Charles and Joan Thompson file a joint return. In 2014, they had taxable income
ID: 2419779 • Letter: C
Question
Charles and Joan Thompson file a joint return. In 2014, they had taxable income of $81,240 and paid tax of $12,237. Charles is an advertising executive and Joan is a college professor. During the fall 2015 semester, Joan is planning to take a leave of absence without pay. The Thompsons expect their taxable income to drop to $63,000 in 2015. They expect their 2015 tax liability will be $8,546, which will be the approximate amount of their withholding. Joan anticipates that she will work on academic research during the fall semester. During September, Joan decides to perform consulting services for some local businesses. Charles and Joan had not anticipated this development. Joan is paid a total of $26,000 during October, November, and December for her work. Use the appropriate Tax Rate Schedules.
a. What estimated tax payments are Charles and Joan required to make, if any, based on the estimated tax liability for tax year 2015?
Explanation / Answer
Solution.
Calculation for estimeted payment need for taxable year 2015
Taxable income of 2015 is $89,000 ($63,000 +$26,000)
Tax on $73,800 = $10,162.50
Tax on ($89,000 - $73,800) $15,200 x 25% = $3,750
Estimeted tax libilities of 2015 = $13,912.5
Need to pay $13,912.5 x 90% = $12,521.25
Thus, Charles and Joan will need to pay estimated taxes based on $12,237(which is the lesser of $12,237or $12,521.25). Since they will have paid $8,546 in withholding payments, they will have to pay the difference of$3,691 in estimated payments. Because the tax liability shortfall was a result of income earned in the final quarter of the tax year, the estimated payment can be made in one payment on or before January 15, 2015.