Question

Say you are filing as a single taxpayer. You have a gross income of $61,026 and claim two exemptions. You can make a deduction of $2,871 for interest on your mortgage, a deduction of $2,376 for property tax, an adjustment of $3,206 for business losses, an adjustment of $2,575 for contributions to your retirement plan, a deduction of $2,682 for medical expenses, and an adjustment of $2,440 for business expenses. If exemptions are each worth $3,650 and the standard deduction is $5,700, what is your total taxable income?
a.
$39,805
b.
$35,526
c.
$37,576
d.
$43,276

Answer 1

Compute AGI first by subtracting above-the-line adjustments from gross income:
61,026 − (3,206 + 2,575 + 2,440) = 61,026 − 8,221 = 52,805 (AGI).

Itemized deductions = 2,871 + 2,376 + 2,682 = 7,929, which is larger than the standard deduction 5,700, so itemize.

Exemptions = 2 × 3,650 = 7,300.

Taxable income = AGI − (itemized deductions + exemptions) = 52,805 − (7,929 + 7,300) = 52,805 − 15,229 = 37,576.

Answer: c. $37,576.