is Clem married and is a skilled carpenter. Clem's wife, Wanda, works part-time as a substitute grade school
teacher.
Determine the amount of Clem's expenses that are deductible for AGI this year (if any) under the following
circumstances: (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your
response.)
a. Clem is self-employed and this year he incurred $830 for tools and supplies related to his job. Since neither
were covered by a qualified health plan, Wanda paid health insurance premiums of $4,350 to provide coverage for
herself and Clem.
Deductible amount for AGI
$
b. Clem and Wanda own a garage downtown that they rent to a local business for storage. This year they incurred
$1,540 in utilities and depreciation of $1,170.
Deductible amount for AGI
$
c. Clem paid self-employment tax of $17,900 and Wanda had $4,500 of Social Security taxes withheld from her
pay.
Deductible amount for AGI
$
d. Clem paid $72 to rent a safe deposit box to store his coin collection. Clem has collected coins intermittently
since he was a boy, and he expects to sell his collection when he retires.
Deductible amount for AGI
$
Explanation:
a.
The tools and supplies and the health insurance are deductible for AGI.
b.
The utilities and depreciation are deductible for AGI (rental activity).
c.
One-half of the SE tax is deductible for AGI but the Social Security tax is not deductible.
d.
The safe deposit fee is an itemized deduction (it appears that Clem is investing in rare coins rather than a dealer in
coins a business).
Betty operates a beauty salon as a sole proprietorship. Betty also owns other property including a half interest in a
partnership that operates a delivery service, a half interest in a partnership that operates a movie theatre, and an
apartment building. This year Betty paid or reported the following expenses related to her salon and her share of
other businesses. Assume that the delivery service and apartment building amounts represent Bettys interest and
not the total for these businesses.
Interest income
Salon sales and revenue
Salaries paid to beauticians
Beauty salon supplies
Revenues from delivery service partnership
Expenses from delivery service partnership
Operating income for theatre partnership
Rental revenue from apartment building
Depreciation on apartment building
Real estate taxes paid on apartment building
Real estate taxes paid on personal residence
Contributions to charity
$
14,300
116,500
68,250
27,200
19,400
7,450
20,100
37,200
20,200
6,100
6,510
4,370
Determine Bettys AGI. (Omit the "$" sign in your response.)
Bettys AGI
$
Explanation:
The beauty parlor salaries and expenses are deductible on Schedule C as business expenses and the depreciation
and real estate taxes for the apartment building are deductible for AGI as rental/royalty related deductions. The
revenue from the delivery service is taxable but the expense is also deductible as a business expense, and the
interest and theatre income are included in AGI. Note that this solution assumes that the delivery service and
apartment building amounts represent Bettys interest and not the total for these businesses. The residential real
estate taxes and the charitable contributions are itemized deductions.
Interest income
Salon revenue
Less: Salaries
Supplies
Operating income from salon
Delivery service revenue
Less: partnership Expenses
Delivery service partnership income
Theatre partnership income
Apartment building revenue
Less: Depreciation
Taxes on apartment building
Apartment building income
AGI
$ 14,300
$
116,500
68,250
27,200
19,400
7,450
21,050
11,950
20,100
$
37,200
20,200
6,100
10,900
$ 78,300
Simpson is a single individual who is employed full-time by Duff Corporation. This year Simpson reports AGI of
$60,400 and has incurred the following medical expenses:
Dentist charges
Physician's charges
Optical charges
Cost of eyeglasses
Hospital charges
Prescription drugs
Over-the-counter drugs
Medical insurance premiums
$
960
2,420
990
490
2,600
355
825
930
a. Calculate the amount of medical expenses that will be included with Simpson's itemized deductions after any
applicable limitations. (Omit the "$" sign in your response.)
Medical expenses
$
b. Suppose that Simpson was reimbursed for $1,100 of the physician's charges and $1,260 for the hospital costs.
Calculate the amount of medical expenses that will be included with Simpsons itemized deductions after any
applicable limitations. (Omit the "$" sign in your response.)
Medical expenses
$
Explanation:
a.
All expenses are qualified medical expenses except for the over-the-counter drugs. Hence, Simpsons medical
expense deduction is $8,745 less $4,530 (7.5 percent 60,400) = $4,215 and this amount is included with
Simpsons other itemized deductions.
b.
Same as a. except Simpsons medical expenses are first reduced by reimbursements $8,745 less $2,360 then
reduced by the floor limit $4,530 (7.5 percent 60,400) = $1,855 and this amount is included with Simpsons other
itemized deductions.
Tim suffered greatly this year. In January a freak storm damaged his sailboat and in July Tims motorcycle was
stolen from his vacation home.
Tim originally paid $23,200 for the boat, but he was able to repair the damage for $10,900. Tim paid $21,900 for
the motorcycle, but it was worth $26,000 before it was stolen. Insurance reimbursed $2,900 for the boat repairs and
the cycle was uninsured. (Omit the "$" sign in your response.)
a. Calculate Tims deductible casualty loss if his AGI is $50,000.
Deductible casualty loss
$
b. Calculate Tims deductible casualty loss if his AGI is $150,000.
Deductible casualty loss
$
c. How would you answer a. if Tim received an additional $73,100 in interest from municipal bonds this year?
Deductible casualty loss
$
Explanation:
a.
The aggregate loss is $29,700 calculated as the sum of the losses from the boat and cycle as follows:
Boat
Decline in
value
$
10,900
Cycle
$
26,000
Adjusted
basis
Lesser of
basis or
value
Less
insurance
proceeds
Uninsured
loss
Per
casualty
floor
Casualty
Loss
23,200
21,900
$
10,900
$
21,900
2,900
$
8,000
$
21,900
100
100
$
7,900
$
21,800
0
Tim must reduce this by 10 percent of his AGI which is $5,000. Hence, Tim can claim a $24,700 casualty loss
deduction this year ($29,700 - $5,000).
b.
Tim must reduce his $29,700 loss by 10 percent of his AGI which is $15,000. Hence, Tim can claim a $14,700
casualty loss deduction this year.
c.
The interest on municipal bonds is excluded from gross income so this income would not affect Tims AGI and
would not, therefore, have any effect on the casualty loss deduction. Tims deductible casualty loss deduction
would still be $24,700.