Enrico and his wife have combined salaries of $85,000.They have interest and dividends on their investments of $1,000 and annually contribute a combined $3,000 to a traditional IRA.The interest on their home mortgage is $2,500,they contributed $1,000 to their church,and incurred medical expenses not covered by insurance of $1,800.Assuming they can claim two personal exemptions of $4,000 each and file joint tax returns,compute their tax liability for 2015.
A) $11,606
B) $10,056
C) $9,981
D) $8,287

Question

Quizplus · Accepted Answer

1. Start with their total income: $85,000 salary + $1,000 interest/dividends = $86,000
2. Subtract their traditional IRA contribution: $86,000 - $3,000 = $83,000
3. Subtract their personal exemptions: $83,000 - ($4,000 x 2) = $75,000
4. Subtract their itemized deductions: $2,500 + $1,000 + $1,800 = $5,300
5. Use the tax table for married filing jointly and taxable income of $75,000 to find their tax liability: $8,287
6. Add any additional taxes or credits (none listed in this scenario)
7. The final tax liability for 2015 is $8,287, which is choice D.

Enrico and His Wife Have Combined Salaries of $85,000