Steve and Beth Compton are married and have one child. Steve is putting together
ID: 2638297 • Letter: S
Question
Steve and Beth Compton are married and have one child. Steve is putting together some figures so that he can prepare the Comptons' joint 2011 tax return. He claim three personal exemptions (including himself). So far, he's been able to determine the following with regard to income and possible deductions:
Total unreinbursed medial expenses incurred 1,155
Gross wages and commissions earned 50,770
IRA contribution 5,000
Mortgage interest paid 5,200
Capital gains realized on assets held less than 12 months 1450
Income from limited partnership 200
Job expenses and other allowable deductions 875
Interest paid on credit cards 380
Dividend and interest income earned 610
Sales taxes paid 2,470
Charitable contributions made 1,200
Capital losses realized 3,475
Interest paid on a car loan 570
Alimony paid by steve to his first wife 6,000
Social Security taxes paid 2,750
Property taxes paid 700
State income taxes paid 1,700
Given this information, how much taxable income will the Comptons have in 2011?(Note: Assume that Steve is covered by pension plan where he works, the standard deduction of $11,600 for married filing jointly applies, and each exemption claimed is worth $3,700.)
Explanation / Answer
Gross Income is $49,555
Calculated by adding:
Wages 50770 + limited partnership 200 + dividend and interest 610 plus capital gain of 1450 less capital loss of 3475. The capital gains and losses require a schedule D.
Adjustments total $10000. Calculated by adding IRA contribution of 4000 and alimony paid of 6000. Since Ron has a pension plan at work, the IRA contribution may be phased out if AGI is over $90,000 in 2011. He appears to be under this limit.
Adjusted Gross income is $39555. (Gross income 49555 - 10000 adjustments)
A tax return can use the larger of the standard deduction ($10,000) or Schedule A. The following items are reported on Schedule A (subject to limitations). In this case, standard deduction of $10,000 is higher.
total unreimbursed medical expenses incurred-$1155 (must be over 7.5% AGI) so 0
mortgage interest paid-$5200
job expenses and other allowable deductions-$875 (amount over 2% AGI) so 0
interest paid on credit cards-$380 (not deductible)
sales taxes paid-$2470 (get sales tax or state income tax, not both)
charitable contributions made-$1200
interest paid on car loan-$570 (not deductible)
social security taxes paid-$2750 (not deductible)
property taxes paid-$700 (sales taxes are higher, can't take both)
state income taxes paid-$1700 (sales taxes are higher can't take both)
They will use standard deduction as it is more than Schedule A $8870 (5200 mortgage +2470 taxes +1200 donation)
Taxable income is $23,155. AGI 39555 less standard deduction 10000 less 2 exemptions @ 3200 = 23155
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