Problem 1-5 The Tax Formula for Individuals, Filing Status and Tax Computation, The Standard Deduction (LO 1.3, 1.5, 1.8)

Diego, age 28, married Dolores, age 27, in 2021. Their salaries for the year amounted to $48,000. They had dividend income of $2,500. Diego and Dolores' deductions for adjusted gross income amounted to $3,000, their itemized deductions were $16,000, and they have no dependents. Their 2021 EIP was equal to the 2021 RRC.

Table for the standard deduction

Filing Status	Standard Deduction
Single	$12,550
Married, filing jointly	25,100
Married, filing separately	12,550
Head of household	18,800
Qualifying widow(er)	25,100

Click here to access the tax tables.

Question Content Area

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. A taxpayer's gross tax liability is obtained by reference to the tax table or by use of a tax rate schedule. The taxpayer's filing status and the amount of taxable income are required to determine the tax liability.

Question Content Area

b. In order to minimize taxable income, Diego and Dolores will

take the standard deductionitemized their deductionstake the standard deduction

in the amount of $

c. What is the amount of their taxable income? $

d. What is their tax liability for 2021? $