Required information Problem 4-26 (LO 4-1) Tax for individuals [The following in

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Required information

Problem 4-26 (LO 4-1) Tax for individuals

[The following information applies to the questions displayed below.]

Jeremy earned $90,000 in salary and $6,000 in interest income during the year. Jeremy has two qualifying dependent children who live with him. He qualifies to file as head of household and has $12,000 in itemized deductions. Neither of his dependents qualifies for the child tax credit. (use the tax rate schedules.). (Do not round intermediate calculations. Round "Income tax liability" to 2 decimal places.)

a. Use the 2017 tax rate schedules to determine Jeremy’s taxes due.

b. Assume that in addition to the original facts, Jeremy has a long-term capital gain of $4,000. What is Jeremy’s tax liability including the tax on the capital gain?

c. Assume the original facts except that Jeremy had only $6,000 in itemized deductions. What is Jeremy’s total income tax liability?

Description Amount (1) Gross income (2) For AGI deductions (3) Adjusted gross income (4) Standard deduction (5) Itemized deductions (6) (7) Personal and dependency exemptions (8) Taxable income Income tax liability

b. Assume that in addition to the original facts, Jeremy has a long-term capital gain of $4,000. What is Jeremy’s tax liability including the tax on the capital gain?

Description Amount (1) Gross income (2) For AGI deductions (3) Adjusted gross income (4) Standard deduction (5) Itemized deductions (6) (7) Personal and dependency exemptions (8) Taxable income Income tax liability

Explanation / Answer

Answer A: income tax liability : 12215

Answer B: income tax liabiltity: 13815

Answer C: Income tax liability : $12877.5

Gross income 96000 90000+ 6000 For AGI deductions 0 Adjusted gross income 96000 (1) -(2) Standard deduction 9350 IRS rule for 2017 Itemized deductions 12000 greater of standard deduction and itemized deduction 12000 (5)>(4) greater have to take Personal and dependency exemptions 12150 3*4050( one personal and two dependency exemptions) Taxable income 71850 (3)-(6)-(7) Income tax liability 12215 6952.5 + 0.25 *(71850-50800)

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