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Finance - taxable income










































Computing taxable income

Thomas Franklin arrived at the following tax information.

Gross salary $46,910

Interest earnings $225

dividend income $80

one personal exemption $3,650

itemized deduction $7,820

adjustments to income $1,150

What amount would Thomas report as taxable income?

Comments for Finance - taxable income

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Aug 04, 2012
Compute taxable income
by: Staff

Answer:

Part I

Your federal tax is determined based on your taxable income.

To calculate your taxable income, follow these four steps:

       1. Calculate Gross Income
       2. Calculate Adjusted Gross Income
       3. Calculate Deductions
       4. Calculate Taxable Income


   • Calculate GROSS INCOME

     Gross Income = Gross salary + Interest earnings + Dividend income


       Gross salary: + $46,910

       Interest earnings: + $225

       Dividend income: + $80


           Gross Income: $46,910 + $225 + $80 = $47,215



   • Calculate ADJUSTED GROSS INCOME

     Adjusted Gross Income = Gross salary - Adjustments to Income


       Total Gross Income (computed above): + $47,215

       Adjustments to Income: - $1,150


           Adjusted Gross Income: $47,215 - $1,150 = $46,065



   • Calculate Deductions

     There are two options: 1) Standard Deduction and exemptions, or 2) Itemized Deductions and examptions.

     The majority of people filing a 1040 use the Standard Deduction. However, for this problem we will use Itemized Deductions because that information is given in the problem statement.

     Deductions = itemized deduction + one personal exemption


       Itemized Deduction: $7,820

       one personal exemption: $3,650


           Deductions: $7,820 + $3,650 = $11,470



   • Calculate Taxable Income

     Taxable Income = Adjusted Gross Income – Deductions


       Adjusted Gross Income (computed above): $46,065

       Deductions (computed above): $11,470



           Taxable Income: $46,065 - $11,470 = $34,595




>>> the final answer: Taxable Income = $34,595

-----------------------------------

Aug 04, 2012
Compute taxable income
by: Staff

-----------------------------------

Part II

For your information

GROSS INCOME includes the following:

Wages / Salaries
Income from a profession (such as a medical practice)
Income from a business
Commissions
Fees
Employee Awards
Interest Income (such as interest banks accounts, bonds, loans, etc.)
Investment Gains and losses (on sale of investment)
Alimony
Royalties
Dividends
Income from Property Rental
Pensions (including Social Security)
Tips and Bonuses
Gambling and Prizes


ADJUSTMENTS TO INCOME include the following:

Contributions to an IRA or Keogh retirement plans
Penalties for early withdrawal of savings
Alimony payments.
Certain tax shelters


ITEMIZED DEDUCTIONS include the following:

Interest Payments for a Home Mortgage.

Real estate property tax

A partial deduction Medical and dental expenses (types of deductable medical expenses are the cost of doctors’ services, the cost of prescription medications, hospital expenses, medical insurance premiums, hearing aids, glasses, and medical travel that has not been reimbursed or paid by others.

However, only part of your medical expenses is deductable. The deductable portion of your medical expenses is that portion that exceeds 7.5% of your adjusted gross income.

State and local income tax

State and local personal property tax.




Thanks for writing.

Staff
www.solving-math-problems.com


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