Question

This year Evan graduated from college and took a job as a deliveryman in the city. Evan was paid a salary of $74,400 and he received $700 in hourly pay for part-time work over the weekends. Evan summarized his expenses as follows:

Cost of moving his possessions to the city (125 miles away)	$	1,200
Interest paid on accumulated student loans		2,870
Cost of purchasing a delivery uniform		1,470
Contribution to State University deliveryman program		1,335

Calculate Evan's AGI and taxable income if he files single. Assume that interest payments were initially required on Evan’s student loans this year.

Answer 1

AGI and taxable income is computed as follows:

Salary $74,400

Part-time hourly pay + 700

Modified AGI

(for student interest) $75,100

Student Loan Interest
deduction - 1,650

AGI $73,450

Standard Deduction 12,200

Taxable income $61,250

Evan's moving expenses and uniform expenses are not deductible. Evan's modified AGI for determining the deductibility of his education loan interest us $5,100 beyond the threshold amount of $70,000 and hence his deduction for educational loan interest is subject to phase out. Evan's maximum deduction before phase out is $2,500.

Ratio is $5,100/15,000 = 34%

34% of $2,500 = $850

Deduction allowed = $2,500 - $850 = $1,650