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 selfemployment tax on Jessie’s income is $808. Joe and Jessie have summarized the income and expenses they expect to report this year as follows:

Income:

Joe’s salary $119,100 Jessie’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 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 Meals during craft shows 670 Self-employment tax on Jessie’s craft income 1,615 College tuition paid for Lizzie 5,780 Interest on loans to pay Lizzie’s tuition 3,200 Lizzie’s room and board at college 12,620 Cash contributions to the Red Cross 525