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