Required information The following information applies to th

Required information (The following information applies to the questions displayed below.] Through November, Tex has received gross income of $120,000. For December, Tex is considering whether to accept one more work engagement for the year. Engagement 1 will generate $7,000 of revenue at a cost of $4,000, which is deductible for AGI. In contrast, engagement 2 will generate $7,000 of revenue at a cost of $3,000, which is deductible as an itemized deduction. Tex files as a single taxpayer. a. Calculate Tex\'s taxable income assuming he chooses engagement 1 and assuming he chooses engagement 2. Assume he has no itemized deductions other than those generated by engagement 2. * Answer is complete but not entirely correct. Description Engagement Engagement (1) (2) (3) Gross income before new work engagement Income from engagement Additional for AGI deduction Adjusted gross income Greater of itemized deductions or standard deduction Personal exemption Taxable income 120,000 O $ 120,000 7,000 O 7,000 4,000 0 123,000 $ 127,000 5,700 7,500 x (4) 3,700 3,7008 $ 113,650 X $ 117,500 8

Solution

Answer

Engagement 1

Engagement 2

Gross income before new work engagement

             120,000

             120,000

Income from engagement

                  7,000

                  7,000

Additional for AGI deduction

                (4,000)

Adjusted gross income

             123,000

             127,000

Greater of itemized deductions or standard deduction of $5,700

                (5,700)

                (5,700)

Personal exemption

                (3,650)

                (3,650)

Taxable income

             113,650

             117,650

Engagement 1

Engagement 2

Gross income before new work engagement

             120,000

             120,000

Income from engagement

                  7,000

                  7,000

Additional for AGI deduction

                (4,000)

Adjusted gross income

             123,000

             127,000

Greater of itemized deductions or standard deduction of $5,700

                (5,700)

                (7,500)

(3000+4500)

Personal exemption

                (3,650)

                (3,650)

Taxable income

             113,650

             115,850

Notes:

1. Personal Deduction will be $3,650

2. In 2nd Case Itemized deduction of Engagement 2 will be $7500 (3,000 + 4,500)

	Engagement 1	Engagement 2
Gross income before new work engagement	120,000	120,000
Income from engagement	7,000	7,000
Additional for AGI deduction	(4,000)
Adjusted gross income	123,000	127,000
Greater of itemized deductions or standard deduction of $5,700	(5,700)	(5,700)
Personal exemption	(3,650)	(3,650)
Taxable income	113,650	117,650
	Engagement 1	Engagement 2
Gross income before new work engagement	120,000	120,000
Income from engagement	7,000	7,000
Additional for AGI deduction	(4,000)
Adjusted gross income	123,000	127,000
Greater of itemized deductions or standard deduction of $5,700	(5,700)	(7,500) (3000+4500)
Personal exemption	(3,650)	(3,650)
Taxable income	113,650	115,850