R1 M7 Tax Computation Flashcards
Sam’s Year 2 taxable income was $175,000 with a corresponding tax liability of $30,000. His Year 2 adjusted gross income was $200,000. For Year 3, Sam expects taxable income of $250,000 and a tax liability of $50,000. In order to avoid a penalty for underpayment of estimated tax, what is the minimum amount of Year 3 estimated tax payments that Sam can make?
$33,000
To avoid penalties, a taxpayer who owes $1,000 or more in tax payments after withholdings will need to have paid in the lesser of:
90% of the current year’s tax ($50,000 x 90%) = $45,000, or
100% of the previous year’s tax ($30,000 x 100%) = $30,000
However, if the taxpayer had adjusted gross income in excess of $150,000 in the prior year, 110% of the prior year’s tax liability is used to compute the safe harbor for estimated payments. (Previous year’s tax $30,000 x 110% = $33,000).
Alimony pay before 31 Dec 2018 is deductible for AGI to the one who pay. Alimony after 31 Dec 2018 and Child support are not deductible.
Interest income on a federal tax refund is taxable, even though the federal refund itself is not taxed.
Federal Tax refunds received are not taxable.
Interest received from a qualified dividend is Taxable Interest.
Interest on state and local bonds = Municipal Bond is not Taxable (tax exempt interest)
A gift is not taxable.
$1,000 interest on a qualified education loan = As a $1,000 deduction to arrive at AGI for the year
