John and Jessica are married and have one dependent child, Liz. Liz is currently in college at State University. John works as a design engineer for a manufacturing firm while Jessie runs a craft business from their home. Jessicas craft business consists of making craft items for sale at craft shows that are held periodically at various locations. Jessica spends considerable time and effort on her craft business and it has been consistently profitable over the years. John and Jessica own a home and pay interest on their home loan (balance of $220,000) and a personal loan to pay for Lizzies college expenses (balance of $35,000).

Neither John and Jessica is blind or over age 65, and they plan to file as married-joint. Based on their estimates, determine John and Jessicas AGI and taxable income for the year and complete pages 1 and 2 of Form 1040 (through taxable income, line 43) and Schedule A. Assume that the employer portion of the self-employment tax on Jessies income is $808. Joe and Jessie have summarized the income and expenses they expect to report this year as follows:

Income:

Your salary

$119,100

Spouse's craft sales

18,400

Interest from certificate of deposit

1,650

Interest from Treasury bond funds

727

Interest from municipal bond funds

920

Expenditures:

Federal income tax withheld from your wages

$13,700

State income tax withheld from your wages

6,400

Social Security tax withheld from your wages

7,482

Real estate taxes on residence

6,200

Automobile licenses (based on weight)

310

State sales tax paid

1,150

Home mortgage interest

14,000

Interest on Masterdebt credit card

2,300

Medical expenses (unreimbursed)

1,690

Your employee expenses (unreimbursed)

2,400

Cost of Spouse's craft supplies

4,260

Postage for mailing crafts

145

Travel and lodging for craft shows

2,230

Meals during craft shows

670

Self-employment tax on Spouse's craft income

1,615

College tuition paid for your child

5,780

Interest on loans to pay your child's tuition

3,200

Your child's room and board at college

12,620

Cash contributions to the Red Cross

525