Find the tax in the following application problems. Use $4050 for each personal deduction, a standard deduction of $6300 for single taxpayers, $12,600 for married taxpayers filing jointly, $6300 for married taxpayers filing separately, and $9300 for head of household and the tax rate schedule.
-Lilly Donaldson had wages of $31,706, other income of $2,962, dividends of $213, interest of $328, and a regular IRA contribution of $839 last year. She had deductions of $1,271 for state income tax, $1,440 for property tax, $1,460 in mortgage interest, and $713 in contributions. Donaldson claims three exemptions and files as head of household.

Question

Find the tax in the following application problems. Use $4050 for each personal deduction, a standard deduction of $6300 for single taxpayers, $12,600 for married taxpayers filing jointly, $6300 for married taxpayers filing separately, and $9300 for head of household and the tax rate schedule. 
-Lilly Donaldson had wages of $31,706, other income of $2,962, dividends of $213, interest of $328, and a regular IRA contribution of $839 last year. She had deductions of $1,271 for state income tax, $1,440 for property tax, $1,460 in mortgage interest, and $713 in contributions. Donaldson claims three exemptions and files as head of household.

Quizplus · Accepted Answer

1. Personal deductions = 3 x $4050 = $12,150
2. Adjusted Gross Income (AGI) = Sum of all income - IRA contribution = $35,770
3. Deductions = State income tax + Property tax + Mortgage interest + Contributions = $4,884
4. Taxable income = AGI - Deductions - Standard deduction for head of household = $18,336
5. Using the tax rate schedule, the tax is $1,275.50. - Start with gross income: $31,706 + $2,962 + $213 + $328 - $839 = $34,370
- Subtract deductions: $1,271 + $1,440 + $1,460 + $713 + (3 x $4,050) + $9,300 = $25,733
- This leaves taxable income of $8,637
- Consult the tax rate schedule for head of household: 
- The first $8,500 is taxed at 10% = $850
- The remaining $137 is taxed at 15% = $20.55
- Add the two amounts to get total tax of $870.55
- Subtract the non-refundable tax credit of $595 to get a final tax liability of $275.55, which rounds to $275.50 or answer choice B.

Find the Tax in the Following Application Problems