In 2019, Cindy, who is single, has salary income of 32,000 and interest income of 1,500....

In 2019, Cindy, who is single, has salary income of 32,000 and interest income of 1,500. She makes a contribution to an individual retirement account (IRA) in the amount of $6,000. Her itemized deductions for 2019 are $6,500. Assuming she wishes to minimize her tax liability, which of the following is correct?

a. Her AGI is $27,500 and her taxable income is $21,000 b. Her AGI is $33,500 and her taxable income is $21,000 c. Her AGI is $27,500 and her taxable income is $15,300 d. Her AGI is $33,500 and her taxable income is $15,300

Solutions

Expert Solution

Ans: The correct option is (c) Her AGI is $27,500 and her taxable income is $15,300.

Calculation and Explanation:

Tax payer - Cindy

Status - SIngle

Year - 2019

Computation of Cindy's AGI and taxable income for the year 2019:

Description	Amount ($)
Salary Income	$32000
Interest Income (assumed that it is interest other than municipal bonds)	$1500
Gross Income	$33500
Less: IRA contribution (Note 1)	($6000)
Adjusted Gross Income	$27500
Less: Standard deduction (for 2019 single taxpayer) (Note 2)	($12200)
Taxable Income	$15300

Notes:

1. IRA Contribution for person upto the age of 50 can be maximum $6000 and full deduction is allowed. IRA is an above the line deduction which means it does not need to itemized and at the same time the taxpayer can take standard deduction.

2. Itemized deduction of Cindy is $6500 whereas if standard deduction is $12200 for 2019. It will be more beneficial for her to reduce her tax liability by taking standard deduction

ekkarill92 answered 1 year ago

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