Katarina and Richard are a busy young couple with a son, Caleb, who is 6 and twin daughters, Stacy and Casey, who are actively exploring the world as four-year-olds. Before the twins were born, Katarina and Richard bought their first home with plenty of indoor and outdoor space for a growing young family. The Bajorshiks are concerned about their 2011 tax issues, but they are also committed to planning for the future of their family. Next year Richard should be able to pay off the remaining balance of his law school student loans. Contributing to Richard's Roth IRA is an annual priority. The following information reflects tax year 2011.
Gross income $98,712
Student loan interest $1,965
Katarina's traditional IRA $1,500
Total itemized deductions $14,987
Standard deduction for 2011 $11,600
Personal exemption amount $3,700
Marginal tax bracket 25%
-Approximately how much will the Bajorshiks save in 2011 income tax payments as a result of Richard's student loan interest?

Question

Quizplus · Accepted Answer

The Bajorshiks can deduct the student loan interest of $1,965 from their taxable income. Since they are in the 25% marginal tax bracket, this will result in a tax savings of $491.25 ($1,965 x 0.25).

Katarina and Richard Are a Busy Young Couple with a Son