**Jenny's Tax Scenario**- **Status & Earnings**: Jenny is single, 42, and earns $50,000 in 2022. She has no other income.- **Medical Expenses**: $5,000 in total medical expenses for the year.- **Casualty Loss**: $7,500 loss due to flood (in a Federally declared disaster area).- **Charitable Contribution**: Jenny donated $10,000 to her church.- **IRA Decision**: Jenny is deciding whether to contribute $1,000 to a traditional IRA. This can affect her taxable income.**Table: Effect of IRA Contribution on Itemized Deductions**| | With IRA Contribution | Without IRA Contribution ||-------------------------------------|-----------------------|--------------------------|| **Gross Income** | 50,000 | 50,000 || **Contribution to IRA** | -1,000 | $0 || **AGI** | | || **Itemized Deductions** | | || **Charitable Contribution** | | || **Medical Expense Deduction** | | || **Casualty Loss Deduction** | 7,500 – $100 – (10% × AGI) = 2500 | 2400 || **Total Itemized Deductions** | | || **Taxable Income** | | |1. **Complete the Table**: Analyze how the IRA contribution affects itemized deductions.2. **Medical Deduction Calculation**: Determine calculations for medical deductions.3. **IRA's Impact on Deductions**: Calculate how much the IRA increases Jenny's itemized deductions. (Answer in dollars)4. **IRA's Impact on Taxable Income**: Calculate reduction in taxable income due to $1,000 IRA contribution. (Answer in dollars)

Answered: enny, single, age 42, earns $50,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

**Jenny's Tax Scenario**

- **Status & Earnings**: Jenny is single, 42, and earns $50,000 in 2022. She has no other income.
- **Medical Expenses**: $5,000 in total medical expenses for the year.
- **Casualty Loss**: $7,500 loss due to flood (in a Federally declared disaster area).
- **Charitable Contribution**: Jenny donated $10,000 to her church.
- **IRA Decision**: Jenny is deciding whether to contribute $1,000 to a traditional IRA. This can affect her taxable income.

**Table: Effect of IRA Contribution on Itemized Deductions**

| | With IRA Contribution | Without IRA Contribution |
|-------------------------------------|-----------------------|--------------------------|
| **Gross Income** | 50,000 | 50,000 |
| **Contribution to IRA** | -1,000 | $0 |
| **AGI** | | |
| **Itemized Deductions** | | |
| **Charitable Contribution** | | |
| **Medical Expense Deduction** | | |
| **Casualty Loss Deduction** | 7,500 – $100 – (10% × AGI) = 2500 | 2400 |
| **Total Itemized Deductions** | | |
| **Taxable Income** | | |

1. **Complete the Table**: Analyze how the IRA contribution affects itemized deductions.

2. **Medical Deduction Calculation**: Determine calculations for medical deductions.

3. **IRA's Impact on Deductions**: Calculate how much the IRA increases Jenny's itemized deductions. (Answer in dollars)

4. **IRA's Impact on Taxable Income**: Calculate reduction in taxable income due to $1,000 IRA contribution. (Answer in dollars)

Expert Solution

Step 1: Meaning of AGI , itemised deductions

1]Adjusted Gross Income (AGI) is defined as gross income minus adjustments to income. Gross income includes your wages, dividends, capital gains, business income, retirement distributions as well as other income.

Essentially, AGI starts with your gross income. Then, your income is reduced through the deductions. Some common examples of deductions that reduce adjusted gross income include deductible traditional IRA contributions, health savings account contributions and educator expenses.

2] If you itemize, you can deduct a part of your medical and dental expenses, and amounts you paid for certain taxes, interest, contributions, and other expenses. You can also deduct certain casualty and theft losses. If you and your spouse paid expenses jointly and are filing separate returns for 2022, see Pub.

3] Your deduction for charitable contributions generally can't be more than 60% of your AGI, but in some cases 20%, 30%, or 50% limits may apply.

4] Donations can be made in the form of a cheque, a draft, or currency; however, cash donations exceeding Rs 10,000 are not eligible for tax deductions.

5] Generally, you can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 7.5% of your AGI.

6]Limitation on personal casualty and theft losses. Personal casualty and theft losses of an individual, sustained in a tax year beginning after 2017, are deductible only to the extent that the losses are attributable to a federally declared disaster. Personal casualty and theft losses attributable to a federally declared disaster are subject to the $100 per casualty and 10% of your adjusted gross income (AGI) reductions unless they are attributable to a qualified disaster loss.