Fred and Ginger are married and file a joint return for 2021. They have one dependent child,
Question:
Fred and Ginger are married and file a joint return for 2021. They have one dependent child, Carmen (age 18), who lives with them. Fred and Ginger have the following items of income and expense for 2021:
Income: | |
Fred’s salary | $110,000 |
Ginger’s salary | 125,000 |
Interest income on State of Arizona bonds | 3,000 |
Interest income on US Treasury bonds | 8,000 |
Qualified cash dividends | 6,000 |
Regular (nonqualified) cash dividends | 9,500 |
FMV of shares received from stock dividend | 8,500 |
Share of RKO Partnership loss* | (10,000) |
Share of Hollywood Corporation (an electing S corporation) income** | 30,000 |
Life insurance proceeds received on the death of Fred’s mother | 150,000 |
Short-term capital gains | 5,000 |
Short-term capital losses | (10,000) |
15% Long-term capital gains | 30,000 |
15% Long-term capital losses | (7,000) |
Expenses: | |
Traditional IRA Contributions | 12,000 |
Home mortgage interest ($300,000 principal) | 18,000 |
Home equity loan interest ($75,000 principal) | 6,000 |
Vacation home loan interest ($120,000 principal) | 8,400 |
Car loan interest | 3,000 |
Home property taxes | 6,000 |
Vacation home property taxes | 1,800 |
Car tags (ad valorem part) | 950 |
Arizona income tax withheld | 8,000 |
Federal income taxes withheld | 45,000 |
Arizona sales taxes paid | 6,500 |
Medical insurance premiums (not part of an employer plan) | 12,000 |
Unreimbursed medical bills | 10,000 |
Charitable contributions | 12,000 |
* Fred and Ginger invested $15,000 as limited partners in the RKO Partnership at the beginning of 2021. The loss is not the result of real estate rentals. Neither Fred nor Ginger materially participate.
** Ginger is a 50% owner and President of Hollywood. She materially participates in the corporation.
REQUIRED: Determine Fred and Ginger’s tax liability, using the tax formula. You must label your work, provide supporting schedules for summary computations, and indicate any carryovers. Present your work in a neat, orderly fashion, preferably as an excel spreadsheet and not by filling out a tax form.
PART 2. Fred and Ginger have purchased several bond mutual funds in Carmen’s name. During 2021, the bonds earned $7,000 of taxable interest. Carmen also earned $2,500 from babysitting.
REQUIRED: Determine Carmen’s tax liability, using the tax formula. Label all work.
Expert Answer:
Part 1 Total Tax Liability of Fred and Ginger Annual Income 2021 Minus Standard Deduction 2510000 Mi... View the full answer
