Jackson, age 35, and Peggy, age 34, are married and file a joint income tax return for 2022. Their salaries for the year total $85,400 and they have dividend income of $4,000. They have no deductions for adjusted gross income. Their itemized deductions are $25,200. Jackson and Peggy do not have any dependents.

Table for the standard deduction

Filing StatusStandard DeductionSingle$12,950Married, filing jointly25,900Married, filing separately12,950Head of household19,400Surviving spouse25,900

a. What is the amount of their adjusted gross income?

Individual taxpayers calculate their tax in accordance with a tax formula. Understanding the formula is important, since all tax determinations are based on the result. An important step in calculating the amount of a taxpayer's tax is the determination of the taxpayer's correct filing status. The tax law has five different filing statuses: single; married filing jointly; married filing separately; head of household; and qualifying widow(er).

Itemized deductions are personal expense items that Congress has allowed as tax deductions. The standard deduction was placed in the tax law to provide relief for taxpayers with few itemized deductions.

b. What is their deduction for personal exemptions?

c. What is the amount of their taxable income?