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?
Yes, you are correct that to determine tax liability, you generally need to add up all the income and certain deductions. However, there are other factors to consider as well. Additionally, the tax calculation involves multiple steps. Let's break it down step-by-step:
Step 1: Calculate Adjusted Gross Income (AGI)
AGI is calculated by subtracting certain deductions from your total income:
Total Income = Salary + Wages + Capital Gains
AGI = Total Income - IRA Contribution
In this case:
Total Income = $69,000 + $42,220 + $13,580 = $124,800
AGI = $124,800 - $2,000 = $122,800
Step 2: Calculate Taxable Income
Taxable Income is calculated by subtracting the standard deduction or itemized deductions and exemptions from AGI. In this case, since the taxpayer files as head of household, the standard deduction is $18,650 (for the tax year 2021).
Taxable Income = AGI - Standard Deduction - (Exemptions x Exemption Amount)
In this case:
Taxable Income = $122,800 - $18,650 - (2 x $4,300)
Taxable Income = $122,800 - $18,650 - $8,600
Taxable Income = $95,550
Step 3: Determine the Tax Liability using the Tax Bracket System
To calculate the tax liability, you need to apply the appropriate tax brackets based on the taxable income. For simplicity, let's assume the tax rate of 22% for this example.
Tax Liability = Taxable Income x Tax Rate
In this case:
Tax Liability = $95,550 x 0.22
Tax Liability = $21,021
So, Jaki Taggart's tax liability based on the given information is $21,021.
Please note that this is a simplified example, and other factors like credits, other deductions, or changes in tax laws may affect the final tax calculation. It is always advisable to consult a tax professional for accurate and personalized tax advice.
To determine Jaki Taggart's tax liability, you need to follow a specific process. Let's break it down step by step:
Step 1: Calculate the Adjusted Gross Income (AGI)
- Start with Jaki's salary of $69,000.
- Add her wages of $42,220.
- Add her capital gains of $13,580.
- Subtract her IRA contribution of $2,000.
The result is the AGI.
AGI = Salary + Wages + Capital Gains - IRA Contribution
In this case, the AGI would be:
AGI = $69,000 + $42,220 + $13,580 - $2,000 = $122,800
Step 2: Determine the Taxable Income
- The taxable income is calculated by subtracting deductions from the AGI.
- Deductions include items such as mortgage interest, property taxes, and charitable contributions.
- Additional deductions specific to the taxpayer's filing status, exemptions, and other factors may also apply.
For Jaki, if she files as head of household and claims two exemptions, you need to calculate the standard deduction and personal exemptions and subtract them from the AGI to get the taxable income.
Step 2a: Calculate the Standard Deduction
For the tax year 2021, the standard deduction for head of household filers is $18,800.
Step 2b: Calculate Exemptions
For each exemption, subtract the exemption amount from the taxable income. In 2021, each exemption is $4,300.
For Jaki, she has two exemptions, so subtract $4,300 x 2 = $8,600 from the taxable income.
The taxable income can now be calculated:
Taxable Income = AGI - Standard Deduction - (Exemption Amount x Number of Exemptions)
Taxable Income = $122,800 - $18,800 - ($4,300 x 2) = $95,400
Step 3: Determine the Tax Liability
With the taxable income calculated, you can determine the tax liability using the applicable tax bracket rates for the tax year.
You'll need to consult the tax brackets for the respective year to determine the marginal tax rate that applies to Jaki's taxable income. The tax rates are progressive, meaning different portions of taxable income are taxed at different rates.
Once you know the marginal tax rate, you can calculate the tax liability using the formula:
Tax Liability = Taxable Income x Marginal Tax Rate
After determining the tax liability, you should subtract any tax credits or payments already made during the year to get the final tax liability.
Note: In this response, I provided an explanation of how to calculate the tax liability based on the information provided. However, specific tax rules and rates may vary by jurisdiction and year. It's always advisable to consult a tax professional or refer to the relevant tax laws for accurate and up-to-date information.