Answers
Case - (a) -- Determine Jeremy’s tax refund or taxes due.
Answer -
Computation of Jeremy's (Tax Refund) / Tax Due for Tax Year 2019
| Description | Explanation | Amount ($) | |
| (1) | Gross income | Salary + Interest income | 107000 |
| (2) | For AGI deductions | - | 0 |
| (3) | Adjusted gross income | (1) + (2) | 107000 |
| (4) | Standard deduction | Standard deduction for head of household | 18350 |
| (5) | Itemized deductions | Given in question | 24700 |
| (6) | Greater of standard deduction or itemized deductions | Greater of: (4) or (5) | 24700 |
| (7) | Taxable income | (3) - (6) | 82300 |
| (8) | Income tax liability | Refer working note - (1) | 12544 |
| (9) | Child tax credit | $2000 per child | 2000 |
| (10) | Tax withholding | Given in question | 11000 |
| Tax Refund | (8) - (9) - (10) | (456) | |
# Working note - (1) - Computation of Jeremy's Tax Liability for Tax Year 2019 -
| Tax Rate | Taxable Income ($) | Calculation | Amount ($) | |
| I. | 10% | 0 - 13850 | $13850 * 10% | 1385 |
| II. | 12% | 13851 - 52850 | ($52850 - $13850) * 12% | 4680 |
| III. | 22% | 52851 - 84200 | ($82300 - $52850) * 22% | 6479 |
| Jeremy's Tax Liability | I + II + III | 12544 | ||
.
Case - (b) -- Assume that in addition to the original facts, Jeremy has a long-term capital gain of $6050. What is Jeremy’s tax refund or tax due including the tax on the capital gain?
Answer -
Computation of Jeremy's (Tax Refund) / Tax Due for Tax Year 2019
| Description | Explanation | Amount ($) | |
| (1) | Gross income | Salary + Interest income + Long-term capital gains | 113050 |
| (2) | For AGI deductions | - | 0 |
| (3) | Adjusted gross income | (1) + (2) | 113050 |
| (4) | Standard deduction | Standard deduction for head of household | 18350 |
| (5) | Itemized deductions | Given in question | 24700 |
| (6) | Greater of standard deduction or itemized deductions | Greater of: (4) or (5) | 24700 |
| (7) | Taxable income | (3) - (6) | 88350 |
| (8) | Income tax liability | Refer working note - (1) | 13452 |
| (9) | Child tax credit | $2000 per child | 2000 |
| (10) | Tax withholding | Given in question | 11000 |
| Tax Due | 452 | ||
# Working note - (1) - Computation of Jeremy's Tax Liability for Tax Year 2019 -
| Tax Rate | Taxable Income ($) | Calculation | Amount ($) | |
| I. | 10% | 0 - 13850 | $13850 * 10% | 1385 |
| II. | 12% | 13851 - 52850 | ($52850 - $13850) * 12% | 4680 |
| III. | 22% | 52851 - 84200 | ($82300 - $52850) * 22% | 6479 |
| Regular income tax | I + II + III | 12544 | ||
| Add: Long-term capital gains tax | $6050 * 15% | 908 | ||
| Jeremy's Tax Liability | $12544 + $908 | 13452 | ||
.
Case - (c) -- Assume the original facts except that Jeremy has only $7000 in itemized deductions. What is Jeremy’s tax refund or tax due?
Answer -
Computation of Jeremy's (Tax Refund) / Tax Due for Tax Year 2019
| Description | Explanation | Amount ($) | |
| (1) | Gross income | Salary + Interest income | 107000 |
| (2) | For AGI deductions | - | 0 |
| (3) | Adjusted gross income | (1) + (2) | 107000 |
| (4) | Standard deduction | Standard deduction for head of household | 18350 |
| (5) | Itemized deductions | Given in question | 7000 |
| (6) | Greater of standard deduction or itemized deductions | Greater of: (4) or (5) | 18350 |
| (7) | Taxable income | (3) - (6) | 88650 |
| (8) | Income tax liability | Refer working note - (1) | 14030 |
| (9) | Child tax credit | $2000 per child | 2000 |
| (10) | Tax withholding | Given in question | 11000 |
| Tax Due | (8) - (9) - (10) | 1030 | |
# Working note - (1) - Computation of Jeremy's Tax Liability for Tax Year 2019 -
| Tax Rate | Taxable Income ($) | Calculation | Amount ($) | |
| I. | 10% | 0 - 13850 | $13850 * 10% | 1385 |
| II. | 12% | 13851 - 52850 | ($52850 - $13850) * 12% | 4680 |
| III. | 22% | 52851 - 84200 | ($84200 - $52850) * 22% | 6897 |
| IV. | 24% | 84201 - 160700 | ($88650 - $84200) * 24% | 1068 |
| Jeremy's Tax Liability | I + II + III + IV | 14030 | ||
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