Question

A man earned wages of $46,300, received $2,200 in interest from a savings account, and contributed $2,700 to a tax-deferred retirement plan. He was entitled to a personal exemption of $4,050 and had deductions totaling $6,800. Find his gross income, adjusted gross income, and taxable income.

a. Gross Income: $51,400, Adjusted Gross Income: $42,500, Taxable Income: $35,700
b. Gross Income: $48,500, Adjusted Gross Income: $40,200, Taxable Income: $33,900
c. Gross Income: $51,500, Adjusted Gross Income: $42,800, Taxable Income: $36,500
d. Gross Income: $49,300, Adjusted Gross Income: $40,500, Taxable Income: $33,700

Answer 1

The gross income of the man is $48,500, which is his wages plus interest earned. His adjusted gross income becomes $45,800 after deducting the retirement plan contribution. Finally, his taxable income is calculated to be $34,950 after subtracting personal exemption and other deductions, although this does not match the provided options.

Step-by-step explanation:

To find a man's gross income, adjusted gross income, and taxable income, we will follow the steps used in the basic concepts of taxation.

Let's calculate each one:

Gross Income includes all income before any deductions or exemptions. In this case, it is the sum of his wages and the interest from the savings account:

• Wages: $46,300
• Interest: $2,200

Therefore, Gross Income = Wages + Interest = $46,300 + $2,200 = $48,500.

Adjusted Gross Income (AGI) is the gross income minus deductions that are allowed by the tax code, in this case, the contributions to a tax-deferred retirement plan:

• Tax-deferred retirement plan contribution: $2,700

Adjusted Gross Income = Gross Income - Retirement Contribution = $48,500 - $2,700 = $45,800.

To find the Taxable Income, we subtract the exemptions and deductions from the Adjusted Gross Income:

• Personal exemption: $4,050
• Other deductions: $6,800

Taxable Income = AGI - (Personal exemption + Other deductions) = $45,800 - ($4,050 + $6,800) = $45,800 - $10,850 = $34,950.

Considering the provided options, it seems there may be a discrepancy since none of the options match the calculated values. It is worth double checking the calculations or the values provided in the question to ensure accuracy.