During 2016, Richard and Denise, who are married and have two dependent children

Question

During 2016, Richard and Denise, who are married and have two dependent children, have the following income and losses: Total salaries 200,000 5,000 15,000 8,000 Municipal bond interest Short term capital gain Long term capital loss They also incurred the following expenses Medical expenses State income taxes paid Property taxes on home Residence interest Disaster expense Tax return preparation fees Unreimbursed employee business expenses 30,000 12,000 8,000 4,000 20,000 1,000 2,000 Compute Richard and Denise's taxable income.

Explanation / Answer

Computation of Taxable Income Salaries 200000 Interest income 5000 Net Short Term Capital Gain 15000 AGI 220000 Itemized deductions 32000 Exemptions ($ 3900*4) 15600 47600 Taxable income 172400 Itemized deductions: Medical expenses [$ 30000 - ($220000 × 10%)] = 8000 State income taxes 12000 Property taxes 8000 Interest on residence 4000 Misc. 2% deductions: Unreimbursed employee business expenses 2000 Tax return preparation fee 1000 3000 Less: 2% × $220000 AGI Allowable 2% deductions 4400 0 Itemized deductions 32000

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