Reference no: EM133238102
Assignment - Hugo's Tax Information Questions
Description - Hugo always get hit with a big tax bill in April. He has only a minimum amount withheld from his paycheck. He has completed the adoption of his 4-year old nephew two years ago. He now has significant child care costs. His employer offers several benefits which would reduce his taxable income like a 401(k) and a flexible spending plan for medical expenses.
Hugo's Tax Information -
Earnings from wages $72,113
Interest earned on savings $75
Checking account interest $45
Current standard deduction for filing status $18,650
Amount withheld for federal income tax $4,825
Tax credit for child care $1,200
Child tax credit $3,000
Filing status Head of household
1. What is Hugo's taxable income? (Refer to Exhibit 3-1. Step 1 and 2 tell you what to add and subtract.) Show your equation (example: a + b + c - d - e = f)
2. What would Hugo's total tax liability for 2020 be if his taxable income was $50,000? (Use Tax Rate Table, page 100, 7th ed.) Show your equation. Hint: You will use two tax rates - one for the first $14,100, one for the next amount of income - and then need to deduct (subtract) the tax credits.
Tax is calculated as follows:
10% bracket -
12% bracket -
Total tax from each bracket - credits = tax liability
Tax liability is $___________
3. What is Hugo's average tax rate in 2020 if his income was $60,000 and he paid $5,000 in taxes? Show your equation. Example - a/b = c
4. Assume Hugo's tax liability is $6,000. Based on his withholding (listed in the information section at the start of this quiz), will Hugo receive a refund or owe additional tax? What is the amount that he will be refunded or owe? Show your equation.
5. Explain two ways Hugo could improve his tax planning.