Problem 1-10 The Tax Formula for Individuals, Filing Status and Tax Computation,

Question

Problem 1-10
The Tax Formula for Individuals, Filing Status and Tax Computation, Personal and Dependency Exemptions, The Standard Deduction (LO 1.3, 1.5, 1.6, 1.7)

Jim (age 50) and Martha (age 49) are married with three dependent children. They file a joint return for 2017. Their income from salaries totals $49,500, and they received $10,125 in taxable interest, $5,000 in royalties, and $3,000 in other ordinary income. Jim and Martha's deductions for adjusted gross income amount to $3,200, and they have itemized deductions totaling $13,200.

Table for the standard deduction

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Calculate the following amounts:

Filing Status 2017 Standard Deduction Single $ 6,350 Married, filing jointly 12,700 Married, filing separately 6,350 Head of household 9,350 Qualifying widow(er) 12,700

Explanation / Answer

Calculate the following amounts: a. Gross income $67,625.00 b. Adjusted gross income $64,425.00 c. Itemized deduction or standard deduction amount $13,200.00 Greater of Itemized deduction or standard deduction amount d. Number of exemptions 5 e. Taxable income $30,975.00 f. Income tax liability $3,713.75 a) Salaries $49,500.00 Taxable Interest $10,125.00 Royalities $5,000.00 Other Ordinary Income $3,000.00 Gross Income $67,625.00 Less: Deduction $3,200.00 Adjusted Gross Income $64,425.00 Less: Itemized Deduction $13,200.00 Less: Personal and Dependent Exemption (4050 x 5) $20,250.00 Taxable Income $30,975.00 Income Tax Liabilty =$1,865 + 15% x ($30975- $18,650) $3,713.75

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