Taxpayers get a choice to use their standard or itemized deduction, whichever one is higher. Tito and Tessa should ignore their $17,000 itemized deduction amount and use the standard deduction, which is higher for their filing status, instead:
1. Total Income = $95,000.
2. Adjustments to income = $15,000.
3. Adjusted Gross Income = $95,000 - $15,000 = $80,000.
4. Itemised deductions total $17,000; standard deduction is $25,900. Use the higher of the two.
We are on to step 5. How much is Tito’s and Tessa’s taxable income?