UMC Joe and Jessies Taxable income Questions

Joe

and

Jessie are married and have one dependent child, Lizzie. Lizzie is currently in college at State University. Joe works as a design engineer for a manufacturing firm, while Jessie runs a craft business from their home. Jessie’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 own a home and pay interest on their home loan (balance of $220,000) and a personal loan to pay for Lizzie’s college expenses (balance of $35,000).

Neither Joe nor Jessie is blind or over age 65, and they plan to file as married joint. Assume that the employer portion of the self-employment tax on Jessie’s income is $666. Joe and Jessie have summarized the income and expenses they expect to report this year as follows:

Income:Joe’s salary

Jessie’s craft sales

Interest from certificate of deposit

Interest from Treasury bond funds

Interest from municipal bond funds

Expenditures:Federal income tax withheld from Joe’s wages

State income tax withheld from Joe’s wages

Social Security tax withheld from Joe’s wages

Real estate taxes on residence

Automobile licenses (based on weight)

State sales tax paid

Home mortgage interest

Interest on Masterdebt credit card

Medical expenses (unreimbursed)

Joe’s employee expenses (unreimbursed)

Cost of Jessie’s craft supplies

Postage for mailing crafts

Travel and lodging for craft shows

Self-employment tax on Jessie’s craft income

College tuition paid for Lizzie6,200Interest on loans to pay Lizzie’s tuition

Lizzie’s room and board at college

Cash contributions to the Red Cross

$ 14	6,200
18,610
1,860
758
962
$ 13,700
6,820
7,566
6,620
352
1,360
28,100
2,720
1,900
2,820
6,570
170
2,440
1,332
3,620
13,040
630

a. Determine Joe and Jessie’s AGI and taxable income for the year.