Question

ENGINEERING ECONOMY MFE 4720 HOMEWORK #11 NAME 1) An unmarried engineer earns a gross income of $120,000 for various projects executed during the year. one $3,000 exemption and estimated itemi zed deduction of $15,000. deductions (standard). Use the 201x tax tables to compute the Engineer's federal income tax liability under the following mutually exclusive conditions: The engineer claims If single people are automatically allowed $4, 000 of i) If the engineer chooses to claims the standard deduction. ii) If the engineer chooses to itemi ze deductions. Tax Tables (201x) (Approx.) Up to $22, 750 of taxable income > $22,750 and less than or equal to $50,000 Tax rate = 28% > $50,000 and less than or equal to $115, 000 Tax rate = 318 >$115,000 and less than or equal to $200,000 Tax rate- 398 Tax rate 15%

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Answer 1

If engineer chooses to claim standard deduction Particulars Gross income Less: Exemption If engineer chooses to itemize deductions Particulars Gross income Less: Exemption Amount ($) 1,20,000 -3,000 1,17,000 -4,000 1,13,000 Amount ($) 1,20,000 -3,000 1,17,000 - 15000 1,02,000 Less: Standard deduction Taxable income Less: Itemized deductions Taxable income Tax liability Tax liability Upto $22,750 @15% >$22,750 <=50000 @28% >$50,000<=113000 @31% Total tax liability 3,413 7,630 19,530 30,573 Upto $22,750 @15% >$22,750 <=50000 @28% >$50,000<=102000 @31% Total tax liability 3,413 7,630 16,120 27,163 A taxpayer can either claim the standard deduction or itemized deductions, meaning thereby that he cannot claim both at the same time. In the given case & from the above analysis, it is very evident that the tax liability of the engineer is lower if he decides to itemize its deductions, so it is recommended that he itemizes the deductions instaed of claiming standard deduction