Tom and Betsy who are married filing jointly, reported a standard deduction of $11,400 on their 2010 tax return. They paid $500 to the state for income tax in 2010. In 2011, they received a $125 refund of state taxes paid in 2010. What
is the amount that Tom and Betsy need to report on their 2011 tax return?
To calculate the amount that Tom and Betsy need to report on their 2011 tax return, we need to consider a few factors. Let's break it down step by step:
Step 1: Determine the adjusted gross income (AGI) for 2010.
The AGI is calculated by subtracting the deductions and adjustments from their total income. Since Tom and Betsy only reported their standard deduction of $11,400, we can assume that they have no other deductions or adjustments mentioned. Therefore, their AGI for 2010 would be their total income minus the deduction, which we don't know. Let's call this deduction "D."
AGI 2010 = Total Income - D
Step 2: Calculate the tax liability for 2010.
The tax liability for 2010 can be determined based on the tax brackets and rates applicable that year. In this case, we don't have information about Tom and Betsy's income, so we can't calculate the exact tax liability. Let's call this tax liability "T."
Tax Liability 2010 = T
Step 3: Determine the refund received in 2011.
Tom and Betsy received a refund of $125 for state taxes paid in 2010. This refund doesn't affect their federal tax return, so we don't need to consider it in our calculations.
Refund 2011 = $125
Step 4: Adjust the tax liability for 2011.
To determine the amount that Tom and Betsy need to report on their 2011 tax return, we need to adjust the tax liability for the refund.
Adjusted Tax Liability 2011 = Tax Liability 2010 - Refund 2011
Step 5: Report the adjusted tax liability on their 2011 tax return.
The adjusted tax liability for 2011 is the amount that Tom and Betsy need to report on their tax return. This will be the final answer.
Therefore, the amount that Tom and Betsy need to report on their 2011 tax return is the Adjusted Tax Liability for 2011, calculated in Step 4.