You were contacted by Mr. and Mrs. Smith to help them determine which expenses they can itemize. Below are a list of expenses that you must enter on form schedule A in the appropriate boxes. Not all expenses are itemized deductions.
Facts: Mr. Smith is an attorney and Mrs. Smith is an insurance broker. They are married filing jointly. Total income reported on the 1040 is $120,000 and the standard deduction is $24,000.
Mr. Smith’s federal withholdings of $18,000
Mr. Smith’s state withholdings of $7,000
Mrs. Smith’s federal withholdings of $17,000
Mrs. Smith’s state withholdings of $6,000
Real estate taxes paid on home of $4,000
Cash Contributions of church $12,000
Clothing donations to charity that cost $3,000 but has a thirst shop value of $300
Contributions to homeless woman totaling $200
Unreimbursed medical expenses of $4,000
Home mortgage interest of $12,000
Interest paid on car loan $3,000
Student loan interest $1,500
Alimony paid to Mr. Smith’s ex-wife for divorce agreement finalized in 2015) totaling $15,000
Tax preparation fees $1,000
Cost to replace roof on personal residence for normal wear and tear $20,000
Unreimbursed cost for Mr. Smith to attend continuing education conference totaling $3,500
Part 2. Calculate Mr. and Mrs. Smith’s taxable income by entering the adjustments from above on a word document. Start with gross income minus adjustments to arrive at adjusted gross income and then subtract itemized deductions. Determine if they should take the standard deduction or itemize deductions to arrive at taxable income. Support your answers with evidence and cite your sources.
Sample Solution
