Question

Using the married filing jointly status and their income and expense​ statement, calculate the 2014

tax liability for Shameka and Curtis Williams. First use the standard​ deduction, and then use the following itemized​deductions:

Income			Expenses
Earned income	$57,000.00		Home mortgage interest	​$8,500.00
Interest income	$1,700.00		Real estate and state income taxes	3,800.00
			Miscellaneous deductions	350.00

Explain to the Williams which method they should use and why.

Answer 1

standard deduction method

Standard deduction available for married couples for the year 2014 is $12,400

The personal exemption amount is $3,950 per person in 2014

Total income = Earned income + interest income = $57,000 + $1,700 = $58,700

Total deduction = $12,400 + ($3,950*2) = $20,300

Taxable inome =$58,700 - $20,300 = $38,400

itemized​ deductions method

Total income = Earned income + interest income = $57,000 + $1,700 = $58,700

The personal exemption amount is $3,950 per person in 2014

Items for deduction = Home mortgage interest + Real estate and state income taxes =$8,500+$3,800=$12,000

Personal exemption = ($3,950*2) = $7,900

Taxable inome =$58,700 - $12,000 - $7,900 = $38,800

Williams should use standard deduction method as their taxable income is lower as per that method

Tax liability on $38,400

=$1,815 + 15%(38400-18150)

=$4852.5