Question

A man earned wages of ​$34 comma 900​, received ​$2800 in interest from a savings​ account, and contributed ​$3800 to a​ tax-deferred retirement plan. He was entitled to a personal exemption of ​$3800 and a standard deduction of ​$5950. The interest on his home mortgage was ​$8400​, he contributed ​$2700 to​ charity, and he paid ​$1325 in state taxes. Find his gross​ income, adjusted gross​ income, and taxable income. Base the taxable income on the greater of a standard deduction or an itemized deduction.

Answer 1

Answer -

Calculation of Person’s Gross Income

	Particulars	Explanation	Amount ($)
A.	Wages	Given in question	34900
B.	Interest from savings​ account	Given in question	2800
Person’s Gross Income		A + B	37700

.

Calculation of Person’s Adjusted Gross​ Income

	Particulars	Explanation	Amount ($)
A.	Gross Income	As calculated above	37700
B.	Tax-deferred retirement plan	Given in question	3800
Person’s Adjusted Gross Income		A - B	33900

.

Calculation of Person’s Taxable Income

	Particulars	Explanation	Amount ($)
A.	Adjusted Gross Income	As calculated above	33900
B.	Personal exemption	Given in question	3800
C.	Standard deduction	Given in question	5950
D.	Itemized deduction	Interest on home mortgage + Contribution to charity + Payment of state taxes = $8400 + $2700 + $1325	12425
Person’s Taxable Income		A - B - D [Refer note - (1)] = $33900 - $3800 - $12425	17675

# Note - (1) - Person’s Taxable Income is calculated by considering the greater of a Standard deduction or an Itemized deduction.