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December 8th, 2012, 09:12 AM   #1
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How to solve tax income

A single person whose gross income is $50,000 at 25% tax rate, paid $2500 to a tax deferred IRA, $6500 mortgage interest, $1800 property taxes, and has no tax credits. This person has standard deduction of say $5000 and exemption is $4000.

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December 8th, 2012, 01:17 PM   #2
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Re: How to solve tax income

Does anybody know how to solve this?
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January 5th, 2013, 11:46 AM   #3
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Re: How to solve tax income

Solve what? You haven't stated a specific problem to be solved. What the tax is on the given income, with those added stipulations, will depend upon the specific tax laws- which you don't give. Are all of those things completely deductible from income or are there restrictions? Generally speaking one cannot both "itemize deductions" and take the standard deduction. Assuming the most simple situation, that they are completely deductible, then the persons "taxable income" is
$50000- 2500- 6500- 18000- 4000- 5000= 50000- 17300= $32700.

If you can either itemize deductions, or take the standard deduction, but not both, these deductions add to $8300 which is larger than $5000 and so deductions should be itemized. The taxable income would be $50000- 8300- 4000= 50000- 12300= $37700, just adding the "$5000" back on.

But you say "$50000 at 25% tax rate". Where did that tax rate come from? Typically, the tax rate varies depending upon the taxable income, not the gross income and you had not yet calculated the taxable income. And, in fact, it is most common to use the lower tax rate for the "first", say, $10000 taxable income, then apply the higher tax rate to the excess beyond that figure, etc.

Assuming that the "25%" tax rate" is applied to the taxable income, and that you itemize deductions and do not use the standard deduction, my best guess (and it is only a guess- you have not given enough infomation) would be 25% of $37700= .25(37700)= $9425. Don't give my name to the IRS!
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