Ken, a single taxpayer, has a gross income of $79,685. He claims one exemption and can take a deduction of $1,257 for medical expenses, a deduction of $2,181 for interest on his mortgage, an adjustment of $800 for alimony, a deduction of $1,419 for property taxes, an adjustment of $1,722 for business expenses, and an adjustment of $2,511 for contributions to his retirement fund. The standard deduction for a single filer is $5,700, and exemptions are worth $3,650 apiece. Using the table below, how much does Ken owe in income tax?
| If line 43 (taxable income) is- | And you are- |
|---|---|---|---|---|---|
| At least | But less than | Single | Married living jointly | Married filing separately | Head of a household |
| 65,000 | 65,050 | 12,600 | 8,951 | 12,600 | 11,319 |
| 65,050 | 65,100 | 12,613 | 8,959 | 12,613 | 11,331 |
| 65,100 | 65,150 | 12,625 | 8.969 | 12,625 | 11,344 |
| 65,150 | 65,200 | 12,638 | 8,981 | 12,638 | 11,356 |
| 65,200 | 65,250 | 12,650 | 8,994 | 12,650 | 11,369 |
| 65,250 | 65,300 | 12,663 | 9,006 | 12,663 | 11,381 |
Answer (2)
Ken owes $12,663 in income tax after calculating his Adjusted Gross Income, standard deduction, and exemptions. His taxable income of $65,302 falls into a specific tax bracket indicating that amount. By using the tax table, we can determine the precise income tax liability.
;
Calculate total adjustments: 800 + 1722 + 2511 = 5033 .
Calculate Adjusted Gross Income (AGI): 79685 − 5033 = 74652 .
Determine that the standard deduction ($5700) is greater than the itemized deductions ($4857).
Calculate taxable income: 74652 − 3650 − 5700 = 65302 . From the tax table, the income tax owed is 12663 .
Explanation
Calculate Total Adjustments First, we need to calculate Ken's total adjustments. These include alimony, business expenses, and contributions to his retirement fund.
Total Adjustments Value Total adjustments are calculated as follows: 800 + 1722 + 2511 = 5033 So, Ken's total adjustments amount to $5,033.
Calculate Adjusted Gross Income (AGI) Next, we calculate Ken's Adjusted Gross Income (AGI) by subtracting the total adjustments from his gross income.
AGI Value AGI is calculated as: 79685 − 5033 = 74652 Ken's AGI is $74,652.
Calculate Total Itemized Deductions Now, we need to calculate Ken's total itemized deductions. These include medical expenses, interest on his mortgage, and property taxes.
Total Itemized Deductions Value Total itemized deductions are calculated as: 1257 + 2181 + 1419 = 4857 Ken's total itemized deductions are $4,857.
Compare Itemized and Standard Deductions We need to determine whether Ken should use the standard deduction or his itemized deductions. The standard deduction for a single filer is $5,700. Since his itemized deductions ($4,857) are less than the standard deduction ($5,700), Ken should use the standard deduction.
Calculate Taxable Income Now, we calculate Ken's taxable income. This is his AGI less his exemption and either the standard deduction or itemized deductions (whichever is greater).
Taxable Income Value Taxable income is calculated as: 74652 − 3650 − 5700 = 65302 Ken's taxable income is $65,302.
Determine Income Tax Owed Finally, we use the provided tax table to determine how much Ken owes in income tax. His taxable income is $65,302, which falls in the range of $65,300 to $65,350. According to the table, the income tax for a single filer in this range is $12,663.
Final Answer Therefore, Ken owes $12,663 in income tax.
Examples
Tax planning is essential for individuals to manage their finances effectively. By understanding deductions, adjustments, and exemptions, taxpayers can reduce their taxable income and minimize their tax liability. For instance, contributing to retirement funds, like Ken, not only helps in securing future financial stability but also provides an immediate tax benefit by reducing the current year's taxable income. This proactive approach to tax management allows individuals to make informed financial decisions and optimize their overall financial well-being.
