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29 December, 10:05

Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children, who live with her. Charlotte also maintains the household in which her parents live, and she furnished 60% of their support. Besides interest on City of Miami bonds in the amount of $5,500, Charlotte's father received $2,400 from a part-time job. Charlotte earns an $80,000 salary, a short-term capital loss of $2,000, and a cash prize of $4,000 at a church raffle. Charlotte reports itemized deductions of $10,500. Using the Tax Rate Schedules, compute the 2012 tax liability for Charlotte.

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  1. 29 December, 11:43
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    Tax = $5,445

    Explanation:

    Given

    Salary = $80,000

    Short-term capital loss = $2,000

    Cash prize = $4,000

    Personal and dependency exemptions = $4,000*7 = $28,000

    Standard deductions = $11,900 (for surviving spouse in 2012)

    Calculating AGI

    AGI = Salary - Capital Loss + Cash Prize

    AGI = $80,000 - $2,000 + $4,000

    AGI = $82,000

    Calculating Taxable Income

    Taxable Income = AGI - Personal And Dependency Exemption - Standard Deductions

    Taxable Income = $82,000 - $28,000 - $11,900

    Taxable Income = $42,100

    From The Federal Income Tax Brackets for 2012,

    Charlotte falls with the 15% tax bracket.

    There are 15% tax, so we calculate as follows:

    10% of the first bracket is

    $17,400 * 10% = $1,740

    15% is the amount in the second bracket

    15% of (42,100 - 17400) = 3,705

    Tax = $3,705 + $1,740

    Tax = $5,445
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