Question

Problem 3-46 (Algorithmic) (LO. 5, 6,9) Toby and Nancy are engaged and plan to get married. During 2017, Toby is a full time student and earns S6,700 from a part-time j. With this income, student loans, savings, and nontaxable scholarships, he is self-supporting. For the year, Nancy is employed and reports $52,200 in wages. The personal exemption amount for 2017 is $4,050. Click here to access the standard deduction table to use. Click here to access the Tax Rate Schedules. If an amount is zero, enter, "o.Do not round your intermediate computations. Round your final answer to nearest whole dollar .Compute the following: Toby Filing Single Nancy Filing Single Gross income and AGI 6,700 2,200 Standard deduction Personal exemption Taxable income Income tax 4,050 | 4,050 b. Assume that Toby and Nancy get married in 2017 and file a joient retarn. What is their taxable income and income tax? Round your final answer to nearest whole dollar Filing Jointly 58,900 Gross income All work saved DELL Cell Phones C XCV Alt

Answer 1

a. Computation of Income Tax of Toby and Nancy, filing individually in 2017:

	Toby Filing Single ($)	Nancy Filing Single ($)
Gross Income and AGI	6,700	52,200
Standard deduction (as per WN 1)	6,350	6,350
Personal exemption	4,050	4,050
Taxable Income (as per WN 2)	N.A.	41,800
Income Tax (as per WN 4)	N.A.	6,189

Working Notes:

1. Standard deduction for an individual is $6,350 for the year 2017.

2. Taxable Income = Gross Income - Standard deduction - Personal exemption

Since, Toby's taxable income is coming negative as per the above formula, his tax liability is Nil.

Nancy's taxable income = $52,200 - $6,350 - $4,050 = $41,800.

3. The Income Tax brackets for a single tax payer for 2017 are as under:

Taxable Income	Tax Rate
$0 - $9,325	10% of taxable income
$9,326 - $37,950	$932.50 plus 15% of the amount over $9,325
$37,951 - $91,900	$5,226.25 plus 25% of the amount over $37,950
$91,901 - $191,650	$18,713.75 plus 28% of the amount over $91,900
$191,651 - $416,700	$46,643.75 plus 33% of the amount over $191,650
$416,701 - $418,400	$120,910.25 plus 35% of the amount over $416,700
$418,401 or more	$121,505.25 plus 39.6% of the amount over $418,400

4. The taxable income of Nancy is $41,800 which falls in the income tax bracket of $37,951 to $91,900. So, from the above table we can compute her income tax for the year 2017 as under:

Income tax of Nancy = $5,226.25 + {25% of ($41,800 - $37,950)} = $5,226.25 + (25% of $3,850) = $5,226.25 + $962.50

= $6,188.75 that is, $6,189 (rounded to the nearest whole dollar)

b. Computation of Income Tax of Toby and Nancy, filing jointly after marriage in 2017:

	Married filing jointly ($)
Gross Income and AGI	58,900
Standard deduction (as per WN a)	12,700
Personal exemption (as per WN b)	8,100
Taxable Income (as per WN c)	38,100
Income Tax (as per WN e)	4,783

Working Notes:

a) Standard deduction for married couple filing jointly is $12,700 for the year 2017.

b) Personal exemption for married couple filing jointly is ($4,050*2) = $8,100 for the year 2017. A person can claim one personal tax exemption for himself/herself and another one for his/her spouse, if they are married.

c) Taxable Income = Gross Income - Standard deduction - Personal exemption

= $58,900 - $12,700 - $8,100 = $38,100

d) The Income Tax brackets for married filing jointly for 2017 are as under:

Taxable Income	Tax Rate
$0 - $18,650	10% of taxable income
$18,651 - $75,900	$1,865 plus 15% of the amount over $18,650
$75,901 - $153,100	$10,452.50 plus 25% of the amount over $75,900
$153,101 - $233,350	$29,752.50 plus 28% of the amount over $153,100
$233,351 - $416,700	$52,222.50 plus 33% of the amount over $233,350
$416,701 - $470,700	$112,728 plus 35% of the amount over $416,700
$470,701 or more	$131,628 plus 39.6% of the amount over $470,700

e) The joint taxable income of Toby and Nancy is $38,100 which falls in the income tax bracket of $18,651 to $75,900. So, the income tax liability of Toby and Nancy jointly for the year 2017 can be computed as under:

Income tax = $1,865 + {15% of ($38,100 - $18,650)} = $1,865 + (15% of $19,450) = $1,865 + $2,917.50

= $4,782.50 that is, $4,783 (rounded to the nearest whole dollar).

c. If Toby and Nancy get married in 2017 and file a joint return, the Federal Income Tax they can save is:

$6,189 - $4,783 = $1,406.