In integrative problem 85 in Chapter 4, you were asked to calculate Carmin’s gross income for 2011. This is the second phase, which provides the additional information necessary for you to calculate her taxable income, income tax liability, and additional tax (or refund due). NOTE: The gross income items from problem 85 still apply. However, some additional items might affect the amount of gross income that Carmin must report. That is, several items included in the gross income from integrative problem 85 are either not reported as gross income or need to be combined with the additional information in this problem to determine the correct treatment. Therefore, you should make the appropriate adjustments to gross income in integrative problem 85, and begin your tax calculation under the heading of Gross Income from Problem 85, As Adjusted.

From this point on, any items of gross income from the information in this problem should be listed to determine gross income for tax purposes. You do not need to list all the individual gross income items from integrative problem 85 in your solution. However, you should explain the adjustments made to the phase 1 gross income figure as part of your discussion of the solution.

Carmin has the following amounts withheld from her paycheck for the payment of state income taxes, federal taxes, and Social Security taxes:

State income taxes .... $ 4,768

Federal income taxes .... 11,123

Social Security taxes ... 6,120

Calculate Carmin’s taxable income, income tax liability, and tax (or refund) due on her 2011 tax return. Then do one or both of the following, according to your professor’s instructions:

a. Include a brief explanation of how you determined each deduction and any item you did not treat as a deduction. Your solution to the problem should contain a list of each deduction and its amount, with the explanations attached.

b. Write a letter to Carmin explaining how you determined each deduction and any items you did not treat as a deduction. You should include a list of each deduction and its amount.