Jeremy earned $190,000 in salary and $6,000 in interest income during the year.

Question

Jeremy earned $190,000 in salary and $6,000 in interest income during the year. Jeremy has two qualifying dependent children who live with him. He qualifies to file as head of household and has $17,000 in itemized deductions. Neither of his dependents qualifies for the child tax credit.
Assume the original facts except that Jeremy had only $6,500 in itemized deductions. What is Jeremy’s total income tax liability?

GI 196000 for AGI deductions 0 adjusted GI 196000 standard deduction 9300 itemized deduction 6500 greater of standard of itemized ? personal and dependency exemptions 12150 taxable income ? income tax liability ?

Explanation / Answer

Part 1 : Computation of Jeremy's Income Tax Liability for Year 2016 (Amount in $)

Woking Note 1: As standard deduction mentioned in the Question is $9,300 which is for the year 2016. Thus the tax rates are calculated for year 2016.

Part 2 : Computation of Jeremy's Income Tax Liability for Year 2016 (Amount in $)

If Itemized Deduction is $6,500, then

(1)Gross Income (190,000+6,000) 196,000 (2) AGI deductions 0 (3)Adjusted GI (1-2) 196,000 (i)Standard Deduction 9,300 (ii)Itemized deduction 17,000 (4)Greater of Standard or Itemized (ii)>(i) 17,000 (5)Personal and Dependency exemptions 12,150 (6)Taxable income (3-4-5) 166,850 Income tax liability 26,835 + (166,850-130,150)28% = 37,111

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