ACC 3410 Practice Exam Case Study

Make sure before answering questions that tax calculations are completed first.

Jeremy and Alyssa Johnson have been married for five years and have a five-year-old son, Scott. Jeremy was married previously. He is self-employed and operates his own computer repair store. Alyssa did not work in January and February. In March, Alyssa accepted a new job with Super Toys Inc. (ST), where she worked for the remainder of the year. They plan to file using the filing status that is most advantageous to them.

In 2025, they had the following income and expenses:

Income:

• Alyssa’s salary from Super Toys Inc. = $160,000

• Interest income from money market account = $1,300

• Qualified Dividends = $800

• Income from Jeremy’s store (taxed as a sole proprietorship) = $120,694

• Rental Income = $24,000

Expenses:

• Expenses associated with Jeremy’s store include:

  • $40,000 to pay his employees (Jeremy does not have a salary from the store),

  • $45,000 of supplies, and

  • $18,000 in rent and other administrative expenses that are necessary for the store.

• Jeremy paid $5,000 in alimony from his prior marriage (divorce decree executed in 2015).

• The Johnsons own a rental home. They do not personally use the home. It was rented for 365 days in 2025. They incurred $8,500 for expenses associated with the property.

• Jeremy paid $4,500 for health insurance coverage for himself (not through an exchange) that is eligible for the self-employment health insurance deduction.

• Alyssa and their son, Scott, were covered by health plans provided by her employer, but Jeremy is not eligible for the plan until next year. Alyssa received the health insurance as a nontaxable fringe benefit from her employer. She paid $0 for coverage.

• The Johnsons had other unreimbursed qualified medical expenses of $8,000 during 2025.

• The Johnsons own a piece of raw land held as an investment. They paid $500 for real property taxes on the property, and they incurred $200 of expenses in travel costs to see the property and to evaluate other similar potential investment properties.

• They paid $11,000 for real property taxes for their home.

• ST withheld the following amounts from Alyssa’s paycheck:

  • Federal Income Tax Withholdings = $23,000

  • FICA taxes = $12,240

  • State Income Tax Withholdings = $7,000

• They paid $16,000 interest on their home mortgage ($550,000 acquisition debt)

• They paid $4,500 interest paid on their credit cards.

• They paid $8,000 cash charitable contributions to qualified public charities.

• They donated used furniture from their home (personal use) to Salvation Army (public charity). The furniture had a fair market value of $250 and cost $3,000.

• As a salesperson, Alyssa incurred $2,000 in travel expenses related to her employment that were not reimbursed by her employer.

• They paid $2,600 to Kid Care daycare center for Scott’s care while Jeremy and Alyssa worked.

Other information:

• QBI from Jeremy’s self-employed business is $11,944.

This is the correct answer (This card is just to give info on the questions)

What is their filing status?

MFJ

Which of the following items are not deductible as a For AGI or From AGI deduction before any limitations are considered?

Unreimbursed employee expenses

If AGI is $184,544 and From AGI deduction are $45,139, what is their marginal tax rate?

22%

What is their total gross income (before any business, rental, or other for AGI deductions are considered)?

$306,794

Which For AGI deduction would they claim?

Alimony

What is the dollar amount of the For AGI deduction related to self-employment tax?

$1,250

What is their net self employment income?

$17,694

Which of the following items is included in the calculation of AGI?

Employer portion of SE tax

What would their charitable contributions be?

None of the above

What would their total itemized deductions be?

$42,750

What would their interest itemized deduction be?

$16,000

What is their total state and local tax (SALT) deduction?

$18,500

If their AGI is $184,544, what is medical expenses AGI floor limitation (rounded to $1)?

$13,841

If they do not itemize her deductions, what is their standard deduction?

$31,500

Which two credits will they be able to claim?

Child Tax Credit and the Child and Dependent Care Credit

What is the dollar amount of the tax on the preferentially taxed income?

$120

What is the preferential tax rate?

15%

Assuming that their taxable income is $139,405, their income tax liability (from taxable income-excluding SE tax) is (rounded to $1)?

$20,441

What is the self-employment tax from the sole proprietor business?

$2,500

Total federal income tax prepayments are:

$23,000