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Estimating taxable income, tax liability, and potential refund. Kara Hooks is 24 years old and single,...

Estimating taxable income, tax liability, and potential refund. Kara Hooks is 24 years old and single, lives in an apartment, and has no dependents. Last year she earned $55,000 as a sales assistant for Business Solutions: $3,910 of her wages was withheald for federal income taxes. In addition, she had interest income of $142. She takes the standard deduction. Calculate her taxable income, tax liability, and tax refund or owed. For your calculations, use a standard deduction of $6,100 and an exemption of $3,950.

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Solution: Computation of taxable income:

Wages $55,000
Interest income 142
AGI $55,142
Less: Standard deduction 6,100
Exemption 3,950
Taxable income $45,092

Tax liability = $4,453.50 + 22% of (45,092 - 38,700) = $5,859.74

Tax owed = Tax liability - Fed. income taxes withholdings

= $5,859.74 - 3,910 = $1,949.74

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