Choice "C" is correct. Poole's total income tax would be calculated as follows:
|
|
|---|
| Adjusted gross income (AGI) | $ 20,000 |
| Itemized deductions | (6,000)* |
| | 14,000 |
| Personal exemption | (3,000) |
| Taxable income | $ 11,000 |
| Tax rate | x .15 |
| Total income tax | $ 1,650 |
* Larger of $4,700 standard deduction or $6,000 itemized deduction ($8,000 medical expenses less 10% × $20,000 AGI).Choice "b" is incorrect. Deduct itemized deductions and the personal exemption from adjusted gross income to arrive at the taxable income.
Choice "d" is incorrect. Deduct $6,0500 itemized deductions ($8,000 medical expenses less 10% × $20,000 adjusted gross income) since it is larger than the $4,700 standard deduction.Choice "a" is incorrect. Deduct $6,000 in itemized deductions, not $8,000. Reduce the $8,000 medical expenses by 10% of the adjusted gross income ($8,000 − $2,000=$6,000).
