# tax problem

Can someone please help me with the following question. I really don't know where to start.

-In 2006, Jack and Jill Money had AGI of \$275,750 and taxable income of \$175,000. They have three children, all of whom qualify for the dependency exemption. They file a joint return.
a.) Compute the tax benefit of their personal and dependency exemptions for 2006.
b.) Assume that, in addition to the above facts, Jack and Jill incurred the following expenses in 2006:
Medical expenses- \$10,000
State income taxes- \$5,000
Home mortgage interest- \$25,000
Property taxes- \$4,010
Charitable contributions- \$15,000
Compute the amount of their allowable itemized deductions for 2006.

Your problem needs more information to properly solve. Your problem is missing the sources of income. The answer will change depending on whether the income is largely capital gains and dividends or is something else like wages. (can you assume the income is all wages?) Second, Jack and Jill Money will, very likely, be subject to the Alternative Minimum Tax (AMT). And so, you will need to know something about the sources of itemized deductions (Can you ignore the AMT? If the couple is on the AMT, the value of their exemptions is ZERO.) Third, personal exemptions in 2006 were \$3300 each. With 5 exemptions, that's \$16500. Which means that total itemized deductions are 275750-175000-16500=84250. Yet the sum of the deductions in b) are nowhere near \$84250. What are the missing deduction amounts? This matters for calculating the AMT. Fourth, most states have income taxes and allow personal exemptions. Do state taxes matter in this problem?

To calculate the benefit of exemptions from U.S. FEDERAL income taxes, goto a library and get a few tax forms and instructions: the 1040, a Schedule A, and a Form 6251 (Alternative Minimum Tax). (or download from irs.gov). Calculate Federal taxes two ways, once with the exemptions, once without.

For b) do the same -- follow the instruction on Schedule A.

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