Question

Deductions from Adjusted Gross Income, Calculating Tax Liability (LO. 3, 5)

Arthur and Cora are married and have 2 dependent children. They have a gross income of $95,000. Their allowable deductions for adjusted gross income total $4,000, and they have total allowable itemized deductions of $14,250. The standard deduction for 2017 is $12,700 and the personal exemption is $4,050.

Refer to the Tax Rate Schedules to answer the following questions. Round intermediate computations and final answer to the nearest dollar.

Note: The child tax credit in 2017 is $1,000 per child.

a. Arthur and Cora's 2017 taxable income is $.

b. Arthur and Cora's 2017 income tax is

Answer 1

a) Calculation of 2017 taxable income (Amounts in $)

Gross Income	95,000
Less: Deductions for AGI	(4,000)
Adjusted Gross Income	91,000
Deductions from AGI:
The greater of
Itemized Deductions $14,250
or
Standard Deductions $12,700	(14,250)
Personal & Dependency Examinitaions ($4,050*4)	(16,200)
Taxable Income	60,550

b) Calculation of net tax liabiliity

Amount of Income tax = ($18,650*10%)+[($60,550-$18,650)*15%]

= $1,865+$6,285 = $8,150

Net tax liability = Income Tax Payable - Child Tax Credit

= $8,150 - ($1,000*2) = $8,150 - $2,000 = $6,150