Sarah and Gabe have asked you to calculate their adjusted gross income based on the information in
Question:
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.
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)2 | $5,000 | Annually |
SS/Medicare (FICA) withholdings (combined) | $14,900 | Annually |
Federal tax withholdings (combined) | $33,000 | Annually |
Mortgage payments | 43,200 | Annually |
Credit card payments | $6,000 | Annually |
Auto insurance | $2,400 | Annually |
Homeowner’s insurance | $1200 | Annually |
Subscriptions | $480 | Annually |
Cell phone | $1,800 | Annually |
Home Internet | $1,100 | Annually |
Hobbies (Sarah) | $1,450 | Annually |
Recreation/entertainment | $4,800 | Annually |
Groceries | $6,000 | Annually |
Food away from home | $3,000 | Annually |
Real estate taxes | $1,480 | Annually |
College loan - Gabe | $7,200 | Annually |
Private mortgage insurance | $1000 | Annually |
Household maintenance | $750 | Annually |
Other Home Expenses | $750 | Annually |
Utilities | $3,300 | Annually |
Clothing | $2,200 | Annually |
Furnishings | $750 | Annually |
Child care3 | $7,200 | Annually |
Eyeglasses | $300 | Annually |
Medical deductibles and co=pays | $500 | Annually |
Unreimbursed medical expenses | $1000 | Annually |
Gasoline | $1,100 | Annually |
Car registrations | $1,000 | Annually |
Personal property tax | $1,500 | Annually |
Charitable contributions | $1200 | Annually |
Vacations | $6,000 | Annually |
Gifts to family members | $1,000 | Annually |
1Pretax Section 125 plan expenses
2Pretax contributions
3The child care provider is licensed in Anystate.
Note: Last year, the Cantrells paid $711 in Anystate sales taxes.
The Cantrell’s Assets
Asset | Amount | Ownership |
Financial Assets | ||
Checking account | $350 | Joint |
Savings account | $500 | Joint |
EE savings bonds | $1,000 | Joint |
Sarah Section 401(k) Plan | $70,000 | Sarah |
Gabe Section 401(k) Plan – Current Employer | $24,000 | Gabe |
Gabe Section 401(k) Plan – Previous Employer | $20,000 | Gabe |
Large-cap funds | $5,000 | Gabe |
Mid-cap funds | $2,500 | Gabe |
Small-cap funds | $2,500 | Gabe |
Government bond funds | $1,000 | Sarah |
Mid-cap funds | $2,500 | Sarah |
Small-cap funds | $1,000 | Sarah |
Other Assets | ||
Primary residence | $500,000 | Joint |
Buick SUV | $22,000 | Joint |
GMC pickup | $9,800 | Joint |
Collectibles | $1,200 | Joint |
Golf clubs and equipment | $3,800 | Joint |
16’ sailboat | $9,600 | Joint |
Furniture | $13,000 | Joint |
Other assets | $4,700 | Joint |
The Cantrells’ Liabilities
Liability | Amount | Ownership |
Visa credit card4 | $12,000 | Joint |
MasterCard5 | $5000 | Joint |
Mortgage | Unknown | Joint |
College loan – Gabe6 | $25,000 |
417.95 percent APR
514.25 percent APR
64.5%
Gabe and Sarah purchased a new home when they first married. They made a down payment of $10,000 and the original mortgage was $490,000 for thirty years. interest. Gabe and Sarah have made precisely 48 payments on the mortgage. The current replacement cost of the home is $600,000. The original mortgage terms are 30 years at 4.5% interest.
Expert Answer:
EXPERT ANSWER Transaction1 Purchase a baseball card collection from Gabes uncle for 5000 cash Gabe feels the cards are worth more than 5000 There has ... View the full answer
