Through November, Tex has received gross income of $67,500. For December, Tex is considering whether to...

Through November, Tex has received gross income of $67,500. For December, Tex is considering whether to accept one more work engagement for the year. Engagement 1 will generate $7,030 of revenue at a cost of $3,850, which is deductible for AGI. In contrast, engagement 2 will generate $7,030 of revenue at a cost of $3,180, which is deductible as an itemized deduction. Tex files as a single taxpayer.

a.	Calculate Tex's taxable income assuming he chooses engagement 1 and assuming he chooses engagement 2. Assume he has no itemized deductions other than those generated by engagement 2.

b.	Calculate Tex's taxable income assuming he chooses engagement 1 and assuming he chooses engagement 2. Assume he has $5,820 of itemized deductions other than those generated by engagement

Expert Solution

Solution :-

(a) :-

Description	Engagement 1	Engagement 2
Gross income before new work engagement	$67,500	$67,500
Income from engagement	$7,030	$7,030
Additional for AGI deduction	$3,850	$0
Adjusted gross income	= $67,500 + $7,030 - $3,850 = $70,680	= $67,500 + $7,030 = $74,530
Greater of itemized deductions or standard deduction of $5,700	$5,700	$5,700
Personal exemption	$3,650	$3,650
Taxable income	= $70,680 - $5,700 - $3,650 = $61,330	= $74,530 - $5,700 - $3,650 = $65,180

(b) :-

Description	Engagement 1	Engagement 2
Gross income before new work engagement	$67,500	$67,500
Income from engagement	$7,030	$7,030
Additional for AGI deduction	$3,850
Adjusted gross income	= $67,500 + $7,030 - $3,850 = $70,680
Greater of itemized deductions or standard deduction of $5,700	$5,700	= $3,000 + $4,500 = $7,500
Personal exemption	$3,650	$3,650
Taxable income	= $70,680 - $5,700 - $3,650 = $61,330	= = $74,530 - $7,500 - $3,650 = $70,680

ekkarill92 answered 2 years ago

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