Deductions from Adjusted Gross Income, Calculating Tax Liability (LO. 3, 5) Arth

Question

Deductions from Adjusted Gross Income, Calculating Tax Liability (LO. 3, 5)

Arthur and Cora are married and have 2 dependent children. They have a gross income of $95,000. Their allowable deductions for adjusted gross income total $4,000, and they have total allowable itemized deductions of $14,250. The standard deduction for 2017 is $12,700 and the personal exemption is $4,050.

Refer to the Tax Rate Schedules to answer the following questions. Round intermediate computations and final answer to the nearest dollar.

Note: The child tax credit in 2017 is $1,000 per child.

a. Arthur and Cora's 2017 taxable income is $.

b. Arthur and Cora's 2017 income tax is

Explanation / Answer

a) Calculation of 2017 taxable income (Amounts in $)

b) Calculation of net tax liabiliity

Amount of Income tax = ($18,650*10%)+[($60,550-$18,650)*15%]

= $1,865+$6,285 = $8,150

Net tax liability = Income Tax Payable - Child Tax Credit

= $8,150 - ($1,000*2) = $8,150 - $2,000 = $6,150

Gross Income 95,000 Less: Deductions for AGI (4,000) Adjusted Gross Income 91,000 Deductions from AGI: The greater of Itemized Deductions $14,250 or Standard Deductions $12,700 (14,250) Personal & Dependency Examinitaions ($4,050*4) (16,200) Taxable Income 60,550

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