1. If Becky itemized personal expenses, how much can she deduct? How much is her standard deduction? Should she itemize or take the standard deduction?
2. Using the schedules in Figure, and taking the standard deduction, determine Becky’s 2007 tax liability. (Assume she will make a $2,000 tax deductible IRA investment.) How much will Becky owe or have refunded?
3. Determine Becky’s marginal tax rate and explain to her what this rate means.
4. By how much did the IRA contribution reduce her current tax liability?
5. Becky worked for two employers; did she overpay her FICA taxes? Explain.
Becky Sell graduated from a Midwestern college in 2007 and began work as a marketing manager trainee for a large consumer products company. Becky had never prepared her own tax return, but she was determined to do it for the first time. Becky got all pertinent information together in February 2007, and it appears as follows:
Data on two W-2 forms (Becky worked part-time prior to graduation) showed wages of $44,000 and federal income tax withheld of $4,600. In addition, they showed she paid $1,600 in state and city income taxes and $3,366 in FICA taxes.
Becky paid most of her bills with checks and kept all canceled receipts of purchases. Examination of these and her check stubs shows the following major classifications of expenses: rent = $5,000; charitable contributions = $500; interest on installment loans = $1,900; food and clothing = $8,000; dues to professional marketing society = $200; hospital and doctor’s bills = $1,000; state sales tax = $600; contributions to a political candidate in her hometown = $110; contributions to a panhandler she often sees outside the office of the political candidate = $50.
Becky received $12,000 in gifts at graduation, and with it she purchased shares of GM stock in April. Three months later she sold these shares for $8,500.
Becky wants to file a return that will minimize her 2007 tax liability. She has cash from the GM stock sale that could be used for an IRA investment, but she isn’t sure of the maximum allowed.

  • CreatedMarch 19, 2015
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