Question

Eric, who is single with no dependents, has the following for the calendar year 2018:

RECEIPTS FOR YEAR

Salary as Walmart greeter                                                              $ 16,200

Interest from Friendly Bank                                                                 2,236

Interest from City of Chula Vista                                                        2,000

Dividends from U.S. corporations                                                            69

Social Security benefits                                                                        18,000

EXPENDITURES FOR YEAR

Contribution to IRA                                                                                      920

Unreimbursed medical expense                                                            1,200

Home mortgage interest                                                                          3,400

State income and property taxes                                                          3,200

Charitable contributions of cash                                                           5,400

Tax preparation fee                                                                                       175

Eric claims two exemptions.

How much is Eric’s adjusted gross income?

Assuming your answer to “1” was $22,000, how much is Eric’s taxable income?

Based on your answer to “2”, how much is Eric’s federal income tax?

*SHOW WORK*

Answer 1

1. COMPUTATION OF ERIC'S ADJUSTED GROSS INCOME

Particulars      Amount($)   Amount($)

Income from salary

Salary as a wallmart greeter 16200

Income from other sources

Interest from friendly bank 2236

Interest from city of chula vista 2000.

Dividends from us corporations(exempt) 0

social security benefits (exempt) 0    4236

Gross total income 20436

Less:Deductions

contribution to ira 920(note1)

home mortgage interest 3400(note2)

state income and property taxes 3200(note 3)

charitable contributions of cash 5400(note 4)

tax preparation fee 175 (note 5)    13095

Adjusted gross income 7341

Note1:Contribution to traditional ira is deductable

Note 2:Home mortgage interest can be allowed if itemised in tax return and interest paid on first and second mortgage upto 100000$

Note3:Deduction can be paid on state income and property taxes

Note4:As per IRS we must actually donate cash or property. as we actually donated cash it can be allowed

Note 5:The IRS generallu allows to deduct tax preparation fees on the return for the year in which we paid them assuming tax preparation fees for the year 2018 it is dductable

2.If Eric's agjusted total income= $22000

Less:deduction for medical expense(10%of agi) 2200

Taxable income $19800

3.Computation o federal income tax

Upto $9525 10%(9525*10%) $952.5

on 10275*12% $1233

Total federal income tax $2185.5