Question

John and Jessica are married and have one dependent child, Liz. Liz is currently in college at State University. John works as a design engineer for a manufacturing firm while Jessie runs a craft business from their home. Jessica’s craft business consists of making craft items for sale at craft shows that are held periodically at various locations. Jessica spends considerable time and effort on her craft business and it has been consistently profitable over the years. John and Jessica 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 John and Jessica is blind or over age 65, and they plan to file as married-joint. Based on their estimates, determine John and Jessica’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 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:
Your salary	$119,100
Spouse'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 your wages	$13,700
State income tax withheld from your wages	6,400
Social Security tax withheld from your 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
Your employee expenses (unreimbursed)	2,400
Cost of Spouse'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 Spouse's craft income	1,615
College tuition paid for your child	5,780
Interest on loans to pay your child's tuition	3,200
Your child's room and board at college	12,620
Cash contributions to the Red Cross	525

Answer 1