Question

Justin, age 52 and Jamie, age 49 live in California, are married, and file a joint return. Their combined salary for 2019 is $200,000. During 2019, their stock portfolio generated $1,500 in qualified dividends and $500 in non-qualified dividends. They also earned $1,000 on US treasuries. They received a $1,000 state tax refund in 2019. Additionally, Justin’s employer provided Justin with a cafeteria plan. The plan provided $5,000 to use towards health insurance and dental insurance. Justin opted out of the coverage and took the cash because Jamie’s employer provided coverage for both her and her spouse. In 2018, Justin and Jamie itemized their deductions, which were $24,500. In 2019, they paid $9,000 in state income tax, $14,000 in mortgage interest and $3,000 in property tax. What is their taxable income?
a. $182,500 b. $177,000 c. $184,100 d. $183,600 e. None of the choices listed are correct.

Answer 1

Answer:

The correct answer is (e) None of the choices listed are correct.

Explanation:

Solution

Given that:

1. The Qualified dividend is the dividend taxed at capital gain tax rate and unqualified dividend taxed at individuals normal income tax rate. Therefore qualified dividend and non qualified dividend of $1500 &$500 included in gross taxable income.

2. Earned on US treasurers is exempt at state level but fully taxable at federal level. $1000 received taxable

3. State tax refund; don't report the state tax refund if didn't itemized deductions on federal tax return. Consider $1000 received as state tax refund required to be reported because of itemized deductions.

4. Section 125 of IRC specifies that cafeteria plans are exempt from calculation of gross income for federal taxation. Therefore $5000 cafeteria plan provided by employer is exempt.

5. During the year any state or local taxes paid and property taxes paid are deductible. Therefore $9000 and $3000 deductible subject to maximum $10000 of income tax and mortgage interest is $14000.

Now,

The Income is

The Salary= $200000

Add

The Qualified dividend= $1500

Non-qualified dividend =$500

Income from US treasurer $1000

State tax refund =$1000

Gross income$204000

The Less deductions.

Mortgage interest 14000

Income ans property tax is$10000

Tax able income= $ 180000

Therefore the taxable income is =$180000