JA 70 Joe and Jessie are married and have one dependent chil

JA 70. Joe and Jessie are married and have one dependent child, Lizzie. Lizzie is currently in college at State University Joe works as a design enginer for a manufacturing firm while Jessie runs a craft busines from their home Jessi\'s craft business consists of making craft items for sale at craft shows that are held periodically at various locations. Jessie spends considerable time and effort on her craft business and it has been consistently profitable over the years. Joe and Jessie pay interest on a personal loan s (balance of $35,000). Based on their estimates, determine Joe and Jessie\'s AGI and complete page 1 of Form 1040. Assume that the 2016 rules apply for purposes of the qualified education deduction and the employer portion of the self employment tax on Jessie\'s income is $808. Joe and Jessie have summarized the income and expenses they expect to report this year as follows Page 6-49 Income: Joe\'s salary Jessie\'s craft sales Interest from certificate of deposit Interest from Treasury bond funds Interest from manicipal bond funds Income from renting out their personal residence for 10 days during $124.100 18.400 1,650 727 920 800 local golf tournament Expendstures Social Security tax withheld from Joe\'s wages Cost of Jessie\'s craft supplies Postage for mailing crafts Travel and lodging for craft shows Meals daring craft shows Self-employment tax on Jessie\'s craft income College tuition pad for Lizzie Interest on loans to pay Lizzie\'s tuition Lizzie\'s room and board at college Cleaning fees and advertising expense associated with reoting their 7.482 4.260 145 ,230 670 1.615 5,780 3.200 12,620 600

Solution

Calculating Joes and Jessie’s AGI

Particulars

Amount ($)

Explanation

Salary income

Salary

122,000

Social security tax paid

-7,564

Employers generally must withhold part of social security and Medicare taxes from employees\' wages and you pay a matching amount yourself.

Income from salary

114,436

Other income

Interest (taxable)            

1650

The interest earned from certificates of deposit (CDs) is taxable

Income from rents

House let out               10000

Less related expense      500

9500

Other income

11150

Business income

Craft business revenue       18500

Less cost of goods sold         4260

Less: travel and postage     2230+145

Less: assistant                         670

Income from craft business

11,195

TOTAL INCOME

136,781

Less: 50% of SE taxes

Self-employment tax    1280

640

You can deduct half of that from your adjusted gross income. That represents an employer\'s FICA share.

Modified AGI

136,141

Roth IRA Contribution

-5,500

Allowed up to 5,500

Moving expense

0

Unreimbursed moving expenses to a new full-time job or to a new location for the same job are generally deductible if they meet the 50 mile distance test

IE Old Home to New Job Location Distance – Old Home to Old Job Location Distance 50 Miles which is 50 miles in this case. Thus, not deductible.

Meals are not deductible as a moving expense in any case.

Student loan interest deduction

2,500

You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year IE 3,500

AGI

128,141

Particulars	Amount ($)	Explanation
Salary income
Salary	122,000
Social security tax paid	-7,564	Employers generally must withhold part of social security and Medicare taxes from employees\' wages and you pay a matching amount yourself.
Income from salary	114,436
Other income
Interest (taxable)	1650	The interest earned from certificates of deposit (CDs) is taxable
Income from rents House let out               10000 Less related expense      500	9500
Other income	11150
Business income
Craft business revenue       18500
Less cost of goods sold         4260 Less: travel and postage     2230+145 Less: assistant                         670
Income from craft business	11,195
TOTAL INCOME	136,781
Less: 50% of SE taxes Self-employment tax    1280	640	You can deduct half of that from your adjusted gross income. That represents an employer\'s FICA share.
Modified AGI	136,141
Roth IRA Contribution	-5,500	Allowed up to 5,500
Moving expense	0	Unreimbursed moving expenses to a new full-time job or to a new location for the same job are generally deductible if they meet the 50 mile distance test IE Old Home to New Job Location Distance – Old Home to Old Job Location Distance 50 Miles which is 50 miles in this case. Thus, not deductible. Meals are not deductible as a moving expense in any case.
Student loan interest deduction	2,500	You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year IE 3,500
AGI	128,141