Question

Sally, age 66, single, earned income of $42,000 in 2020 and had $2,000 of deductions for adjusted gross income and itemized deductions of $4,000. Sally is legally blind for tax purposes. Sally is also eligible for a tax credit of $1,000. What is Sally's taxable income if she wishes to minimize her tax?

Question options: $26,300

$20,300

$21,300

$24,300

None of the above choices are correct.

Answer 1

In case of person above age 65 the standard deduction allowable is increased by $ 1650 to the general standard deduction for single tax payer, further in case of blindness the standard deduction also increased by $ 1650, if both the case is there so total increase of standard deduction of $ 3300 ( 1650 + 1650 ) will be there.

Normally for 2020 the standard deduction for single filers is $ 12,400.

Here the earned income is = $ 42,000 and $ 2000 is for adjusted gross income. So the adjusted gross income = Earned income - adjustment

Adjusted gross income = $ 42,000 - $ 2000 = $ 40,000.

Deductions from adjusted gross income will be either standard deduction or itemized deductions which ever is higher.

So standard deduction of $ 12400 + 300 = $ 15,700 being higher will be deducted from the adjusted gross income.

Thus Taxable income = Adjusted gross income - standard deduction.

Taxable income = $ 40,000 - $ 15,700.

Sally's taxable income = $ 24,300.

Thus the correct Option is-------------D i.e $ 24,300.