Fill in the blanks below regarding the 2020 tax liability for Jim and Sue (due April 15^th, 2021), a married couple with two young children. Jim earned $65,000 in salary as a government worker, and Sue earned $95,000 in commissions as a stockbroker. Sue also made a net profit in 2020 of $4,000 from day trading (i.e., buying and selling a stock over a short period of time). They also received an inheritance in of $25,000 in March of 2020 when Jim’s great aunt died. On December 30^th of 2020, they sold 200 shares of Beta Zerc Corp. stock for $30.00 per share that they had bought in May of that year for $20.00 per share. The stock paid them a total of $1 per share in dividends during 2020 (ignore transactions costs, such as brokerage commissions for the test but, FYI, they are tax deductible). Jim bought a 1962 Corvette in February of 2019 for $55,000 and sold it in October of 2020 for $63,000. Both Jim and Sue maximized their (traditional) IRA contributions of $5,500 each.

For 2020 taxes, the IRS allows tax payers an exemption of $4,000 per qualified individual. The standard deduction for 2020 is $24,000 for a married couple filing jointly (as in this case). The tax rate on long term capital gains and dividends is 20%. Jim and Sue’s expenses that qualified as deductions were $11,500 for property taxes paid during the year, and $5,800 in mortgage interest. Sue also had $3,500 in qualified job related expenses.¹ They also donated a total of $2,000 to qualified charities. The marginal tax rates for a married couple filing jointly are listed below.

1) In reality, the tax code, as revised in 2017, eliminates tax deductions for job related. But assume they still exist for the purposed of this problem.

Taxable Income Tax Rate

$0 - 10,000 10%

More than $10,000 -- $30,000 15%

More than $30,000 -- $70,000 20%

More than $70,000 – 120,000 25%

More than $120,000 30%

What is their income from all sources?

Flag question: Question 27

Question 272.5 pts

Refer to Jim and Sue's financial information. For tax purposes, what are their total Exclusions and Adjustments? $____________

Flag question: Question 28

Question 282.5 pts

What was their Adjusted Gross Income? AGI = $_____________

Flag question: Question 29

Question 292.5 pts

What was their total income that was subject to special rates (i.e., not the marginal tax rates on tax schedule)? Total = $___________

Flag question: Question 30

Question 302.5 pts

What is the total value of their exemption? Exemptions = $_____________

Flag question: Question 31

Question 312.5 pts

What is the total value of their deductions that they will use for tax purposes? Value of Deductions = $__________

Flag question: Question 32

Question 322.5 pts

What is their tax liability on income subject to the marginal tax rates? (be sure to net out adjustments, exemptions and deductions before computing tax liability.) Tax liability on ordinary income = $______

Flag question: Question 33

Question 332.5 pts

What is their total tax liability on income subject to special rates? Tax liability = $__________

Flag question: Question 34

Question 342.5 pts

Which of the following is not a regressive tax?

Group of answer choices

the FICA tax

A tax on food and medicine

The federal tax on income

A tax on necessities

Flag question: Question 35

Question 352.5 pts

You can reduce your tax liability by claiming more deductions on your W4 form.

Group of answer choices

True

False

Personal and family Finance