1. Calculate Cheryl Stern's taxable income, being sure to consider her exemption. Assume that the standard deduction for a single taxpayer is $6,200, and that each exemption claimed is worth $3,950.
2. Discuss Cheryl's errors in interpreting the tax laws, and explain the difference between itemized deductions and the standard deduction.
3. Cheryl has been dating John Brooks for nearly four years, and they are seriously thinking about getting married. John has income and itemized deductions that are identical to Cheryl's. How much tax would they pay as a married couple (using the filing status of married filing jointly and a standard deduction of $12,400) versus the total amount the two would pay as single persons (each using the filing status of single)? Strictly from a tax perspective, does it make any difference whether Cheryl and John stay single or get married? Explain.
Cheryl Stern, who is single, goes to graduate school part-time and works as a waitress at the Sunset Grill in Seattle. During the past year (2014), her gross income was $18,700 in wages and tips. She has decided to prepare her own tax return because she cannot afford the services of a tax expert. After preparing her return, she comes to you for advice. Here's a summary of the figures that she has prepared thus far:
Gross income:
Wages .................................................. $10,500
Tips ..................................................... $ 8,200
Adjusted gross income (AGI) ...................... $18,700
Less: Itemized deductions .......................... −2,300
$16,400
Less: Standard deduction ........................... −6,200
Taxable income ....................................... $10,200
Cheryl believes that if an individual's income falls below $20,350, the federal government considers him or her "poor" and allows both itemized deductions and a standard deduction.