Question

Ethan and Zoe Wilson are married and have one child. Ethan is putting together some figures so that he can prepare the Wilson’s joint 2014 tax return. He can claim three personal exemptions (including himself). So far, he’s been able to determine the following with regard to income and possible deductions:

Total unreimbursed medical expenses incurred	$1,160
Gross wages and commissions earned	50,770
IRA contribution	5,000
Mortgage interest paid	5,100
Capital gains realized on assets held less than 12 months	1,450
Income from limited partnership	200
Job expenses and other allowable deductions	875
Interest paid on credit cards	380
Dividend and interest income earned	620
Sales taxes paid	2,470
Charitable contributions made	1,150
Capital losses realized	3,450
Interest paid on a car loan	570
Alimony paid by Ethan to his first wife	6,100
Social Security taxes paid	2,700
Property taxes paid	650
State income taxes paid	1,800

Given this information, how much taxable income will the Wilsons have in 2014? (Note: Assume that Ethan is covered by a pension plan where he works, the standard deduction of $12,400 for married filing jointly applies, and each exemption claimed is worth $3,950.) Do not round your intermediate computations.

Answer 1

Taxable income for 2014
Income Tax Return (married filling jointly)
Gross wages and commissions earned		50,770
Dividend and interest income earned		620
Capital gains realized	$1,450
Less: Capital losses	-$3,450
Net capital gains		-$2,000
Passive income—limited partnership		200
Gross income		$49,590
Less: Adjustments to Gross Income
IRA contribution	$5,000
Alimony paid	$6,100
Total Adjustments		-$11,100
Adjusted gross income (AGI)		$38,490
Itemized deductions :
Mortgage interest	$5,100
Property taxes	$650
State income taxes	$1,800
Charitable contributions	$1,150
Job and other expenses [875 – (38,490 x 2%)]	$105.2
Total itemized deductions	$8,805.2
Standard deduction or total itemised deduction whichever is greater would be deducted
Standard deduction for married filing jointly		-$12,400
Less: Personal exemptions (3 x $3,950)		-$11,850
Taxable income for 2014		$14,240
Exclusions:
Medical expenses are only deductible to the extent that they exceed 10% of your Adjusted Gross Income (AGI).Medical expenses of $1,155 are less than $3,849	$3,849
Sales tax and personal interest expenses are not allowed
Social Security taxes are not deductible.