0.22(64871 - 53700)] ~ 8619.62 ~ 8620

total tax credits = 500 + 185 ~ 685

- credit for other dependents = 500
- educational credit (AOTC) = 185

gross income:
- salary 38000
- alimony received 14400
- rental apt bldg revenue 50000
- disability insurance payments 1200
- interest income from corporate bonds 2200
= gross income 105800
deductions for AGI:
- rental expenses 19500
- total for AGI deductions 19500
= AGI 86300
from AGI deductions:
- medical expenses 3129
- state income taxes 5800
- charitable contributions 12500
- total itemized deductions 21429
- standard deduction 18650
- greater of itemized or
standard deduction 21429
= taxable income 64871
- credits (AOTC & credit for
other dependents) 685
- tax prepayments (federal
income tax withheld) 10000
= tax payable (refund) (2065)