Question

Determine Betty’s taxable income for the year given the following information:

Salary: $78,000

Child care credit: $1,000

Personal and Dependency exemptions: $12,000

Investment interest: $4,000

IRA contribution: $5,500

Municipal bond interest: $500

Federal income taxes withheld: $6,000

Itemized deductions: $15,300

1. $55,200
2. $54,700
3. $49,700
4. $49,200

Please do not copy from Chegg. Only attempt if you are sure about the answer. Solve in a step by step manner, explaining each step.

Answer 1

The correct answer is B i.e. $54,700

Salary (including federal tax withheld)	$84,000
Investment Interest	$ 4,000
Municipal Bond Interest	$ 500
Total Income	$ 88,500
Deductions
IRA Contribution	$ 5,500
Child care credit	$ 1,000
Personal & Dependency Exemptions	$ 12,000
Itemized Deduction	$ 15,300
Total Deductions	$ 33,800
Taxable Income	$ 54,700

IRA contribution can be deducted provided they are not more than $6,000, as Betty's Contribution is $5,550 which is lower than $6,000, it will be allowed as deduction.

Child care credit is allowed for expenses up to $3,000 for one individual, since Betty's expense is lower than $3,000, $1000 would be allowed as deduction