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Single Taxpayers Claiming an Itemized Deduction

Assume that the tax law allows individuals to claim an itemized deduction for the cost of music lessons for the taxpayer or any member of his family. Instead of this deduction, individuals may claim the first 1000 of the cost as a nonrefundable tax credit (no carry forward or carry back of any excess credit). In each of the following situations, advise the taxpayer as to whether she should take the deduction or credit. In each situation the taxpayer is single.

a. Ms. M has 95,000 AGI. Before consideration of the 5000 cost of her music lessons, she has no itemized deductions.

b. Ms. N has 27,000 AGI. Before consideration of the $5000 cost of her music lessons, she has 5,820 itemized deductions.

c. Ms. o has 95,000 AGI. Before consideration of the 5000 cost of her music lessons, she has 7200 itemized deductions.

Solution Preview

a. If Ms. M takes the tax deduction, her taxes will look like this:
95000-5450(standard deduction is higher than 5000 deduction)=89550 adjusted gross income
Tax bill would be $19059 (from 2008 IRS schedule).

If Ms. M takes the tax credit, her tax bill from above would remain unchanged except that she could also apply the $1000 credit toward the $19059 reducing her tax liability to $18059.

So, because the standard ...

Solution Summary

This solution determines whether various tax payers should take a deduction or claim a nonrefundable tax credit.

$2.19