Learning Objectives:
Identify taxable or nontaxable income, calculate taxable income,identify tax planning strategies
Background:
Sam and Ricci are a happily married young couple. They work hardand save diligently. Here comes the tax season and they plan onfiling their joined tax report. They hope they can get some taxrefund. They would also like to find out ways to save their taxpayments in the future, so that they can raise children and preparefor their education fund.
Sam has a full-time job and makes $4,200 each month after taxes.He is also a teacher and last year he earn $700 out of a teachingjob. Sam’s student loan balance is $22,000, he pays $250 eachmonth. The interest payment he made on his student loan in lastyear is $1,800. Besides that Sam also has a car loan of $12,200 andcredit card balance of $3,000. Sam’s withheld federal income tax is$10,000. (Let’s ignore state and local tax amount)
Ricci just graduated from college and has been working parttime. Her workplace pays her $2,000 a month after taxes. Due to herexcellent job performance and superior customer feedback, her bossgave her a total of $3,700 bonus last year. Her savings account hasearned $20 in last year. Last year she graduated from herundergraduate program, and she paid $7,900 in tuition (she alsoqualified for the American Opportunity Credit). Ricci doesn’t havestudent loans. Ricci’s withheld federal income tax is $4,800.(Ignore state and local tax amount)
Sam and Ricci both have IRA accounts. Sam contributes $2000 ayear and Ricci contributes $1000 to her account in each year. Theybought a house a few years ago. Their mortgage payment per month is$1500. Last year, they made a total of $5,400 interest payment ontheir mortgage. Their property tax payment last year is $4,000
Your Tasks: (for calculations, YouMUST show your work to earn credit)
- Help the couple to calculate: (hint: some of the informationprovided may not be relevant to the tax report)
- Their total gross income
- AGI (adjusted gross income)
- Total Itemized deductions
- If the standard deduction is $23,000 for their tax year, is thecouple better off using the standard deduction or itemizing?Why?
- What is the couple’s taxable income?
- Suppose the income tax rate for their filing status is 20%,will they get tax refund or need to pay more tax that the amountwithheld?
- Is there anything that they could do to shield more of theirincome from taxes? Identify 2 to 3 tax planning strategies that areapplicable to their situation.
- Submit your work in WORD file to DropBox folder prior to itsdeadline.
