Question

This year Evan graduated from college and took a job as a deliveryman in the city. Evan was paid a salary of $72,900 and he received $700 in hourly pay for part-time work over the weekends. Evan summarized his expenses as follows: (use 2020)

Cost of moving his possessions to the city (125 miles away)	$	1,200
Interest paid on accumulated student loans		2,820
Cost of purchasing a delivery uniform		1,420
Contribution to State University deliveryman program		1,310

Calculate Evan's AGI and taxable income if he files single. Assume that interest payments were initially required on Evan’s student loans this year.

Evan's AGI__________

Taxable income_________

Answer 1

Calculation of AGI (Adjusted Gross Income) and Taxable income:

Particulars	Amount
Annual income in the form of salary	$72,900
Earning from part time job	$700
Gross income	$73600
Less: Moving expense(eliminated from 2018)	-
MAGI (Modified Adjusted Gross Income)	$73600
Less: Interest on student loan deduction(see working)	$1,900
AGI	$71700
Less: Standard deduction	$12,400
Taxable income	$59300

Interest on student loan deduction is computed as follows:

Maximum deduction allowed in 2020 =$2,500

Phaseout for single filers is MAGI $70,000 to $85,000

Here MAGI is $73600

Deduction on interest on student loan = 2,500 – [((73600 – 70,000) / (85,000-70000)) * 2,500]

= 2,500 – 600

= 1,900

Itemized deduction :

=Delivery uniform cost +contribution to state university

=$1,420+1,310

=$2730

Standard deduction or itemized deduction whichever is higher is allowed as final deduction. Standard deduction for 2020 for single filers of $12,400 is higher than itemized deductions. So, standard deduction is considered.

So, AGI is $71700 and taxable income is $59300

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