Jared and Ashley have come to you for help filing their 2022 tax return. They are married on December 31, 2022 and are both age 40. They live with their three qualifying children, Nick, Betty, and Roger, who were 12, 14, and 17 years old, respectively, at the end of 2022.
They have made the following requests:
They wish to file a joint tax return.
If they overpaid their taxes this year, they would like to receive half as a refund and have half applied to next year’s federal tax return (hint: this is a commonly missed item on the quiz).
Jared and Ashley have the following income items during 2022:
Jared’s wages of $50,000
Jared’s unemployment compensation of $5,000
Ashley’s wages of $60,000
Interest from a city of Chicago bond of $2,000
Interest from a corporate bond of $3,000
Ordinary dividends of $2,000
Gift from Jared’s father of a new computer that cost $3,000
A $3,000 refund from the State of Illinois for income taxes paid in 2021
Jared and Ashley incurred the following expenses/losses during 2022:
Contributions of $5,500 to each of Jared and Ashley’s traditional IRAs, i.e., $11,000 total (they are not covered by any other qualified retirement plans)
Qualified medical expenses of $9,000
Personal credit card interest expense of $8,000
Charitable contributions of $4,000
Ten $25 parking tickets totaling $250
Mortgage interest on primary residence of $8,000 (mortgage is $200,000)
Property taxes on the primary residence of $6,500
Illinois state and local income taxes paid of $5,500
Federal tax withholding on Jared and Ashley’s W-2s of $10,000
They also provide you with the following information about their prior year return:
On their prior year federal tax return, they claimed itemized deductions (itemized deductions exceeded the standard deduction by $5,000).
Jared and Ashley elected to have $139 of their 2021 tax refund applied to 2022.
What amount is reported on Schedule A Line 2 – AGI?
What amount is reported on Schedule A Line 1 – medical expenses?
What amount is reported on Schedule A Line 3 – medical deduction floor?
What amount is reported on Schedule A Line 4 – allowable medical deduction?
What amount is reported on Schedule A Line 5a – income taxes?
What amount is reported on Schedule A Line 5b – real estate taxes?
What amount is reported on Schedule A Line 7 – total deductible taxes paid?
What amount is reported on Schedule A Line 10 – total interest paid?
What amount is reported on Schedule A Line 8 – home mortgage interest?
What amount is reported on Schedule A Line 11 – cash given to charity?
What amount is reported on Schedule A Line 14 – total gifts to charity?
What amount is reported on Schedule A Line 17 – total itemized deductions?
What amount is reported on the Form 1040 line: tax?
What amount is reported on the Form 1040 line: Child Tax Credit/Credit for Other Dependents?
What amount is reported on Form 1040: total tax?
What amount is reported on the Form 1040 line: total payments (Line 18)?
What amount is reported on the Form 1040 line: amount you overpaid?
What amount is reported on the Form 1040 line: Amount you want refunded to you?
What amount is reported on the Form 1040 line: Amount you want applied to your next year’s estimated tax?
To calculate Jared and Ashley’s tax return for the year 2022, we will need to go through each of their income, deductions, and credits step by step. Let’s begin with the information provided and calculate the amounts for each relevant line on their Schedule A and Form 1040.
Schedule A – Itemized Deductions
AGI (Adjusted Gross Income):
To calculate the AGI, we need to start with their total income. Jared’s wages of $50,000, unemployment compensation of $5,000, and Ashley’s wages of $60,000 add up to a total income of $115,000.
Medical Expenses
Total qualified medical expenses were $9,000.
Medical Deduction Floor (10% of AGI)
The medical deduction floor is 10% of their AGI. So, 10% of $115,000 is $11,500.
Allowable Medical Deduction (Medical Expenses – Medical Deduction Floor):
$9,000 – $11,500 (floor) = -$2,500 (Since their medical expenses are less than the floor, this deduction is not applicable.)
Income Taxes
The total of Illinois state and local income taxes paid was $5,500.
Real Estate Taxes
Property taxes on their primary residence amounted to $6,500.
Total Deductible Taxes Paid (Income Taxes + Real Estate Taxes)
$5,500 + $6,500 = $12,000.
Interest Paid
The total interest paid includes $2,000 from a city of Chicago bond, $3,000 from a corporate bond, and $8,000 in personal credit card interest. So, $2,000 + $3,000 + $8,000 = $13,000.
Home Mortgage Interest
They paid $8,000 in mortgage interest on their primary residence.
Cash Given to Charity
They made charitable contributions of $4,000.
Total Gifts to Charity
This is the same as cash given to charity, which is $4,000.
Total Itemized Deductions (Medical Deduction + Taxes + Interest + Home Mortgage Interest + Gifts to Charity):
$0 (medical deduction) + $12,000 (taxes) + $13,000 (interest) + $8,000 (home mortgage interest) + $4,000 (gifts to charity) = $37,000.
Form 1040 – Federal Tax Return
Line 2 – AGI
This is the same as the AGI calculated on Schedule A, which is $115,000.
Line 11 – Child Tax Credit/Credit for Other Dependents
They have three qualifying children, which could make them eligible for the Child Tax Credit. The maximum Child Tax Credit for each qualifying child is $2,000. So, 3 children * $2,000 = $6,000.
Line 17 – Total Itemized Deductions
This is the same as the total itemized deductions calculated on Schedule A, which is $37,000.
Line 24 – Total Tax
To calculate their total tax liability, we need to calculate their taxable income. Start with the AGI ($115,000) and subtract their total itemized deductions ($37,000). This results in a taxable income of $78,000. Based on the tax brackets for 2022, their total tax liability would depend on this taxable income. The exact amount can be calculated using the IRS tax tables or a tax calculator.
Line 18 – Total Payments
Their total payments include the $10,000 federal tax withholding from their W-2s and the $139 applied from their 2021 refund. So, $10,000 + $139 = $10,139.
Line 19 – Amount You Overpaid
To calculate the overpayment, subtract their total tax liability (Line 24) from their total payments (Line 18). Assuming their total tax liability is less than $10,139, the difference would be the overpayment.
Line 20a – Amount You Want Refunded to You
They want half of the overpayment as a refund. So, half of the overpayment would be their refund amount.
Line 20b – Amount You Want Applied to Your Next Year’s Estimated Tax
They want the other half of the overpayment applied to next year’s federal tax return.
Please note that the exact tax liability calculation depends on the tax brackets, credits, and deductions applicable in the year 2022, and it’s advisable to use tax software or consult a tax professional for precise calculations and filing.
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