Sarah and Gabe have asked you to calculate their adjusted gross income based on the information in the financial statements you have prepared. They want to make certain they have not overlooked items in doing their taxes themselves in the past. They want to better understand the components of adjusted gross income and explain what is meant by $$for AGI and from AGI.$$ As part of your explanation, please explain which IRS forms and schedules are used in determining $$for AGI$$ and $$from AGI$$ tax return entries and which lines on Form $1040$ are used to report the relevant data.

Gabe salary: $95,000$

Sarah salary: $100,000$

The Cantrells' Fixed and Variable Expenses

Expenses Amount Frequency

Health Insurance premium$($under Sarah$$s group health plan$)1$ $$4,800$ Annually

$401($k$)$ contribution $($Gabe$)2$ $$3,800$ Annually

$401($k$)$ contribution $($Sarah$)3$ $$5,000$ Annually

SS$/$Medicare $($FICA$)$ withholdings $($combined$)$ $$14,900$ Annually

Federal tax withholdings $($combined$)$ $$33,000$ Annually

$1$

Pretax Section $125$ plan expenses

$2$

Pretax expenses

The child care provider is licensed in Anystate.

Note: Last year, the Cantrells paid $$711$ in Anystate sales taxes

The Cantrell$$s Assets

Financial Assets

Savings account $$500$ Joint $(3\%$ interest$)$

EE savings bonds $$1,000$ Joint

The Cantrells$$ Liabilities

Liability Amount Ownership

College loan $$ Gabe$6$ $$25,000(4\mathrm{.}5\%$ interest rate$)$