Shela is single and works for a law firm. In the 2020 tax year, she made $110,000

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Question:

Shela is single and works for a law firm. In the 2020 tax year, she made $110,000 this year in salary and $10,000 of gross interest income from a corporate bond. Her law firm withheld $16,000 of tax from her salary this year. In addition to the above, the following occurred this year:

• She paid $7,000 in interest on her mortgage for her primary residence.

• She had a rental loss (had greater expenses as a landlord than revenue) by $2,000.

• She sold stock she had held for 9 months at $4,000 less than her tax basis at the time of the sale.

• Shela owned a 20% interest in a partnership during the year. The partnership had a $20,000 loss from operations during the year and made no distributions.

• Shela volunteers for the Red Cross using her legal skills to do administrative work for the charity. She estimates her time volunteering is worth $5,000.

a) Determine Shela’s AGI.

b) Ignore your answer in a). Assume that Shela’s AGI in 2020 is $148,380. Determine the amount of itemized deduction Shela has available this year.

c) Ignore your answer in b). Assume that the amount of itemized deduction available is $13,665. Using the 2020 standard deduction amounts (assuming no additional amounts for age or blindness) from Appendix D in your book, first determine whether Shela will itemize or take the standard deduction. If you determine she itemizes, write in the itemized deduction dollar amount given ($13,665). Alternatively, if you determine she will take the standard deduction, write in the standard deduction amount for which she qualifies (tied to the appropriate filing status).

d) Ignore your answer in a) - c). Assume that Shela’s taxable income is $136,970 and her employer withheld $16,000 in tax from their wages. Using the tax rate schedule from Appendix D in your book, determine the amount of taxes due or the amount of refund due. Remember to clearly mark the answer as either the amount of tax due or a refund due (e.g. refunds are negative amounts as represented with parentheses or a negative sign). Assume AMT does not apply, and there are no tax credits available.