Accountancy 503 August 24, 2020

Graham, a single, calendar year individual, had a rather good year in 2020. He generated business income of $210,000 and had $78,000 of business deductions, including deductible meals of $4,250 (before the required 50% reduction). Conservative Graham had taxable interest income of $17,600 and no other taxable income.

Grahams self-employment tax for 2020 is $18,951. Graham can deduct one-half of this in arriving at his adjusted gross income.

Grahams deductions and related information are as follows:

QBI deduction in arriving at AGI $24,930

Standard deduction 18,650

Itemized deductions 17,700

Dependents (Grahams mother, ager 75) 1

Create an Excel spreadsheet to:

Calculate Grahams taxable income as a head of household and his gross federal income tax.

Based on your answers, calculate Grahams:

Average tax rate (income tax)?

Effective tax rate (income tax)?

Marginal tax rate (income tax)?

Basic Tax Formula:

Income as most broadly conceived

Minus: Exclusions

Equals: Gross income

Minus: Deductions for AGI

Equals: Adjusted gross income

Minus: Larger of itemized deductions or standard deduction

Minus: QBI deduction

Equals: Taxable income

Apply tax rates

Equals gross income tax

Minus: Credits and prepayments

Equals: Tax due or refund.