Chris and Carol are married and have one dependent child, Callie. Callie is 22 years old, unemployed, and currently a full time student at State University. Chris works as a design engineer for a manufacturing firm while Carol runs a craft business from their home. Carols craft business consists of making craft items for sale at craft shows that are held periodically at various locations. Carol spends considerable time and effort on her craft business and it has been consistently profitable over the years. Chris and Carol own a home and pay interest on their home loan (mortgage of $620,000) and a personal loan to pay for Callies college expenses (balance of $35,000).

Neither Chris nor Carol is blind or over age 65, and they plan to file as married joint. Carol had 4.900 of gambling losses from a girls weekend in Atlantic City.

Chris and Carol have summarized the income and expenses they expect to report this year as follows:

Income:

Chriss salary $ 227,500

Carols craft sales 35,050

Interest from certificate of deposit 3,650

Interest from Treasury bond funds 927

Interest from municipal bond funds 3,920

Carols gambling winnings 3,900

Expenditures:

Federal income tax withheld from Chriss wages $ 27,500

State income tax withheld from Chriss wages 8,200

Social Security tax withheld from Chriss wages 7,925

Real estate taxes on residence 8,200

Automobile licenses (based on value) 410

State sales tax paid 2,150

Home mortgage interest 10,270

Interest on Masterusage credit card 1,980

Penalty for early withdrawal of certificate of deposit 420

Cost of Carols craft supplies 12,270

Postage for mailing crafts 845

Travel and lodging for craft shows 2,430

Interest on loans to pay Callies tuition 3,200

Callies room and board at college 15,620

Callies tuition at college 19,560

Cash contributions to Red Cross 1,945

Gross Income :

FOR AGI deductions:

AGI :

FROM AGI deductions

Standard Deduction

Taxable Income

Tax Liability