Joe and Jessie are married and have one dependent child, Lizzie. Lizzie is cur- rently in college at State University. Joe works as a design engineer for a man- ufacturing 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. Based on their estimates, determine Joe and Jessie's AGI and taxable income for the year and complete pages 1 and 2 of Form 1040 (through tax- able income, line 43) and Schedule A. Assume the 2014 rules apply for pur- poses of the qualified education expense deduction and that the employer portion of the self-employment tax on Jessie's income is $808. Joe and Jessie have summarized the income and expenses they expect to report this year as follows:
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Income: |
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Joe's salary
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$119,100
|
|
Jessie's craft sales
|
18,400
|
|
Interest from certificate of deposit
|
1,650
|
|
Interest from Treasury bond funds
|
727
|
|
Interest from municipal bond funds
|
920
|
| Expenditures: |
|
|
Federal income tax withheld from Joe's wages
|
$13,700
|
|
State income tax withheld from Joe's wages
|
6,400
|
|
Social Security tax withheld from Joe's wages
|
7,482
|
|
Real estate taxes on residence
|
6,200
|
|
Automobile licenses (based on weight)
|
310
|
|
State sales tax paid
|
1,150
|
|
Home mortgage interest
|
14,000
|
|
Interest on Masterdebt credit card
|
2,300
|
|
Medical expenses (unreimbursed)
|
1,690
|
|
Joe's employee expenses (unreimbursed)
|
2,400
|
|
Cost of Jessie's craft supplies
|
4,260
|
|
Postage for mailing crafts
|
145
|
|
Travel and lodging for craft shows
|
2,230
|
|
Meals during craft shows
|
670
|
|
Self-employment tax on Jessie's craft income
|
1,615
|
|
College tuition paid for Lizzie
|
5,780
|
|
Interest on loans to pay Lizzie's tuition
|
3,200
|
|
Lizzie's room and board at college
|
12,620
|
|
Cash contributions to the Red Cross
|
525
|
Mr.Frankis currently employed and a single taxpayer. Determine which of several interest expenses paid by Mr. Frank during the year are tax deductible and which are personal, nondeductible expenses.
Mr.Jonesis currently employed and a single taxpayer. Determine which of several medical and health-related expenses paid by Mr. Jones on behalf of himself and his mother during the year are tax deductible and which are per- sonal, nondeductible expenses.