Required information (The following information applies to the questions display
ID: 2611707 • Letter: R
Question
Required information (The following information applies to the questions displayed below.] Through November, Tex has received gross income of $120,000. For December, Tex is considering whether to accept one more work engagement for the year. Engagement 1 will generate $7,000 of revenue at a cost of $4,000, which is deductible for AGI. In contrast, engagement 2 will generate $7,000 of revenue at a cost of $3,000, which is deductible as an itemized deduction. Tex files as a single taxpayer. a. Calculate Tex's taxable income assuming he chooses engagement 1 and assuming he chooses engagement 2. Assume he has no itemized deductions other than those generated by engagement 2. * Answer is complete but not entirely correct. Description Engagement Engagement (1) (2) (3) Gross income before new work engagement Income from engagement Additional for AGI deduction Adjusted gross income Greater of itemized deductions or standard deduction Personal exemption Taxable income 120,000 O $ 120,000 7,000 O 7,000 4,000 0 123,000 $ 127,000 5,700 7,500 x (4) 3,700 3,7008 $ 113,650 X $ 117,500 8Explanation / Answer
Answer
Engagement 1
Engagement 2
Gross income before new work engagement
120,000
120,000
Income from engagement
7,000
7,000
Additional for AGI deduction
(4,000)
Adjusted gross income
123,000
127,000
Greater of itemized deductions or standard deduction of $5,700
(5,700)
(5,700)
Personal exemption
(3,650)
(3,650)
Taxable income
113,650
117,650
Engagement 1
Engagement 2
Gross income before new work engagement
120,000
120,000
Income from engagement
7,000
7,000
Additional for AGI deduction
(4,000)
Adjusted gross income
123,000
127,000
Greater of itemized deductions or standard deduction of $5,700
(5,700)
(7,500)
(3000+4500)
Personal exemption
(3,650)
(3,650)
Taxable income
113,650
115,850
Notes:
1. Personal Deduction will be $3,650
2. In 2nd Case Itemized deduction of Engagement 2 will be $7500 (3,000 + 4,500)
Engagement 1
Engagement 2
Gross income before new work engagement
120,000
120,000
Income from engagement
7,000
7,000
Additional for AGI deduction
(4,000)
Adjusted gross income
123,000
127,000
Greater of itemized deductions or standard deduction of $5,700
(5,700)
(5,700)
Personal exemption
(3,650)
(3,650)
Taxable income
113,650
117,650
Engagement 1
Engagement 2
Gross income before new work engagement
120,000
120,000
Income from engagement
7,000
7,000
Additional for AGI deduction
(4,000)
Adjusted gross income
123,000
127,000
Greater of itemized deductions or standard deduction of $5,700
(5,700)
(7,500)
(3000+4500)
Personal exemption
(3,650)
(3,650)
Taxable income
113,650
115,850
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