Wilson and Joan, Both in Their 30s, File a Joint

question 45

Essay

Wilson and Joan, both in their 30s, file a joint income tax return for 2014. Wilson's wages are $15,000 and Joan's wages are $23,000 for the year. Their total adjusted gross income is $38,000, and Joan is covered by a qualified pension plan at work but Wilson is not.
a.​What is the maximum amount that Wilson and Joan may each deduct for contributions to their individual retirement accounts?
b.​​If Joan's wages are $82,000 for 2014, instead of $23,000, and their adjusted gross income is $97,000, what is the maximum amount that Wilson and Joan may each deduct for contributions to their individual retirement accounts?

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Definitions:

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Absorption Costing

An accounting method that includes all manufacturing costs, both fixed and variable, in the cost of a product.

Variable Costing

A costing method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs.

Excess Capacity

The amount by which the actual production of a company exceeds its planned production capacity.