Bernie and Elizabeth’s Federal Income Tax for 2019

Bernie and Elizabeth are under age 65, file jointly and have 2 children, Vinnie, who is a college senior (age 24) and Connie who is in middle school (age 12). The Colleges have the following income:

Salary – Bernie $175,000

Dividends from IBM stock 10,000

Interest Income from NJ Bonds 5,000

Gambling winnings 20,000

Self Employed Consultant – Elizabeth:

Gross receipts $249,542

Deductible Business Expenses 200,000

Net Income from self-employment 49,542

Contribution to self-employed retirement plan 8,000

Alimony & child care paid by Bernie to former wife who he divorced in 2015

(50% for ex-wife and 50% for child) 24,000

Child care paid for Connie’s after school care 12,000

Monmouth University tuition paid for Vinnie 50,000

Their personal deductions include:

State Income Tax 5,000

Real Estate Tax on their home 17,000

Sales Tax on purchases during year including a boat 7,000

Mortgage Interest on personal residence (balance = $800,000 borrowed in 2018) 32,000

Charitable Contributions – Cash 5,000

Non-cash – 50 shares of IBM valued at $100 per share at date of gift ?

Tax Preparation Fees 2,200

Unreimbursed Employee business expenses in connection with Joe’s job 2,000

Investment Management fees 10,000

Losses from gambling 10,000

Sample Solution