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

Neither Joe nor Jessie is blind or over age 65, and they plan to file as married joint. Based on their estimates, determine Joe and Jessie’s 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 Jessie’s income is $831.Joe and Jessie have summarized the income and expenses they expect to report this year as follows:

Income:
Joe’s salary ...............................................................................$ 124,100
Jessie’s craft sales ........................................................................18,400
Interest from certificate of deposit..............................................1,650
Interest from Treasury bond funds................................................716
Interest from municipal bond funds..............................................920
Expenditures:
Federal income tax withheld from Joe’s wages$ .....................13,700
State income tax withheld from Joe’s wages..............................6,400
Social Security tax withheld from Joe’s 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
Joe’s employee expenses (unreimbursed)......................................2,400
Cost of Jessie’s craft supplies............................................................4,260
Postage for mailing crafts.....................................................................145
Travel and lodging for craft shows...................................................2,230
Self-employment tax on Jessie’s craft income................................1,662
College tuition paid for Lizzie5,............................................................780
Interest on loans to pay Lizzie’s tuition...........................................3,200
Lizzie’s room and board at college................................................12,620
Cash contributions to Red Cross.........................................................525