2 Taxable income 9 1600000 9 144000 139500 Limited to 50 of related W 2 wages

2 taxable income 9 1600000 9 144000 139500 limited to

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(2) Taxable income × 9% ($1,600,000 × 9% = $144,000)$ 139,500Limited to 50% of related W-2 wages (50% × $300,000) [no limit]$ 150,000108. Red Company is a proprietorship owned by Sally, a single individual. Red manufactures and sells widgets. An examination of Red’s records shows the following items for the current year:Domestic production gross receipts $2,500,000Cost of goods sold for domestic products600,000Expenses directly related to domestic production grossreceipts (other than wages)280,000Ratable portion of other expenses100,000Other expenses not allocated to domestic production gross receipts30,000W-2 wages paid to employees engaged in qualified domesticproduction activities270,000Total W-2 wages320,000Sally also had the following additional items:Dividends received$ 20,000Interest income10,000Determine Sally’s domestic production activities deduction for the current year.ANSWER: Gross receipts $2,500,000Less: Cost of goods sold(600,000)Expenses directly related(280,000)Other allocated and nonallocated expenses ($100,000 + $30,000)(130,000)Wages(320,000)Dividends received20,000Interest received10,000Modified adjusted gross income$1,200,000Domestic production gross receipts $2,500,000Less: Cost of goods sold(600,000)Direct expenses(280,000)Allocated expenses(100,000)W-2 wages directly related (270,000)Qualified production activities income (QPAI)$1,250,000Lesser of: QPAI × 9% ($1,250,000) = $112,500Modified AGI × 9% ($1,200,000) = $108,000Not to exceed 50% × $270,000 = $135,000Sally’s QPAD = $108,000109. Nora, single, had the following income and deductions for 2015:Sales$ 50,000Business expenses(100,000)Alimony received30,000Interest income1,000Dividends2,00018
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Chapter 07 - Deductions and Losses: Certain Business Expenses and LossesNonbusiness capital gains4,000§ 1244 stock loss (18,000)Itemized deductions(4,000)Business capital loss(2,000)Business capital gain1,000Compute Nora’s net operating loss for 2015.ANSWER: Sales$ 50,000Business expenses(100,000)Alimony received 30,000Interest income1,000Dividends2,000§ 1244 stock (ordinary loss)(18,000)Capital gains ($4,000 + $1,000)$5,000Less: Capital losses(2,000)Net capital gains3,000Adjusted gross income($ 32,000)Standard deduction (single)(6,300)Personal exemption (1 × $4,000)(4,000)Taxable income($ 42,300)Taxable income($ 42,300)Personal exemption4,000Excess of nonbusiness capital losses over nonbusiness capital gains–0–Excess of nonbusiness deductions over sum of nonbusiness income and net nonbusiness capital gainsStandard deduction$6,300Interest (1,000)Dividends(2,000)Alimony received(30,000) Nonbusiness capital gains(4,000)–0–Excess of business capital losses over the sum of business capital gains and the excess of nonbusiness capital gains over nonbusiness deductions {$2,000 – [$1,000 + ($1,000 + $2,000 + $30,000 + $4,000 – $6,200)]}–0–Net operating loss($ 38,300)110. Juan, married and filing jointly, had the following income and deductions for 2015:Sales$600,000Business expenses(650,000)Interest income3,000Dividends4,000Personal casualty loss (after deducting the $100 floor)(25,000)Taxes paid on personal residence(7,000)Interest paid on personal residence(9,000)Alimony paid(18,000)Juan has three dependent children. Calculate the net operating loss for 2015.ANSWER: Sales$600,000Business expense (650,000)Interest income3,000Dividends4,000Alimony paid(18,000)Adjusted gross income($ 61,000)Less:Itemized deductionsCasualty loss [$25,000 – (10% × $0)]$25,000 19
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Chapter 07 - Deductions and Losses: Certain Business Expenses and LossesTaxes on personal residence7,000Interest on personal residence9,000(41,000)Personal and dependency exemptions (5 × $4,000)
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