Question

Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children, who live with her. Charlotte also maintains the household in which her parents live, and she furnished 60% of their support. Besides interest on City of Miami bonds in the amount of $5,500, Charlotte's father received $2,400 from a part-time job. Charlotte earns an $80,000 salary, a short-term capital loss of $2,000, and a cash prize of $4,000 at a church raffle. Charlotte reports itemized deductions of $10,500. Using the Tax Rate Schedules, compute the 2012 tax liability for Charlotte.

Answer 1

Tax = $5,445

Explanation:

Given

Salary = $80,000

Short-term capital loss = $2,000

Cash prize = $4,000

Personal and dependency exemptions = $4,000*7 = $28,000

Standard deductions = $11,900 (for surviving spouse in 2012)

Calculating AGI

AGI = Salary - Capital Loss + Cash Prize

AGI = $80,000 - $2,000 + $4,000

AGI = $82,000

Calculating Taxable Income

Taxable Income = AGI - Personal And Dependency Exemption - Standard Deductions

Taxable Income = $82,000 - $28,000 - $11,900

Taxable Income = $42,100

From The Federal Income Tax Brackets for 2012,

Charlotte falls with the 15% tax bracket.

There are 15% tax, so we calculate as follows:

10% of the first bracket is

$17,400 * 10% = $1,740

15% is the amount in the second bracket

15% of (42,100 - 17400) = 3,705

Tax = $3,705+ $1,740

Tax = $5,445