Joe and Jessie are married and have one dependent child, Lizzie. Lizzie is curre
ID: 2467466 • Letter: J
Question
Joe and Jessie are married and have one dependent child, Lizzie. Lizzie is currently in college at State University. Joe works as a design engineer for a manufacturing firm while Jessie runs a craft business from their home. Jessie’s craft business consists of making craft items for sale at craft shows that are held periodically at various locations. Jessie spends considerable time and effort on her craft business and it has been consistently profitable over the years. Joe and Jessie own a home and pay interest on their home loan (balance of $220,000) and a personal loan to pay for Lizzie’s college expenses (balance of $35,000). Neither Joe nor Jessie is blind or over age 65, and they plan to file as married- joint. Based on their estimates, determine Joe and Jessie’s AGI and taxable income for the year and complete pages 1 and 2 of Form 1040 (through taxable income, line 43) and Schedule A. Assume the 2014 rules apply for purposes of the qualified education expense deduction and that the employer portion of the self-employment tax on Jessie’s income is $808. Joe and Jessie have summarized the income and expenses they expect to report this year as follows:
Income:
Joe’s salary
$119,100
Jessie’s craft sales
18,400
Interest from certificate of deposit
1,650
Interest from Treasury bond funds
727
Interest from municipal bond funds
920
Expenditures:
Federal income tax withheld from Joe’s wages
$13,700
State income tax withheld from Joe’s wages
6,400
Social Security tax withheld from Joe’s wages
7,482
Real estate taxes on residence
6,200
Automobile licenses (based on weight)
310
State sales tax paid
1,150
Home mortgage interest
14,000
Interest on Masterdebt credit card
2,300
Medical expenses (unreimbursed)
1,690
Joe’s employee expenses (unreimbursed)
2,400
Cost of Jessie’s craft supplies
4,260
Postage for mailing crafts
145
Travel and lodging for craft shows
2,230
Meals during craft shows
670
Self-employment tax on Jessie’s craft income
1,615
College tuition paid for Lizzie
5,780
Interest on loans to pay Lizzie’s tuition
3,200
Lizzie’s room and board at college
12,620
Cash contributions to the Red Cross
525
Joe’s salary
$119,100
Jessie’s craft sales
18,400
Interest from certificate of deposit
1,650
Interest from Treasury bond funds
727
Interest from municipal bond funds
920
Expenditures:
Federal income tax withheld from Joe’s wages
$13,700
State income tax withheld from Joe’s wages
6,400
Social Security tax withheld from Joe’s wages
7,482
Real estate taxes on residence
6,200
Automobile licenses (based on weight)
310
State sales tax paid
1,150
Home mortgage interest
14,000
Interest on Masterdebt credit card
2,300
Medical expenses (unreimbursed)
1,690
Joe’s employee expenses (unreimbursed)
2,400
Cost of Jessie’s craft supplies
4,260
Postage for mailing crafts
145
Travel and lodging for craft shows
2,230
Meals during craft shows
670
Self-employment tax on Jessie’s craft income
1,615
College tuition paid for Lizzie
5,780
Interest on loans to pay Lizzie’s tuition
3,200
Lizzie’s room and board at college
12,620
Cash contributions to the Red Cross
525
Explanation / Answer
particulars Itemized deductions Amount Medical expenses 1690 Less:7.5 AGI floor -8983 0 State income tax 6400 Real estate income+ 6200 12600 Interest-QRI 14000 Charitable contributions 525 Miscellaneous itemized Employee business expanses 2400 Less 2% AGI floor -2316 +84 Total itemized deductions 27209 AGI 115775 Standered deduction 11600 Itemized deduction -27209 Exemptions -11100 Taxable income $77466
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