The Tax Formula for Individuals, Filing Status and Tax Computation (LO 1.3, 1.5,

Question

The Tax Formula for Individuals, Filing Status and Tax Computation (LO 1.3, 1.5, 1.6, 1.7) Diego, age 28, married Dolores, age 27, in 2017. Their salaries for the year amounted to $80,000 and they had interest income of $1,900. Diego and Dolores' deductions for adjusted gross income amounted to $6,100; their itemized deductions were $9,925; they claimed two exemptions on their return; and, they filed a joint return.

a. What is the amount of their adjusted gross income?

b. In order to minimize taxable income, Diego and Dolores will_____________in the amount of $

c. What is the amount of their taxable income?

d. What is their tax liability for 2017?

Explanation / Answer

a Salaries $80,000 Interest Income            1,900 Gross Income $81,900 Less: Deduction for AGI            6,100 Adjusted Gross Income $75,800 b In order to minimize taxable income, Diego and Dolores will take standard deduction in the amount of $12,700 c Adjusted Gross Income $75,800 Less: Standard Deduction          12,700 (MFJ) Less: Personal Exemption            8,100 (4050 x 2) Taxable Income          55,000 d tax on income 1865+(55000-18650)x15% $ 7,317.50

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