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 $853. Joe and Jessie have summarized the income and expenses they expect to report this year as follows:
Income:
Joe's salary $ 136,300
Jessie's craft sales 18,620
Interest from certificate of deposit 1,870
Interest from Treasury bond funds 760
Interest from municipal bond funds 964
Expenditures:
Federal income tax withheld from Joe's wages $ 13,700
State income tax withheld from Joe's wages 6,840
Social Security tax withheld from Joe's wages 7,570
Real estate taxes on residence 6,640
Automobile licenses (based on weight) 354
State sales tax paid 1,370
Home mortgage interest 18,200
Interest on Masterdebt credit card 2,740
Medical expenses (unreimbursed) 1,910
Joe's employee expenses (unreimbursed) 2,840
Cost of Jessie's craft supplies 6,680
Postage for mailing crafts 167
Travel and lodging for craft shows 2,450
Self-employment tax on Jessie's craft income 1,706
College tuition paid for Lizzie 6,220
Interest on loans to pay Lizzie's tuition 3,640
Lizzie's room and board at college 13,060
Cash contributions to the Red Cross 635
a. Determine Joe and Jessie's AGI and taxable income for the year.