Question

A man earned wages of ​$51500​, received ​$2500 in interest from a savings​ account, and contributed ​$4000 to a​ tax-deferred retirement plan. He was entitled to a personal exemption of ​$4050 and a standard deduction of ​$5950. The interest on his home mortgage was ​$8100​, he contributed ​$2700 to​ charity, and he paid ​$1450 in state taxes. Find his gross​ income, adjusted gross​ income, and taxable income. Base the taxable income on the greater of a standard deduction or an itemized deduction.

Answer 1

Gross income=$54000

Adjusted gross income = $50000

Taxable income= $33700

Explanation:

Step 1.

First we have to find his gross income:

The gross income consists of the total income of the man which is the wages and the interest from his savings account

Gross income = 51,500 + 2,500 = $54,000

Therefore his gross income is $54,000

Step 2.

Now we determine person's adjusted gross income

according to the question the contributed amount is $4,000

To calculate the adjusted gross income we use the formula:

Adjusted gross income = Gross income - Adjustment

Therefore $54,000 - $4,000 = $50,000

Hence his adjusted gross income is $50,000

step 3.

Now we determine person's taxable income

according to the question his personal exemption is $4050 and a standard deduction is $5950.

Now we calculate the itemized deduction by using this formula:

Itemized deduction = Interest on home mortgage + Taxes from state + Contribution to charity

= $8100 + $1450 + $2700

= $12,250

Here the itemized deduction is greater than the standard deduction.

So take the itemized deduction in the following formula for deductions.

Taxable income = Adjusted gross income - (Exemption + Deduction)

= $50,000 - ($4050 + $12250)

= $50,000 - ($16,300)

= $33,700

Hence the taxable income is $33,700.