The problem is as follows: Please help Jaki Taggart determine her tax liability based on the following: salary, $69,000; wages, $42,220; capital gains, $13,580; $2,000 IRA contribution; mortgage interest, $6,050; property taxes, $2,560; charitable contributions, $550. She files as head of household and claims two exemptions.
I'm pretty sure that you have to add all of these then subtract certain values and divide it all by the number of exemptions. But when I do that- it's wrong. Am I missing a step?
To calculate Jaki Taggart's tax liability, you will need to consider several factors. I will guide you through the process step by step.
1. Calculate Adjusted Gross Income (AGI):
AGI is determined by adding up Jaki's salary, wages, and capital gains, and then subtracting deductible expenses such as IRA contributions, mortgage interest, property taxes, and charitable contributions.
AGI = (salary) + (wages) + (capital gains) - (IRA contribution) - (mortgage interest) - (property taxes) - (charitable contributions)
Substituting the given values:
AGI = $69,000 + $42,220 + $13,580 - $2,000 - $6,050 - $2,560 - $550
2. Determine the Standard Deduction:
As Jaki is filing as head of household, she is entitled to a standard deduction of $18,650 for tax year 2021.
3. Calculate Taxable Income:
Taxable Income is calculated by subtracting the standard deduction from the AGI.
Taxable Income = AGI - Standard Deduction
Substituting the values:
Taxable Income = AGI - $18,650
4. Determine Tax Brackets and Rates:
Find the tax bracket associated with Jaki's taxable income. For 2021, the tax brackets for head of household filing status are as follows:
- 10% tax rate for taxable income up to $14,200
- 12% tax rate for income between $14,201 and $54,200
- 22% tax rate for income between $54,201 and $86,350
- ...
Based on Jaki's taxable income, you'll need to determine the appropriate tax rate.
5. Calculate Tax Liability:
Multiply the taxable income by the applicable tax rate to determine the tax liability.
Tax Liability = Taxable Income * Applicable Tax Rate
Substituting the values, use the appropriate tax rate that corresponds to Jaki's taxable income.
6. Subtract Exemptions:
To determine the final tax liability, subtract the number of exemptions (in this case, 2) multiplied by the exemption amount. For 2021, each exemption reduces taxable income by $4,300.
Final Tax Liability = Tax Liability - (Number of Exemptions * Exemption Amount)
Substituting the values:
Final Tax Liability = Tax Liability - (2 * $4,300)
By following these steps, you will be able to determine Jaki Taggart's tax liability. Make sure to use the correct tax rates for her taxable income range.