Reference no: EM132666225

Tax Computation Problem - Decision Making Communications Martin S. Albert (Social Security number 111-11-1111) is 39 years old and is married to Michele R. Albert (Social Security number 123-45-6789). The Alberts live at 512 Ferry Road, Newport News, VA 23601. They file a joint return and have two dependent children, Charlene, age 17, and Jordan, age 18. Charlene's Social Security number is 123-45-6788, and Jordan's Social Security number is 123-45-6787. In 2019, Martin and Michele had the following transactions:

1. Martin received $120,000 in salary from Red Steel Corporation, where he is a construction engineer. Withholding for Federal income tax was $10,750. The amounts withheld for FICA taxes were as follows: $7,049 ($113,700 × 6.2%) for Social Security and $1,740 ($120,000 × 1.45%) for Medicare. Martin worked in Mexico from January 1, 2018, until February 15, 2019. His $120,000 salary for 2019 includes $18,000 he earned for January and one-half of February 2019 while working in Mexico.

2. Martin and Michele received $400 interest on Montgomery County (Virginia) school bonds.

3. Martin received $2,300 interest from a Bahamian bank account.

4. Michele received 50 shares of Applegate Corporation common stock as a stock dividend. The shares had a fair market value of $2,500 at the time Michele received them, and she did not have the option of receiving cash.

5. Martin and Michele received a $1,200 refund on their 2018 Virginia income taxes. Their itemized deductions in 2018 totaled $34,000.

6. Martin paid $6,600 alimony to his former wife, Rose T. Morgan (Social Security number 123-45-6786). The divorce was finalized in 2016.

7. Martin and Michele kept the receipts for their sales taxes paid of $1,100.

Martin and Michele's itemized deductions were as follows:

State income tax paid and withheld totaled $5,100.

Real estate taxes on their principal residence were $3,700.

Mortgage interest on their principal residence was $2,500.

Cash contributions to the church totaled $2,800.

Part 1 - Tax Computation - Compute the Alberts' net tax payable (or refund due) for 2019.

Part 2 - Tax Planning - The Alberts are considering buying another house. Their house mortgage payments would increase by $500 (to $1,500) per month, which includes a $250 increase in interest and a $100 increase in property tax. The Alberts would like to know how much the mortgage payments would increase net of any change in their income tax. Write a letter to the Alberts that contains your advice.