Question

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

Hongtao is single and has a gross income of $90,100. His allowable deductions for adjusted gross income are $4,300, and his itemized deductions are $13,400. The standard deduction for 2017 is $6,350 and a personal exemption is $4,050.

Round all amounts to the nearest dollar. Refer Tax Rate Schedules to answer the following questions.

a. Hangtao's taxable income is $ and his tax liability is $________ for 2017.

b. If Hongtao has $13,500 withheld from his salary during 2017 then Hongtao has refund of $_______.

c. Assume the same facts as in part a and part b, except that Hongtao is married. His wife's salary is $30,000, and she has $2,300 withheld from her paycheck. They file jointly. The standard deduction for 2017 is $12,700. Their taxable income is $ and their tax liability is $ for 2017. They will receive a refund of $_________.

Answer 1

Part C. In the given case also, Hangtao will choose to have itemized deduction as it is greater than the standard deduction allowed jointly. Moreover, personal exemption of $4050 can be claimed for each spouse.

Calculation of Taxable income

salary both(90100 + 30000)	120,100
Less: Allowable deduction	4,300
Less: Itemized deductions	13,400
Less: Personal Exemption	8,100
Taxable income	94,300

Calculattion of Tax Liability

0-18,650 (10%)	$1,865
18,651 - 75,900 (15%)	8,587.5
75,901 - 94,300 (25%)	4,600
Tax Liability	15,052.5

Net Refund or Tax payable = 15,052.5 - 13,500 - 2,300 = $747.5