Question

This year Evan graduated from college and took a job as a deliveryman in the city. Evan was paid a salary of $72,100 and he received $700 in hourly pay for part-time work over the weekends. Evan summarized his expenses below:

Cost of moving his possessions to the city (125 miles away)	$	1,200
Interest paid on accumulated student loans		2,960
Cost of purchasing a delivery uniform		1,560
Contribution to State University deliveryman program		1,380

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.

Answer 1

Calculation of Evan's AGI:

Salary $72,100

+ Part time hourly pay . $700

Gross Income . $72,800

- Moving expense deduction . $1200

Modified AGI (For student interest). $71,600

- student loan interest deduction. $1,400

(Working given below)

AGI . $70,200

- Standard deduction . $12,000

Taxable income. $58,200

WORKINGS AND NOTES:

1. Calculation of deduction of interest paid towards student loan

Step for calculating are

1. Take your MAGI and subtract $65,000
2. Divide that figure by $15,000
3. Multiply that resulting figure by your original student loan interest deduction.
4. Subtract the resulting figure from your original student loan interest deduction

Modified AGI $71,600

Less . $65,000

$6,600

Divide by $15,000 = $6600/$15000 = 44%

Original student loan deduction = $2,500 * 44% = $1,100

Since the amount of interest paid is more than the deduction allowable therefore we will take $2,500 and will Subtract the above figure from student loan interest amount = $2,500 - $1,100

Therefore allowable deduction = $1,400

2. The uniform would qualify as an employee business deduction, but would be reduced by the 2% floor on miscellaneous itemized deductions (by 2% of $70,200 = $1,404). The charitable contribution would be deductible as an itemized deduction, but Evan would choose his standard deduction instead of itemizing (because thestandard deduction ($12,000) exceeds the sum of his itemized deductions ($1,404 + $1,380 charitable contribution)