Question

Compute the gross​ income, adjusted gross​ income, and taxable income in the following situation. Use the exemptions and deductions in the table to the right. Explain how it was decided whether to itemize deductions or use the standard deduction.

Sara is​ married, but she and her husband filed separately.

Her salary was $50,800​, and she earned $260 in interest. She had $5700 in itemized deductions and claimed four ​exemptions, for herself and three children.

Tax Rate	Married Filing Separately
​10%		up to​ $9325
​15%		up to​ $37,950
​25%		up to​ $76,550
​28%		up to​ $116,675
​33%		up to​ $208,350
​35%		up to​ $235,350
​39.6%		above​ $235,350
Standard deduction		​$6350
Exemption ​(per person)		​$4050

Answer 1

Sol :

Particulars	Amount	Computation
1.Gross Income	$51060	1 = Salary Income + Interest Income
2.Exemptions	-	Note 1
3.Adjusted Gross Income	$51060	3=1-2
4.Standard Deduction	$6350	Higher of Standard deduction and Itemized deduction
5.Itemized Deductions	$5700	Note 2
6. Standard deduction	$6350	6 = 4>5
7.Taxable Income	$44710	7=3-6

Tax Liability = (0-9325)*10%+(37950-9325)*15%+(44710-37950)*25%

= 932.50 + 4293.75 + 1690

= 6916.25

Note 1: Income tax exemption are specific income that is not included in calculation tax liability.

Note 2: Can claim standard deduction or itemized deductions whichever to lower taxable income.