3.2 Cheryl Stem: Waitress or Tax Expert?

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 (2011) her gross income was $18700 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: Itemized deductions -5,800 Taxable income $10,600

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.

1. Calculate Cheryl Stern's taxable income, being sure to consider her exemption. Assume that the standard deduction for a single taxpayer is $5,800 and that each exemption claimed is worth $3,700.

2. Discuss Cheryls 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 Cheryls. How much tax would they pay as a married couple (using the filing status of married filing jointly and a standard deduction of $11600) 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 Chery\ and John stay sing\e or get married? Explain.