Show your work in order to receive credit. You may use a calculator as needed. 1 A family consists of two married adults and one child dependent. The first adult makes $445,000 in raw wages. The second adult makes $693,000 in raw wages. They earned $58, 500-in-interest from investments. The couple contributed $105,000 to a tax-deferred savings plan and $50,000 to charity. The couple paid $42,600 in interest on their home mortgage, paid $21,000 in property taxes and paid $54,700 in state taxes. This married couple will be filing taxes jointly. (a) Find the couple's gross income. $1,196,500 (b) Find the couple's adjusted gross income (AGI). 1,041, 500 693,000 +445,000 +58,500 1,196,500 105,000 50,000 - (e) Find the couple's itemized deduction. 21,000 -42,600 54,700 923, 200 (d) In 2016 every person and dependent was entitled to a $4,050 exemption. The standard deduction for a married couple filing jointly was $12,600. i. If it were 2016, would the couple choose the standard deduction or the itemized deduction? In 2017 Congress passed the Tax Cuts and Jobs Act. Personal tax exemptions were completely eliminated but the standard deduction for a married couple. filing jointly was raised to $24,000. ii. If it were 2018 (after the changes took effect), would the couple choose the standard deduction or the itemized deduction? (e) Use the information above to calculate the couple's taxable income (TI). i. TI in 2016 AGI- (Exemptions + Deductions). ii. TI in 2018-AGI - Deductions. () Calculate the couple's income tax owed using the provided tables. i. 2016 Income Tax Brackets Tax Rate 10% 15% 25% 28% 33% 35% 39.6% Standard Deduction Exemptions (per person) Child Tax Credits (per child) Single up to $9,275 $9,275 to $37,650 $37,650 to $91,150 $91,150 to $190,150 $190,150 to $413,350 $413,350 to $415,050 more than $415,050 $6,300 $4,050 $1,000 i 2018 Income Tax Brackets Tax Rate 10% Single up to $9,525 Married Filing Jointly up to $18,550 $18,550 to $75,300 $75,300 to $151,900 $151,900 to $231,450 $231,450 to $413,350 $413,350 to $466,950 more than $466,950 $12,600 $4,050 $1,000 Married Filing Jointly up to $19,050 $19 050 to $77,400 2018 Income Tax Brackets Tax Rate 10% 12% 24% 32% 35% 39.6% Standard Deduction Exemptions (per person) Child Tax Credits (per child) Single up to $9,525 $9,525 to $38,700 $38,700 to $82,500 $82,500 to $157,500 $157,500 to $200,000 $200,000 to $500,000 more than $500,000 $12,000 $0 $2,000 Married Filing Jointly up to $19,050 $19,050 to $77,400 $77,400 to $165,000 $165,000 to $315,000 $315,000 to $400,000 $400,000 to $600,000 more than $600,000 $24,000 $0 $2,000 (g) The Tax Cuts and Jobs Act also changed the Child Tax Credit amount from $1,000 per child in 2016 to $2,000 per child in 2018. Tax credits are dollar- for-dollar reductions of the income tax you owe. The Child Tax Credit is a refundable tax credit meaning you will receive the full amount of the tax credit, even if the credit exceeds the tax bill. e.g. Suppose a couple owes $4,000 in income tax and has $6,000 in refundable tax credits. Then the couple actually only owes $4,000-$6,000-$2,000 in income tax. That is to say, the couple will receive a $2,000 refund. i. Calculate the couple's Child Tax Credit in 2016 and use it to determine the amount owed to the government in 2016 (or indicate the amount owed to the couple as a refund). ii. Calculate the couple's Child Tax Credit in 2016 and use it to determine the amount owed to the government in 2018 (or indicate the amount owed to the couple as a refund). (h) Did this couple's tax bill increase or decrease after the passage of the Tax Cuts and Jobs Act? Does the amount of change seem very meaningful given the couple's income and family size? (1) What percent of the couple's gross income ends up being paid as income tax in 2016? What about in 2018? If the couple owes no income tax, simply state that 0% of their income is owed. Show your work in order to receive credit. You may use a calculator as needed. 1 A family consists of two married adults and one child dependent. The first adult makes $445,000 in raw wages. The second adult makes $693,000 in raw wages. They earned $58, 500-in-interest from investments. The couple contributed $105,000 to a tax-deferred savings plan and $50,000 to charity. The couple paid $42,600 in interest on their home mortgage, paid $21,000 in property taxes and paid $54,700 in state taxes. This married couple will be filing taxes jointly. (a) Find the couple's gross income. $1,196,500 (b) Find the couple's adjusted gross income (AGI). 1,041, 500 693,000 +445,000 +58,500 1,196,500 105,000 50,000 - (e) Find the couple's itemized deduction. 21,000 -42,600 54,700 923, 200 (d) In 2016 every person and dependent was entitled to a $4,050 exemption. The standard deduction for a married couple filing jointly was $12,600. i. If it were 2016, would the couple choose the standard deduction or the itemized deduction? In 2017 Congress passed the Tax Cuts and Jobs Act. Personal tax exemptions were completely eliminated but the standard deduction for a married couple. filing jointly was raised to $24,000. ii. If it were 2018 (after the changes took effect), would the couple choose the standard deduction or the itemized deduction? (e) Use the information above to calculate the couple's taxable income (TI). i. TI in 2016 AGI- (Exemptions + Deductions). ii. TI in 2018-AGI - Deductions. () Calculate the couple's income tax owed using the provided tables. i. 2016 Income Tax Brackets Tax Rate 10% 15% 25% 28% 33% 35% 39.6% Standard Deduction Exemptions (per person) Child Tax Credits (per child) Single up to $9,275 $9,275 to $37,650 $37,650 to $91,150 $91,150 to $190,150 $190,150 to $413,350 $413,350 to $415,050 more than $415,050 $6,300 $4,050 $1,000 i 2018 Income Tax Brackets Tax Rate 10% Single up to $9,525 Married Filing Jointly up to $18,550 $18,550 to $75,300 $75,300 to $151,900 $151,900 to $231,450 $231,450 to $413,350 $413,350 to $466,950 more than $466,950 $12,600 $4,050 $1,000 Married Filing Jointly up to $19,050 $19 050 to $77,400 2018 Income Tax Brackets Tax Rate 10% 12% 24% 32% 35% 39.6% Standard Deduction Exemptions (per person) Child Tax Credits (per child) Single up to $9,525 $9,525 to $38,700 $38,700 to $82,500 $82,500 to $157,500 $157,500 to $200,000 $200,000 to $500,000 more than $500,000 $12,000 $0 $2,000 Married Filing Jointly up to $19,050 $19,050 to $77,400 $77,400 to $165,000 $165,000 to $315,000 $315,000 to $400,000 $400,000 to $600,000 more than $600,000 $24,000 $0 $2,000 (g) The Tax Cuts and Jobs Act also changed the Child Tax Credit amount from $1,000 per child in 2016 to $2,000 per child in 2018. Tax credits are dollar- for-dollar reductions of the income tax you owe. The Child Tax Credit is a refundable tax credit meaning you will receive the full amount of the tax credit, even if the credit exceeds the tax bill. e.g. Suppose a couple owes $4,000 in income tax and has $6,000 in refundable tax credits. Then the couple actually only owes $4,000-$6,000-$2,000 in income tax. That is to say, the couple will receive a $2,000 refund. i. Calculate the couple's Child Tax Credit in 2016 and use it to determine the amount owed to the government in 2016 (or indicate the amount owed to the couple as a refund). ii. Calculate the couple's Child Tax Credit in 2016 and use it to determine the amount owed to the government in 2018 (or indicate the amount owed to the couple as a refund). (h) Did this couple's tax bill increase or decrease after the passage of the Tax Cuts and Jobs Act? Does the amount of change seem very meaningful given the couple's income and family size? (1) What percent of the couple's gross income ends up being paid as income tax in 2016? What about in 2018? If the couple owes no income tax, simply state that 0% of their income is owed