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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. Jessies 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 Lizzies 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 2016 rules apply for purposes of the qualified education expense deduction and that the employer portion of the self-employment tax on Jessies income is $808. Joe and Jessie have summarized the income and expenses they expect to report this year as follows:

Income:
Joes salary	$ 124,100
Jessies craft sales	18,400
Interest from certificate of deposit	1,650
Interest from Treasury bond funds	727
Interest from municipal bond funds	920
Expenditures:
Federal income tax withheld from Joes wages	13,700
State income tax withheld from Joes wages	6,400
Social Security tax withheld from Joes wages	7,482
Real estate taxes on residence	6,200
Automobile licenses (based on weight)	310
State sales tax paid	1,150
Home mortgage interest	14,000
Interest on Masterdebt credit card	2,300
Medical expenses (unreimbursed)	1,690
Joes employee expenses (unreimbursed)	2,400
Cost of Jessies craft supplies	4,260
Postage for mailing crafts	145
Travel and lodging for craft shows	2,230
Meals during craft shows	670
Self-employment tax on Jessies craft income	1,615
College tuition paid for Lizzie	5,780
Interest on loans to pay Lizzies tuition	3,200
Lizzies room and board at college	12,620
Cash contributions to the Red Cross	525

1. Determine Joe and Jessies AGI and taxable income for the year.

2.Complete pages 1 and 2 of Form 1040 (through taxable income, line 43).

3. Complete Schedule A.

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