Question

Deduction of Taxes. Joyce is a single , cash-method taxpayer . On April 11,2015, Joyce paid $120 in state income taxes with her 2014 state income tax return . During 2015 , Joyce had $1,600 in state income taxes withheld . On April 13 , 2016, Joyce paid $200 with her 2015 state tax return . During 2016, she had $2,100 in state income taxes withheld from her paycheck.

Answer 1

Itemized Deductions:

These are the amount or the expenses which are eligible for the taxpayers who can claim the same on their tax returns so that their tax liability is reduced. Itemized deductions are subtracted from the Adjusted Gross Income of the individual so that the correct taxable income can be computed.

Taxable Income:

It is the income on which tax is calculated. This is derived after providing for all the exemptions and the itemized deductions from the gross adjusted Income. This is the final income on which tax is levied however it may contain incomes taxable at different rates but all the taxable income of a person is part of taxable income.

a.

In the given case, the amount of state income taxes paid by J and the amount state income taxes withheld are provided. The AGI of the J for the year 2016 and 2017 is also given. In the year 2016, an amount of $5,500 has also been paid by J towards qualified resident interest.

In 2015, the amount that can be claimed of state income taxes as an itemized deduction is. The amount of $1,720 is being calculated as the sum of $120 which was paid in 2014 towards state income taxes and an amount of $1,600 in the year 2015 which was withheld as paychecks.

b.

In 2016, the amount that can be claimed of state income taxes as an itemized deduction is. The amount of $2,300 is being calculated as the sum of $200 which was paid in 2015 towards state income taxes and an amount of $2,100 in the year 2016 which was withheld as paychecks.

c.

Compute the taxable income of J for the year 2016 using the equation as follows:

Therefore the Taxable J for the year 2016 comes out to be.

Note:

State Tax Deduction and Mortgage Interest denote itemized deduction for J and the standard deduction for the year 2016 is $6,300 which are less than the amount of itemized deduction. Therefore higher of two has been allowed as deduction.

d.

Amount of Taxable Income in 2016 is $39,150. It has to be recomputed assuming that the reimbursement was received in 2016. Re-compute the 2016 Taxable Income using the equation as follows:

Therefore the Taxable Income after re-computation comes out to be $39,600

It is clear from the above calculations that the Taxable Income of J has increased by $450, if the reimbursement were received in 2016 only. This results in an increase in the AGI of J for the year 2017 because the amount of $450 will be treated as refunds and shall be taxable in 2017.

Therefore, compute the AGI for the year 2017 as shown below.

Therefore the AGI of the year 2017 of comes out to be