Chapter 8.2, Problem 4E

In Exercises 3-4, find the gross income, the adjusted gross income, and the taxable income, Base the taxable income on the greater of a standard deduction or an itemized deduction.

Suppose your neighbor earned wages of $319,150, received $1790 in interest form a saving account, and contributed $4100 to a tax-deferred retirement plan. He is entitled to a personal exemption of $3800 and the same exemption for each of his two children. He is also entitled to a standard deduction of $5950. The interest on his home mortgage was $51,235, he contributed $74,000 to charity, and he paid $12,760 in state taxes.