Question

Individual Tax Computation. Richard Hartman, age 29, single with no dependents, with a salary of $32,270. During the year, he received $1,300 interest income from a savings account and a $1,500 gift from his grandmother. At the advice of his father, Richard sold stock he had held as an investment for five years, for a $3,000 gain. He also sustained a loss of $1,000 from the sale of land held as an investment and owned for four months. Richard had itemized deductions of $6,250. Compute the following for Richard for both 2017 and 2018, assuming the facts are identical in both years:

Find:

a. Gross income

b. Adjusted gross income

c. Taxable income

d. Income tax before credits and prepayments

e. Income tax savings that would result if Richard made a deductible $5,000 contribution to a qualified Individual Retirement Account

Answer 1

a).Computation of Gross total Income For PY 2016-17

A)Income from salaries : $32,270

B) Income from Capital Gain:

i) Long term capital gain : $3,000

ii)Short term capital loss : $ 1,000

C) Income from other sources : $1,300

Gross total income : $37,570.

b)Adjusted Gross total Income:Gross total income-Short term capital loss/gain u/s 111A -Deductions u/s chapterVI A other than 80G.

$37,750-$6250

Adjusted Gross Total Income=$31,320

c) Taxable income :

Gross total Income : $ 37,750

Deductions u/s Chapter VIA : $6,250

Set off short term capital loss : $1000

Taxable income : $30,320