Cheryl Stern who is single goes to graduate school parttime

Cheryl Stern, who is single, goes to graduate school part-time and works as a waitress at the Sunset Grill in Seattle. During the past year (2011), her gross income was $18,100 in wages and tips. She has decided to prepare her own tax return because she cannot afford the services of a tax expert. After preparing her return, she comes to you for advice. Here\'s a summary of the figures she has prepared thus far: Gross income: $10,000 +8,100 $18,100 2,500 $15,600 -5,800 $9,800 Wages Tips Adjusted gross income (AGI) Less: Itemized deductions Less: Standard deduction Taxable income Cheryl believes that if an individual\'s income falls below $20,350, the federal government considers him or her \"poor\" and allows both itemized deductions and a standard deduction. 1. Calculate Cheryl Stern\'s taxable income, being sure to consider her exemption. Assme ht the standard deduction for a single taxpayer is $5,800 and that each exemption claimed is worth $3,700 $123po 2. Cheryl has been dating John Brooks for nearly four years, and they are seriously thinking about getting married. John has income and itemized deductions that are identical to Cheryl\'s. How much ta>» would they pay as a married couple (using the filing status of married filing jointly and a standard deduction of $11,600) versus the total amount the two would pay as single persons (each using the filing status of single)? Round the answer to 1 decimal place. (Use Exhibit 3.3.)

Solution

Question 1. Calculate Cheryl’s Taxable Income:

Answer:

Adjusted Gross Income = Wages + Tips = $10,000 + $8,100 = $18,100

Less: Personal Exemption                                                                  $3,700

                                                                                                              $14,400

Less: Standard Deduction                                                                   $5,800

Taxable Income                                       =                                          $8,600     (Answer)

Question 2: Cheryl has been dating John for nearly four years, and they are serious about marriage.

How much Tax would they pay as a married couple.   (Standard Deduction of $11,600)

Answer:

In this case, it hardly matters whether they pay tax individually or as a married couple.

Single:

Taxable Income (As found in the above question no.1 as $8,600) = $8,600

Income tax Calculation:

Taxable income falls under the first slab of $ 0 to $9,325

Income Tax Payable = 10% of $8,600 = $860

Married Couple:

Taxable incocme = 8600* 2 = $17,200

They fall under the first slab of $0 to $18,650

Income Tax Calculation:

Income Tax Payable = 10% of $17,200 = $1,720