CPA Exam — REG (Regulation)Federal Taxation of IndividualsMedium
A single taxpayer, age 30, earns $60,000 in W-2 wages. They have no other income or deductions. Using the 2023 standard deduction and tax brackets for a single filer, what is their taxable income?
- A$46,300
- B$43,150
- C$47,650
- D$60,000
Show answer & explanationAnswer & explanation
Correct answer: A. $46,300
For a single taxpayer in 2023, the standard deduction is $13,850. Taxable income is calculated as Gross Income - Standard Deduction. So, $60,000 (W-2 wages) - $13,850 (standard deduction) = $46,150.
Why the other options are wrong
- B. This option is incorrect; it shows an incorrect standard deduction applied.
- C. This option is incorrect; it shows an incorrect standard deduction applied.
- D. This option incorrectly assumes no deductions are taken, meaning taxable income equals gross income.
Taxable Income Calculation
Taxable income is the amount of income subject to federal income tax, calculated by subtracting allowable deductions (either standard or itemized) from Adjusted Gross Income (AGI).
- Gross Income - 'Above-the-line' deductions = AGI.
- AGI - Standard Deduction OR Itemized Deductions = Taxable Income.
- Taxable income is used to calculate the tax liability using tax brackets.
Memory trick: Taxable income is determined by a 'Flow' from gross to net.