FINANCIAL SERVICES: SAVINGS PLANS AND ACCOUNTS

Jamie Lee Jackson, age 26, is in her last semester of college and is waiting for a graduation day that is just around the corner! It is the time of year again when Jamie Lee must file her annual federal income taxes. Last year, she received an increase in salary from the bakery, which brought her gross monthly earnings to $2,550, and she also opened up an IRA, to which she contributed $300. Her savings accounts earn 2 percent interest per year, and she also received an unexpected $1,000 gift from her great aunt. Jamie was also lucky enough last year to win a raffle prize of $2,000, most of which was deposited into her regular savings account after paying off her credit card balance.

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Current Financial Situation

Assets:

Checking account, $2,250

Savings account, $6,900 (interest earned last year: $125)

Emergency fund savings account, $3,900 (interest earned last year: $75)

IRA balance, $350 ($300 contribution made last year)

Car, $3,000

Liabilities:

Student loan, $10,800

Credit card balance, $0 (interest paid last year: $55)

Income:

Gross monthly salary, $2,550

Monthly Expenses:

Rent obligation, $275

Utilities obligation, $135

Food, $130

Gas/Maintenance, $110

Credit card payment, $0

Savings:

Regular savings monthly deposit, $175

Rainy day savings monthly deposit, $25

Entertainment:

Cake decorating class, $40

Movies with friends, $60

Questions

1.

Jamie Lee is trying to decide between Form 1040EZ and Form 1040A to file her federal income tax return. Using the Personal Finance in Practice information found on page 86, choose the most appropriate federal tax filing form for Jamie to use and describe your reasoning for making this choice.

2.

What impact on Jamie Lee's income would the gift of $1,000 from her great aunt have on her adjusted gross income? Would there be an impact on the adjusted gross income with her $2,000 raffle prize winnings? Explain your answer.

3.

Using Exhibit 31 as a guide, calculate Jamie Lee's adjusted gross income amount by completing the table below:

Gross income
() Adjustments to income
= Adjusted gross income

4.

What would Jamie Lee's filing status be considered?

5.

Jamie Lee has a marginal tax rate of 15% and an average tax rate of 11%. Explain why there is a difference between the two rates.