Question

Justin, a single taxpayer, earns a salary of $97,000 and itemized deductions of $1,000. In addition, Justin can choose between the following deductions: (1) a FOR AGI deduction of $4,900; or (2) additional itemized deductions of $14,150.

What is Justin's taxable income if he chose the FOR AGI deduction?

Which deduction should Justin choose to minimize his taxable income?

Answer 1

Q1)

A deduction of $4,900 should be done from $97,000 to get the answer.

Taxable income = Salary – Deduction

                           = 97,000 – 4,900

                           = $92,100 (Answer)

Q2)

The greater deduction amount should be chosen, since it reduces taxable income more.

The itemized deduction (14,150) is more than AGI deduction (4,900); therefore, itemized deduction should be considered.