Mike (age 40) and Molly (age 38) are married and have three children ages 5, 10,
ID: 2532973 • Letter: M
Question
Mike (age 40) and Molly (age 38) are married and have three children ages 5, 10, and 13. Their salaries for the year amounted to $91,375 and they received $3,750 of taxable interest income. Mike and Molly’s deductions for adjusted gross income amounted to $3,150, and their itemized deductions were $13,250. Mike and Molly file a joint income tax return for 2017. Calculate the following amounts (answer each question independently from all other questions): A.Adjusted gross income (AGI). Show the calculation and label all amounts. B. Will Mike and Molly take the Itemized deduction or standard deduction? Identify your selection and provide the amount of the one you choose. Explain why you chose the specific deduction. C.Identify the number and type of exemptions. Also, provide the dollar amount for total exemptions. D.Taxable income. Show the calculation (starting with AGI) and label all amounts. E. Income tax liability (Do not consider alternative minimum tax) Will you use the tax tables or the tax rate schedule to calculate tax liability? Explain why you chose one over the other.
Explanation / Answer
Absence of information, tax is computed for 2017 Tax Return
A. AGI = 91975
B. Itemized Deduction or Standard Deduction
Itemized deduction = 13,250
Standard Deduction for 217 = 12,700
You can claim either the standard deduction or itemized deductions to lower your taxable income. As Itemized Deduction is higher, it would be benificial to take itemized deduction to lower the tax. So Mike and Molly will take itemized deduction.
C. Number and Type of Exemption
Personal Exemption = 2 Nos
Dependent Exempion = 3 Nos
Total Exemption = 5Nos
Exemption Value = 5 x 4050
= 20250
D. Taxable Income = 58475
(Calculation is Shown in the above table)
E. Income Tax Liability
The tax table results in almost the same tax as the tax rate schedule. The rounding is a result of the range of incomes that share a single tax amount in each row of the table. Also according to the instructions for line 44, you are required to use the tax table if your taxable income is less than $100,000.
on $0 to $18650 ----10% - 1865
Balance $39825----- 15% - 5974
Total = 7839
If you are taking that dependent children are qualifying and eligible for credit, then 3000 will be there as credit (1000 for each)
Then net Tax will be 7839 - 3000 = 4839
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Salaries $ 91,375 Taxable Interest Income $ 3,750 Gross Income $ 95,125 Deduction $ 3,150 AGI $ 91,975 Less: Deduction Standard Deduction $ 12,700 Itemized Deduction $ 13,250 Higher of the above $ 13,250 Less: Exemption Value $ 20,250 Taxable Income $ 58,475