Problem 10-37 (LO. 2, 3, 4, 5, 7, 8)
Bart and Elizabeth Forrest are married and have no
dependents. They have asked you to advise them whether they should file jointly or separately in 2019. They present you with the following information:
Bart Elizabeth Joint Salary (Bart) $38,000 Salary (Elizabeth) $110,000 Interest income 400 1,200 $2,200 Deductions for AGI 2,400 14,000 Medical expenses 10,427 3,358 State income tax 900 11,800 Real estate tax 5,800 Mortgage interest 4,200 Unreimbursed employee expenses 1,200
If they file separately, Bart and Elizabeth will split the real estate tax and mortgage interest deductions equally.
If an amount is zero, enter "0". Do not round your intermediate tax computations but round your final tax answers to the nearest dollar. Round all other computations to the nearest dollar.
Complete the comparison table through AGI, then compute the total amount of the itemized deductions on the separate schedule before completing the remainder of the table.
Click here to access the 2019 tax rate schedule.
Bart and Elizabeth Forrest
Comparison of Joint and Separate Tax Liabilities
Tax Year 2019
Bart Elizabeth Joint Salary (Bart) $ $ Salary (Elizabeth) Interest income Gross income $ $ $ Less: deductions for AGI AGI $ $ $ Medical expenses after 10%-of-AGI floor $ $ $ State income and real estate taxes Mortgage interest Total itemized deductions (MFS) or standard deduction (MFJ) $ $ $ Total deductions from AGI $ $ $ Taxable income $ $ $ Tax $ $ $ Savings from filing jointly: Tax filing separately $ Tax filing jointly Savings $
As a general rule, the deduction of personal expenditures is disallowed by § 262 of the Code. However, Congress has chosen to allow certain personal expenditures to be deducted as itemized deductions. Personal expenditures that are deductible as itemized deductions include medical expenses, certain taxes, mortgage interest, investment interest, and charitable contributions.
Complete the letter to Bart and Elizabeth.
Maloney, Raabe, Young, Nellen, & Hoffman, CPAs
5191 Natorp Boulevard
Mason, OH 45040 January 23, 2020 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 $ in Federal income tax if you file married filing jointly for 2019. 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
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