This preview has intentionally blurred parts. Sign up to view the full document

View Full Document

Unformatted Document Excerpt

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. ... View Full Document

End of Preview

Sign up now to access the rest of the document