Due date: Monday, November 8th, 2021, 11:59 p.m. Value: 4% Objective: Determination of Taxable Income and computation of total tax liability including income tax when part of the taxable income is eligible for the capital gains rate.

Deliverable: using 2021 tax rates and brackets, compute Taxable Income and the related income tax liability. Further computation of additional surtaxes such as the Net Investment Income Tax (NIIT), High Wage-Surtax, and Self-Employment, if applicable. This should be provided via an excel or google worksheet that clearly indicates the various taxes.

Facts: Maria Clay is single and is 26 years old. She has income from the following sources: W-2 wages of $78,000. Long-term capital gain income of $32,000, Qualified Dividends of $14,000 and Taxable Interest Income of $9,000. She also owns a rental property. The tenant pays all of the expenses except for the real estate taxes. She expects to collect $19,500 of rental income in 2021.

She has the following expenses: she funded a Roth IRA for $6000, she funded a Health Savings Account for $3600. She also made charitable contributions in cash of $400. She owns her own home (actually a Condominium) and paid $9,100 of interest expense on the mortgage. She paid $3,700 of real estate taxes on the condo and $840 of Homeowner fees. She owns her own car and pays $1050 of personal property taxes. She had state income taxes withheld on her salary of $5100. She also paid in 2021 the balance due on her 2020 state income tax return of $1400. The rental real estate that she owns she also paid during 2021 the required real estate taxes of $5600.

Further she paid an accountant $1750 to prepare her 2020 returns that were filed in 2021. She also had job related expenses of $800 that the company did not reimburse to her.

After reviewing her information, you had several questions and the answers to those questions: 1. The rental real estate annually has $6000 of tax depreciation 2. She also shared that she thought it was a good idea to make a charitable contribution of $400 since Congress provided a new tax break. 3. The HSA contribution is to a separately purchased high deductible plan as her employer does not offer medical benefits. 4. Maria wants to aggressively reduce taxes and supports treating the Rental Property as eligible for the Qualified Business Income deduction. Hints on attacking the problem: 1. Should Maria itemize or take the standard deduction? What is the treatment of charitable contributions?

2. The computation of the capital gain tax requires a separation of Taxable Income into what is eligible for the capital gain rate and the residual which is subject to her ordinary rate. The IRS has a worksheet (Capital Gains and Qualified Dividends) on page 36 of their year 2020 1040 instruction publication. Note that this is a different worksheet than the Capital Gains worksheet. As the 2021 worksheet is not yet available you can use the above referenced worksheet to help you calculate. However, the worksheet is using 2020 brackets and not 2021. Refer to exhibit 4.7 on page 125 to ensure you are using the correct brackets