Problem 1 Davenports Thompsons Salary ( earned by one spouse) $36,000 $95,000 Interest 1,600 10,300 Deductible IRA contribution 2,500 0 Itemized...

Problem 1

Davenports

Thompsons

Salary ( earned by one spouse)

$36,000

$95,000

Interest

1,600

10,300

Deductible IRA contribution

2,500

0

Itemized deductions

17,000

17,000

Expemptions

7,900

7,900

WithHolding

900

20,500

Compute the 2015 tax due or refund for each couple. Assume that the itemized deductions have been

reduced by the applicable floors Ignore credits.

A. Compute Taxable Income:

Davenports

Thompsons

Salary

add interest

Gross income

Minus:

Ira Contributions

Adjusted Gross Income

Minus:

 Itemized deductions

 Exemptions

Taxable Income

B. Calculate the 2015 tax due or refund due for each couple (use a minus sign or parentheses for a net tax refund)

Davenports

Thompsons

Gross tax

Minus:

Withholding

Tax due (refund)

$

Reference

STANDARD DEDUCTION 2015

Filing Status

Married individuals filing joint returns and surviving spouses

$12,600

Heads of households

9,250

Unmarried individuals (other than surviving spouses and heads of households)

6,300

Married individuals filing separate returns

6,300

Additional standard deduction for the aged and the blind

Individual who is married and surviving spouses

1,250

Individual who is unmarried and not a surviving spouse

1,550 *

Taxpayer claimed as dependent on another taxpayer's return:

Greater of (1) earned income plus $350 or (2) $1,050

* These amounts are $2,500 and $3,100, respectively , for a taxpayer who is both aged and blind.

PERSONAL AND DEPENDENCY EXEMPTION AND PHASE-OUTS

Personal and dependency exemption Phase-outs for high income taxpayers :

4,000

Personal and dependency exemptions are reduced by 2% for each $2,500 increment (or part of increment) for AGI above the threshold amount.

Itemized deductions are reduced by 3% for each dollar of AGI above the threshold amounts (taxpayers cannot lose more than 80% of their allowable itemized deductions).

For both provisions , the AGI threshold amounts are:

Married individuals filing joint returns and surviving spouses

$305,050

Heads of households

$279,650

Unmarried individuals (other than surviving spouses and heads of households)

$254,200

Married individuals filing separate returns

$152,525