Question

Imari Brown arrived at the following tax information:

Tax Information
Gross salary	$	47,045
Additional small business income		14,000
Interest earnings		305
Dividend income		165
Standard deduction		12,000
Itemized deductions		14,450
Adjustments (subtractions) to income		9,000

What amount would Imari report as taxable income?

Answer 1

Taxable income for Imari according to the tax information given would be computed as follows:

	Gross salary	$	47,045
	+Additional small business income		14,000
	+Interest earnings		305
	+ Dividend Income		165
	Gross Income		61515
	-deduction for AGI		(9000)
	Adjusted Gross Income		52515
	-Greater of Standard or Itemized deductions		(14450)
	Gross Taxable income		38065
	-Dividend Income(exempt)		(165)
	Taxable income		37900

Taxable income =$37900

Calculating Adjusted Gross Income (AGI)

When calculating AGI, begin by tallying your reported income for the year in question while also adding other sources of taxable income: profit on the sale of a property, unemployment compensation, pensions, Social Security payments, and any other income not reported on your tax returns. Note that any payments you get from the coronavirus stimulus bill are not taxable. From this total of earnings, subtract the applicable deductions and payments. After these payments have been subtracted from gross income, the resulting figure is the adjusted gross income, which serves as the starting point for calculating your taxable income.

After calculating AGI, you can either apply the standard federal tax deductions to reach your taxable income or, if eligible, you can itemize your expenses and take itemized deductions instead, which can be better for you in some situations.

Alternatively, if dividend income is assumed not to be exempt from tax, Taxable income is computed as follows:

Taxable Income	=38065	$
	Workings:
	Gross salary	=	$ 47045
Add:	Additional Small business Income	=	$ 14000
Add:	Interest earnings	=	$ 305
Add:	Dividend Income	=	$ 165
	Gross Taxable Income	=	$ 61515
Less:	Adjustments (Subtraction) to Income	=	$         -9000
	Adjusted Gross Taxable Income	=	$ 52515
Less:	Deductions	=	$       -14,450
	Higher of :	=
	Standard deduction = $12000	=
	Itemized Deduction = $14450	=
	Net Taxable Income	=	$ 38065