Question

Porter is single and preparing to file his taxes. He knows that he has earned $33,743 in wages and tips this year, as well as having earned $174 in interest through his savings account. Through his employer, Porter has been able to begin building his 401K account by contributing $50/month. Porter qualifies for personal exemptions (see table in notes for amount). He is not sure whether he should itemize his deductions or take the standard deduction. Porter has donated $4500 to qualified charities over the past year, and has spent $536 on school-related expenses that are tax deductible. After using the marginal tax rates to assess taxes owed, Porter qualified for an education tax credit worth $750 to help cover costs of college tuition. How much is Porter's tax bill?

a) Find Porter's gross income and adjusted gross income (AGI)
b) Decide if Porter should itemize his deductions or just take the standard deduction.
c) Subtract exemptions and deductions from Porter's AGI to get his taxable income.
d) Calculate Porter's total tax using the marginal tax rate table from your notes.
e) Subtract any tax credits from the tax amount.

Answer 1

To calculate Porter's tax bill, we'll go through the following steps:

a) Calculate Porter's gross income and adjusted gross income (AGI):

Gross Income:

Wages and tips: $33,743

Interest: $174

Total Gross Income = Wages and tips + Interest = $33,743 + $174 = $33,917

AGI (Adjusted Gross Income):

Porter's 401K contributions are tax-deductible. Since he contributed $50 per month, the total contribution for the year would be $50/month * 12 months = $600.

AGI = Total Gross Income - 401K contributions = $33,917 - $600 = $33,317

b) Decide if Porter should itemize his deductions or take the standard deduction:

To determine whether Porter should itemize his deductions or take the standard deduction, we need to compare the total itemized deductions he is eligible for against the standard deduction amount.

Itemized Deductions:

Charitable donations: $4,500

School-related expenses: $536

Total Itemized Deductions = Charitable donations + School-related expenses = $4,500 + $536 = $5,036

Standard Deduction (for a single taxpayer in 2023): $13,000

Since Porter's total itemized deductions ($5,036) are less than the standard deduction ($13,000), it would be more beneficial for him to take the standard deduction.

c) Calculate Porter's taxable income:

Taxable Income = AGI - Deductions

Since Porter is taking the standard deduction, the taxable income would be:

Taxable Income = AGI - Standard Deduction = $33,317 - $13,000 = $20,317

d) Calculate Porter's total tax using the marginal tax rate table:

To determine Porter's total tax, we need to apply the marginal tax rates to his taxable income.

Please provide me with the marginal tax rate table from your notes, and I can calculate the total tax based on that.

e) Subtract any tax credits from the tax amount:

Porter qualifies for an education tax credit worth $750. To calculate his final tax bill, we subtract this credit from the total tax calculated in step d.

Final Tax Bill = Total Tax - Education Tax Credit

Please provide me with the marginal tax rates and I can calculate the total tax and the final tax bill for Porter.