Chapter 1, Problem 9P

a.

To determine

Introduction: Income tax law enables individuals to pay taxes to the government for the social and economic benefits of the public and it allows the government to collect and spend revenues in creating value for the society at large. Income tax law applicability is not limited to individuals only but also corporations, firms, trusts, etc.

The gross income.

Answer to Problem 9P

Gross income: $\boxed{\$67,625}$

Explanation of Solution

Given information:

Salary income: $49,500

Interest income: $10,125

Royalty income: $5,000

Other income: $3,000

Deductions for adjusted gross income: $3,200 and,

Itemized deductions: $18,600

So, the gross income of J and M will be:

  $\text{Gross income =}\left(\begin{array}{l}\text{Salary income}\\ \text{+Interest income}\\ \text{+Royalty income}\\ +\text{Other income}\end{array}\right)$

  $\begin{array}{l}\text{Gross income =\$49,500+\$10,125+\$5,000+\$3,000}\\ \text{ =}\boxed{\text{\$67,625}}\end{array}$

b.

To determine

Introduction: Income tax law enables individuals to pay taxes to the government for the social and economic benefits of the public and it allows the government to collect and spend revenues in creating value for the society at large. Income tax law applicability is not limited to individuals only but also corporations, firms, trusts, etc.

The adjusted gross income.

Answer to Problem 9P

Adjusted gross income (AGI): $\boxed{\text{\$64,425}}$

Explanation of Solution

Given information:

Salary income: $49,500

Interest income: $10,125

Royalty income: $5,000

Other income: $3,000

Deductions for adjusted gross income: $3,200 and,

Itemized deductions: $18,600

So, the gross income of J and M will be:

  $\text{Gross income =}\left(\begin{array}{l}\text{Salary income}\\ \text{+Interest income}\\ \text{+Royalty income}\\ +\text{Other income}\end{array}\right)$

  $\begin{array}{l}\text{Gross income =\$49,500+\$10,125+\$5,000+\$3,000}\\ \text{ =\$67,625}\end{array}$

Now, the calculation of adjusted gross income will be as under:

  $\begin{array}{l}\text{Adjusted gross income =Gross income-deduction for adjusted gross income}\\ \text{ =\$67,625-\$3,200}\\ \text{ =}\boxed{\text{\$64,425}}\end{array}$

c.

To determine

Introduction: Income tax law enables individuals to pay taxes to the government for the social and economic benefits of the public and it allows the government to collect and spend revenues in creating value for the society at large. Income tax law applicability is not limited to individuals only but also corporations, firms, trusts, etc.

The amount of itemized deduction or the standard deduction.

Answer to Problem 9P

Standard deduction: $\boxed{\text{\$24,400}}$

Explanation of Solution

Given information:

Salary income: $49,500

Interest income: $10,125

Royalty income: $5,000

Other income: $3,000

Deductions for adjusted gross income: $3,200 and,

Itemized deductions: $18,600

So, the gross income of J and M will be:

  $\text{Gross income =}\left(\begin{array}{l}\text{Salary income}\\ \text{+Interest income}\\ \text{+Royalty income}\\ +\text{Other income}\end{array}\right)$

  $\begin{array}{l}\text{Gross income =\$49,500+\$10,125+\$5,000+\$3,000}\\ \text{ =\$67,625}\end{array}$

Now, the calculation of adjusted gross income will be as under:

  $\begin{array}{l}\text{Adjusted gross income =Gross income-deduction for adjusted gross income}\\ \text{ =\$67,625-\$3,200}\\ \text{ =\$64,425}\end{array}$

Since itemized deductions are $18,200 and the amount of standard deduction is $24,400 available to J and M, so greater amount will be selected. Thus standard deduction of $24,400 will be considered.

d.

To determine

Introduction: Income tax law enables individuals to pay taxes to the government for the social and economic benefits of the public and it allows the government to collect and spend revenues in creating value for the society at large. Income tax law applicability is not limited to individuals only but also corporations, firms, trusts, etc.

The taxable income.

Answer to Problem 9P

J’s taxable income: $\boxed{\$40,025}$

Explanation of Solution

Given information:

Salary income: $49,500

Interest income: $10,125

Royalty income: $5,000

Other income: $3,000

Deductions for adjusted gross income: $3,200 and,

Itemized deductions: $18,600

So, the gross income of J and M will be:

  $\text{Gross income =}\left(\begin{array}{l}\text{Salary income}\\ \text{+Interest income}\\ \text{+Royalty income}\\ +\text{Other income}\end{array}\right)$

  $\begin{array}{l}\text{Gross income =\$49,500+\$10,125+\$5,000+\$3,000}\\ \text{ =\$67,625}\end{array}$

Now, the calculation of adjusted gross income will be as under:

  $\begin{array}{l}\text{Adjusted gross income =Gross income-deduction for adjusted gross income}\\ \text{ =\$67,625-\$3,200}\\ \text{ =\$64,425}\end{array}$

Since itemized deductions are $18,600 and the amount of standard deduction is $24,400 available to J and M, so greater amount will be selected. Thus standard deduction of $24,400 will be considered to calculate taxable income.

Thus, the calculation of taxable income will be as under:

  $\begin{array}{l}\text{Taxable income=Adjusted gross income-Standard deduction}\\ =\$64,425-\$24,400\\ =\boxed{\$40,025}\end{array}$

e.

To determine

Introduction: Income tax law enables individuals to pay taxes to the government for the social and economic benefits of the public and it allows the government to collect and spend revenues in creating value for the society at large. Income tax law applicability is not limited to individuals only but also corporations, firms, trusts, etc.

The income tax liability.

Answer to Problem 9P

Tax liability: $\boxed{\$13,227.5}$

Explanation of Solution

Given information:

Salary income: $49,500

Interest income: $10,125

Royalty income: $5,000

Other income: $3,000

Deductions for adjusted gross income: $3,200 and,

Itemized deductions: $18,600

So, the gross income of J and M will be:

  $\text{Gross income =}\left(\begin{array}{l}\text{Salary income}\\ \text{+Interest income}\\ \text{+Royalty income}\\ +\text{Other income}\end{array}\right)$

  $\begin{array}{l}\text{Gross income =\$49,500+\$10,125+\$5,000+\$3,000}\\ \text{ =\$67,625}\end{array}$

Now, the calculation of adjusted gross income will be as under:

  $\begin{array}{l}\text{Adjusted gross income =Gross income-deduction for adjusted gross income}\\ \text{ =\$67,625-\$3,200}\\ \text{ =\$64,425}\end{array}$

Since itemized deductions are $18,600 and the amount of standard deduction is $24,400 available to J and M, so greater amount will be selected. Thus standard deduction of $24,400 will be considered to calculate taxable income.

Thus, the calculation of taxable income will be as under:

  $\begin{array}{l}\text{Taxable income=Adjusted gross income-Standard deduction}\\ =\$64,425-\$24,400\\ =\$40,025\end{array}$

Therefore, the tax liability will be computed as under:

  $\begin{array}{l}\text{Tax liability =}\$4,543+22\%\left(\$40,025-\$39,475\right)\\ =\$4,543+0.22\times \$39,475\\ =\$4,543+\$8,684.5\\ =\boxed{\$13,227.5}\end{array}$

Therefore, the tax liability will be $\boxed{\$13,227.5}$ .