Question

Gerald and Patty Hanson are married taxpayer who have a 12 year old son. The following is their income and expenses for 2019 (you may opt to calculate for 2018):

  • Gerald’s w-2 wages: $80,000

  • Patty’s w-2 wages: 40,000

  • Patty’s sole proprietorship
    (Patty is a noted sculptor)

    • Sales $20,000

    • Materials (8,000)

    • Depreciation (1,000)

  • Interest income on their investments $5,000

  • Dividend income 500



In additional, Gerald and Patty incurred the following expenses:

  • Prescription drugs (after insurance) $450

  • Vitamins 100

  • Medical insurance premiums 1,350

  • Braces for their son (not covered by insurance) 1,500

  • Clinic and hospital bills (after insurance) 800

  • Property taxes on home 5,000

  • State income taxes

    • Withheld from their w-2 6,000

    • Estimated payments 400

  • Federal income taxes withheld 20,000

  • State and local sales tax paid on new personal auto 1,000

  • Interest on home mortgage 10,000

  • Interest paid on credit cards 2,400

  • Cash contributions to church 3,000

  • Contribution of ABC stock to United Way
    (FMV $10,000, adjusted basis $2,000)

  • Patty donated a sculpture to the local art museum
    The sculpture was appraised at $5,000.

  • Gerald, a CPA, paid $300 for his CPA license. His employer does not reimburse the cost for the license.

In addition, Gerald and Patty drove 300 miles this year for medical and dental treatments. Patty also drove 1000 miles to attend a conference for her church. Patty was not a delegate to this conference.

Required:

  1. Determine Gerald and Patty’s adjusted gross income for 2018.

  2. Determine Gerald and Patty’s itemized deductions.

  3. Determine Gerald and Patty’s taxable income.

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