Question

4. Calculating taxable income

For 2016, the personal exemption amount is $4,050. The 2016 standard deduction is $6,300 for unmarried taxpayers or married taxpayers filing separately, $12,600 for married taxpayers filing jointly, and $9,300 for taxpayers filing as head of household.

Calculating Heidi’s Taxable Income

Heidi is an unmarried person filing single. Calculate Heidi’s 2016 taxable income by filling in the worksheet. Enter adjustments, deductions, and exemptions as negative numbers. If your answer is zero, enter "0".

• Heidi will earn $90,965 in wages this year.

• She contributed $4,000 to an IRA.

• She received a gift from her parents to put a down payment on a new car totaling $5,000.

• She uses the standard deduction.

• She donated $1,000 to charity.

• She is entitled to one exemption.

2016 Taxable Income
Gross income
Less: Adjustments to income
Adjusted gross income
Less: Deductions
Subtotal
Less: Exemptions
Taxable income

Answer 1

Solution:

2016 Taxable Income	Amount ($)	Explanation
Gross Income	90,965	Income from wages $90,965 is taxable. Since, gift received from parents is $5,000 that is less than $15,000 not taxable.
Less: Adjustments to Income	0	No Adjustments to Gross Income.
Adjusted gross income	90,965
Less: Deductions
Standard Deduction	-6,300	Since Heidi is an unmarried person standard deduction is $6,300.
IRA	-4,000	Since the limit of IRA contribution deduction is $5,500, $4,000 can be allowed as deduction.
Charitable donation	-1,000	Allowable deduction.
Sub total	79,665
Less: Exemptions (personal)	-4,050	Given that she is entitled to the exemption.
Taxable Income	75,615