Joe and Jessie are married and have one dependent child, Lizzie. Lizzie is currently in college at State University. Joe works as a design engineer for a manufacturing firm, while Jessie runs a craft business from their home. Jessie's craft business consists of making craft items for sale at craft shows that are held periodically at various locations. Jessie spends considerable time and effort on her craft business, and it has been consistently profitable over the years. Joe and Jessie own a home and pay interest on their home loan (balance of $220,000) and a personal loan to pay for Lizzie's college expenses (balance of $35,000).
Neither Joe nor Jessie is blind or over age 65, and they plan to file as married joint. Assume that the employer portion of the self-employment tax on Jessie's income is $666. Joe and Jessie have summarized the income and expenses they expect to report this year as follows:
Income:
Joe's salary $ 146,200
Jessie's craft sales 18,610
Interest from certificate of deposit 1,860
Interest from Treasury bond funds 758
Interest from municipal bond funds 962
Expenditures:
Federal income tax withheld from Joe's wages $ 13,700
State income tax withheld from Joe's wages 6,820
Social Security tax withheld from Joe's wages 7,566
Real estate taxes on residence 6,620
Automobile licenses (based on weight) 352
State sales tax paid 1,360
Home mortgage interest 28,100
Interest on Masterdebt credit card 2,720
Medical expenses (unreimbursed) 1,900
Joe's employee expenses (unreimbursed) 2,820
Cost of Jessie's craft supplies 6,570
Postage for mailing crafts 170
Travel and lodging for craft shows 2,440
Self-employment tax on Jessie's craft income 1,332
College tuition paid for Lizzie 6,200
Interest on loans to pay Lizzie's tuition 3,620
Lizzie's room and board at college 13,040
Cash contributions to the Red Cross 630
a. Determine Joe and Jessie's AGI and taxable income for the year.
