97

Cumulative Problem: Chapters 1–6

Cumulative Problem: Chapters 1–6

98 Essentials of Federal Income Taxation

Cumulative Problem: Chapters 1–6 ©2007 CCH. All Rights Reserved.

99Textbook Solutions

Cumulative Problem: Chapters 1–6

100 Essentials of Federal Income Taxation

Cumulative Problem: Chapters 1–6 ©2007 CCH. All Rights Reserved.

101Textbook Solutions

Cumulative Problem: Chapters 1–6

102 Essentials of Federal Income Taxation

Cumulative Problem: Chapters 1–6 ©2007 CCH. All Rights Reserved.

103Textbook Solutions

IRA deduction (Form 1040, line 32), $7,670 ($5,000 + $2,670).

Since Sandra is not a participant in an employer-sponsored retirement plan and the Andersons’ modified AGI of$89,685 does not exceed $156,000, she is allowed to contribute and deduct up to $5,000 ($4,000 + $1,000 for beingage 50 or older). However, Frank is a participant in his employer’s retirement plan and the Andersons’ modifiedAGI falls between the $83,000 and $103,000 threshold for married couples filing a joint return. Thus, Frank’smaximum deductible IRA contribution is computed as follows:

Reduction factor for Frank:

[($89,685 − $83,000)/$20,000 phase-out range] × $4,000 = $1,337

Contribution limit:

$4,000 − $1,337 = $2,663, rounded up to nearest $10: $2,670

Cumulative Problem: Chapters 1–6