• Julia earned $90,000 as a consultant and received $400 in interest income from a corporate bond during the year
• Julia realized a $4,000 loss when she sold stock, and she also received $1,000 in qualified dividends (assume that Julia faces a 15% tax on preferential items)
• Julia owes $10,000 of self-employment tax related to her consulting work, and she can deduct half of this amount as an above the line deduction
• She files as a single taxpayer and had $11,000 in itemized deductions.
• She qualifies to take a QBI deduction of $18,000.
• Julia had tax prepayments of $16,000

2020 Individual Income Tax Bracket for Single Taxpayers

	Taxable Income	Tax Rate
	$0 to $9,875	10% of Taxable Income
	$9,875 to $40,125	$987.50 plus 12% of excess over $9,875
	$40,125 to $85,525	$4,617.50 plus 22% of excess over $40,125
	$85,525 to $163,000	$14,605.50 plus 24% of excess over $85,525
	$163,300 to $207,350	$33,271.50 plus 32% of excess over $163,00
	$207,350 to $518,400	$47,367.50 plus 35% of excess over $207,350
	$518,400+	$156,235 plus 37% of excess over $518,400
Description				Amount
(#1) Gross income
Less: For AGI deductions
Adjusted gross income
Less: Standard or itemized deductions
Less: QBI Deduction
(#2) Taxable income
(#3) Tax liability on ordinary income
(#4) Tax liability on preferential items
Total Income Tax Liability
Plus: Other taxes
Less: Tax credits				N/A
Less: Prepayments
(#5) Amount (Refund) Due

1. What is Julia’s gross income? Hint: gross income includes both ordinary income and income taxed at preferential rate. Please show calculation.

2. What is Julia’s taxable income? Hint: Look for both above the line and below the line deductions to arrive at taxable income. Please show calculation.

3. What is Julia’s tax liability on ordinary income?

4. What is Julia’s tax liability on preferentially taxed items?

5. Circle one and indicate the amount: Julia (owes additional tax / is due a refund) of $__________. Enter your answer as negative if a refund is due.

Answer rating: 100% (QA)

Calculation of Gross Income Consulting Income 90000 Interest Income from Corporate Bond 400 Loss ... View the full answer