1.A is single and has the following items of income and expense:

Salary $25,000 Bank interest income $3,000 Interest income on a bond issued by California $2,500 Contributions to an IRA (non- Roth) $1,200 State and local income taxes $2,000| Gambling losses $7,500 A has no dependents. Compute As taxable income for the year.

what would A's taxable income be? This was my answer that was deemed wrong.

To start, the income for A for the year is his salary plus the bank interest income which brings his gross income to $28,000. Interest income on a bond issued by California is excluded as mentioned in class (Municipal bond interest income is exempt from being classified as income).

Then we decide whether the itemized or standard deduction will be better. When we go the Itemized route, the above the line deductions are the contributions to the IRA (non-Roth) which brings the AGI to $26,800. Now we go to the below the line deductions which includes the state and local income taxes at $2,000. This deduction brings our Total Income to $24,800. (Gambling losses cannot be included unless there is gambling income which I see none of). When we go the way of the standard deduction, we start with the income of $28,000 and make the standard single (specified in problem as A has no dependents and is single) deduction is $6,200 which brings his taxable income down to $21,800

Now lets recap, Taxable income under itemized deductions - $24,800

Taxable income under the standard deduction - $21,800

A should choose the standard deduction and pay taxes on an income after a deduction of $21,800