Chapter 6, Problem 55CP

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. 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 taxable income, line 10), Schedule 1 and Schedule A. Assume that the employer portion of the self-employment tax on Jessie’s income is $831. Joe and Jessie have summarized the income and expenses they expect to report this year as follows:

Income:   

 Joe’s salary    $129,100

 Jessie’s craft sales    18,400

 Interest from certificate of deposit    1,650

 Interest from Treasury bond funds    716

 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

 Self-employment tax on Jessie’s craft income    1,662

 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