"Alfred E
Subject:AccountingPrice:3.87 Bought7
"Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 201. Alfred and Beulah will file a joint return for 2011. Alfred's Social Security number is 111-11-1111. Beulah's Social Security number is 123-45-6789, and she adopted "Old" as her married name. They live at 211 Brickstone Drive, Atlanta, GA 30304.
Alfred was divorced from Sarah Old in March 2011. Under the divorce agreement, Alfred is to pay Sarah $1,250 per month for the next 10 years or until Sarah's death, whichever occurs first. Alfred pays Sarah $15,000 in 2011. In addition, in January 2011, Alfred pays Sarah $50,000, which is designed as being for her share of the martial property. Also Alfred is responsible for all prior year's income taxes. Sarah's Social Security number is 123-45-6788.
Alfred's salary for 2011 is $150,000, and his employer, Cherry, Inc. (Federal I.D. No. 98-7654321), provides him with group term life insurance equal to twice his annual salary. His employer withheld $24,900 for Federal income taxes and $8,000 for state income taxes. The following amounts were withheld for FICA taxes: $4,486 ($106,800 ? 4.2%) for Social Security and $2,175 ($150,000 ? 1,45%) for Medicare.
Beulah recently graduated from law school and its employed by Legal Aid Society, Inc. (Federal I.D. No. 11-1111111), as a public defender. She receives a salary of $40,000?4.2%) for Social Security and $580 ($40,000 ? 1.45%) for Medicare.
Beulah has $2,500 in qualified dividends on Yellow Corporation stock she inherited. Alfred and Beulah receive a $1,900 refund on their 2010 state income taxes. They itemized deductions on their 2010 Federal income tax return (total = $15,000). Alfred and Beaulah pay $4,500 interest and $1,450 property taxes on their personal residence in taxes of $1,400 for which they maintain the receipts.
Compute the Old's net tax payable (or refund due) for 2013. Use the attached tax forms for your solution. (Form 1040, schedules A and B) "
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Answer:
CUMULATIVE PROBLEMS
59. Gross income
Salary ($150,000 + $40,000) $190,000
Group term life insurance (Note 1) 300
Dividends 2,500
State tax refund (Note 2) 1,900
$194,700
Deductions for adjusted gross income
Alimony paid (Note 3) (15,000)
Adjusted gross income $179,700
Itemized deductions
State income taxes ($8,000 + $2,400) (Note 4) $10,400
Home mortgage interest 4,500
Real estate taxes 1,450
Cash contributions 2,400 (18,750)
Personal and dependency exemptions ($3,900 ? 2) (7,800)
Taxable income $153,150
Tax on $153,150 (Note 5) $ 30,023
Less: Tax withheld ($24,900 + $7,500) (32,400)
Net tax payable (or refund due) for 2013 ($ 2,377)
See the tax return solution beginning on page 5-21 of the Solutions Manual.
Notes
(1) Group term life insurance results in gross income for Alfred of $300 as follows:
|
$300,000 ? $50,000 |
? $.10 ? 12 months = $300 |
|
$1,000 |
(2) Under the ? 111 tax benefit rule, Alfred and Beulah must include the $1,900 state tax refund in their gross income. They received a tax benefit from the deduction in 2012.
(3) The $15,000 is deductible alimony. The $50,000 payment is a property settlement and is not deductible by Alfred.
(4) The state income taxes paid of $10,400 exceed the sales taxes paid of $1,400.
(5) The tax liability on taxable income of $153,150 is calculated using the Tax Rate Schedule for married filing jointly (applying the 15% rate for the qualified dividends of $2,500), and the amount is determined as follows:
Tax on dividend income ($2,500 ? 15%) $ 375
Tax on remainder of $150,650 ($153,150 ? $2,500)
using the Tax Rate Schedule 29,648
$30,023
