1 answer

4. Angela Bower’s husband passed away last year. In 2020, Angela lives in a house with...

Question:

4. Angela Bower’s husband passed away last year. In 2020, Angela lives in a house with her son Jonathan (age 8) in Fairfield, Connecticut. She also supports her mother, Mona (age 67), who lives just down the road in a 1 bedroom apartment. Angela earned $175,000 in salary as an advertising agency executive. She also had two investment assets during the year. The first was a municipal bond for the city of Fairfield that she paid $10,000 for on the first day of this year that earns a 2% interest rate, paid out at the end of the year. The second was a U.S. Treasury bill that she also paid with $10,000 on the first day of the year that earns a 3% interest rate, paid out at the end of the year. Mona likes to spend her time in leisure and does not work during the year and, as a result, did not file a tax return. Angela has no itemized deductions, no AMT, no credits, and no prepayments.

  1. What filing status does Angela use? (4 points)
  2. What was the amount of realizable income for Angela in 2020? (6 points)
  3. What will be included in Angela’s gross income for 2020 (i.e. what amount is recognizable)? (6 points)
  4. Regardless of your answer in a.- c., assume that Angela’s gross income is $182,000 and she used Head of Household as her filing status. Use the individual tax formula and the appropriate Federal Tax Schedule to calculate Angela’s 2020 tax due.
    (6 points)

Answers

a) Filing status for Angela for year 2020 is Qualifying Widower since her husband died in the previous year & her son is dependent on her for his livelihood.

b) The amount of realizable income for angela for 2020 is:

Total salary earned during the year+interest earned from municipal bond+interest earned from us treasury bil

i.e. 175000+200+300 = $ 175500/-

c) Total salary income, interest earned from municipal bond & interest earned from US treasury bill will be included in the total gross income of angela in 2020.

d)If gross income of Ms Angela is $ 182000, then total tax & since she is a qualifying widower, she will get a standard deduction of $ 24400.

Total taxable income is 182000-24400

= $ 157600

Total tax due for 2020 is 22% of 157600 i.e. $ 34672/-

.

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