In 2019, Carol, who is 54 and single, earned a salary of $54,000 and $6,000 of interest on State of Nevada bonds.She contributed $2,000 to her Roth IRA, paid a $13,350 hospital bill, state income taxes of $1,500, real estate taxes of $900, mortgage interest of $4,500, and $2,000 interest on her margin account under which she purchased the bonds.What is Carol's taxable income?

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Quizplus · Accepted Answer

Carol's taxable income is calculated by starting with her gross income, then subtracting any adjustments and deductions. Her gross income includes her salary ($54,000) and interest on state bonds ($6,000), totaling $60,000. Interest on state bonds is generally tax-exempt, so we subtract that, leaving $54,000. Contributions to a Roth IRA are not deductible, so that does not change her taxable income. For her deductions, assuming she doesn't itemize (since the standard deduction for a single filer in 2019 was $12,200, and her itemizable deductions - state income taxes, real estate taxes, mortgage interest, and hospital bills - do not exceed this amount when considering the limit on medical expenses deduction), her taxable income is reduced by the standard deduction only. Therefore, her taxable income is $54,000 - $12,200 (standard deduction) = $41,800. However, interest on the margin account is not deductible for tax purposes as it is considered personal interest, so this does not reduce her taxable income. Thus, the correct calculation was not provided in the options, indicating a potential mistake in the question or answer choices. Based on the provided choices, the closest incorrect option is D) $43,050, but this does not accurately reflect the correct taxable income calculation as outlined.

In 2019, Carol, Who Is 54 and Single, Earned a Salary