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a. Estimate Trevor's taxable income for year 1 and year 2 using the 2018 amounts for the standard deduction for both years.
Answer - Computation of taxable income
|
Particulars
|
Year 1
|
Year 2
|
|
AGI
|
104000
|
104000
|
|
Standard deduction
|
-12000
|
-12000
|
|
Greater of standard deduction over the itemized deduction
|
|
|
|
Taxable income
|
92000
|
92000
|
|
Total taxable income for two years
|
|
184000
|
Trevor will be using the standard deduction of $12000 in place of the itemized deduction of $11850 as the standard deduction is more than the itemized deduction. The personal exemption is 0 for the year 2018. Hence the taxable income for each year will be $92000. Thus the total taxable income for two years will be $184000.
b. Now assume that Trevor combines his anticipated charitable contributions for the next two years and makes the combined contribution in December of year 1. Estimate Trevor's taxable income for each of the next two years using the 2018 amounts for the standard deduction.
Answer - Computation of taxable income
|
Particulars
|
Year 1
|
Year 2
|
|
AGI
|
104000
|
104000
|
|
Itemized deduction
|
-20300
|
0
|
|
Standard deduction
|
0
|
-12000
|
|
Greater of Itemized deduction or standard deduction
|
Itemized deduction
|
Standard deduction
|
|
Taxable income
|
83700
|
92000
|
|
Total taxable income for two years
|
|
175700
|
Trevor will be using itemized deduction in year 1 as the itemized deduction will be (8450+8450+3400) = 20300 which is more than the standard deduction. He will be using the standard deduction in year 2 as it is higher than itemized deductions in year 2.
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c. Trevor plans to purchase a residence next year, and he estimates that additional property taxes and residential interest will cost $3,200 and $28,000, respectively, each year. Estimate Trevor's taxable income for each of the next two years (year 1 and year 2) using the 2018 amounts for the standard deduction and also assuming Trevor makes the charitable contribution of $8,450 and state tax payments of $3,400 in each year.
Answer - Computation of taxable income
|
Particulars
|
Year 1
|
Year 2
|
|
AGI
|
104000
|
104000
|
|
Itemized deduction
|
-43050
|
-43050
|
|
Standard deduction
|
0
|
0
|
|
Greater of Itemized deduction over standard deduction
|
|
|
|
Taxable income
|
60950
|
60950
|
|
Total taxable income for two years
|
|
121900
|
Trevor will be using itemized deductions in both the years as the amount of itemized deduction (8450+3400+3200+28000) = 43050 is higher than standard deductions.
d. Assume that Trevor makes the charitable contribution for year 2 and pays the real estate taxes for year 2 in December of year 1. Estimate Trevor's taxable income for year 1 and year 2 using the 2018 amounts for the standard deduction.
Answer - Computation of taxable income
|
Particulars
|
Year 1
|
Year 2
|
|
AGI
|
104000
|
104000
|
|
Itemized deduction
|
-54700
|
-31400
|
|
Standard deduction
|
0
|
0
|
|
Greater of Itemized deduction over standard deduction
|
|
|
|
Taxable income
|
49300
|
72600
|
|
Total taxable income for two years
|
|
121900
|
Trevor will be using itemized deductions in the both the years
Year 1 itemized deductions= 8450+8450+3400+3200+3200+28000= 54700
Year 2 itemized deductions= 3400+28000= 31400
The total taxable income for two years is same as in part (c ) but the timing of the taxable income is different.
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