Question & Answer

Part B: $187,222 computed as follows:

Description Amount Explanation

(1) AGI$207,000

 From AGI deductions:

a) and b) Medical expenses 0 Medical expenses in excess of 7.5 percent of AGI are deductible. See note A below.

c) and d) State taxes 2,050 State income taxes paid last year are deductible ($1,800 withheld and $250 overpayment applied on last year’s return treated as paid last year.

e) Real property taxes 3,200 Real property taxes deductible from AGI. Payment to developer is not a tax.

f) Personal property taxes 200 Property tax on personal property based on value deductible from AGI

g) Interest on loans secured by her home 12,300 Primary home loan and home equity loan deductible from AGI

h) Charitable contributions 1,828 See note B below

i) Investment expenses and tax return preparation fees 0 Nondeductible expenses

j) Horse racing activities 0 Nondeductible hobby expenses

k) Gambling losses 200 Gambling losses are limited to earnings from gambling deductible as a miscellaneous itemized deduction but not subject to 2% of AGI floor or phase out.

(2) Total itemized deductions19,778

(3) Standard deduction 14,600 Single taxpayer

(4) Greater of Itemized deductions or standard deduction 19,778 Greater of (2) or (3). Shauna should choose to itemize deductions.

Taxable income $187,222 (1) − (4)

Note A: $0. Medical expenses = $4,680 (medical expenses for broken ankle), + $24 (115 miles × 21¢ per mile) + 3,400 (unreimbursed health insurance premiums) + 3,000 (Lasik eye surgery) + 450 (other medical expenses) − $15,525 (AGI of 207,000 × 7.5 percent) < $0. Because 7.5 percent of Shauna’s AGI exceeds her total medical expenses, Shauna is unable to deduct any medical expenses.

Note B: $1,828. Capital gain property generally in the form of stock is deductible at FMV; Thus, Shauna can deduct $1,000 for her ZYX stock donation to the Red Cross. Cash contributions of $300 are fully deductible. Religious artifacts are used by church in its normal function as a non-profit organization and thus are deductible at FMV of $500. Finally, Shauna may deduct $28 (as a cash donation) expense for her charitable mileage (200 miles × 14¢ per mile). Note that the value of services donated is not deductible. Accordingly, Shauna’s charitable contribution deduction is $1,828 (1,000 + 300 + 500 + 28). Shauna need not be concerned about the AGI-based limitations on her contributions because her AGI is relatively high and her contributions are relatively low.

45. Shauna Coleman is single. She is employed as an architectural designer for Streamline Design (SD). Shauna wanted to determine her taxable income. She correctly calculated her AGI. However, she wasn’t sure how to compute the rest of her taxable income. She provided the following information with hopes that you could use it to determine her taxable income for 2024.

44. Read the following letter and help Shady Slim with his tax situation. Assume that gross income is $172,900 (which consists only of salary) for purposes of this problem.

Felipe, a single taxpayer, is a technology consultant who operates as a sole proprietorship.  Felipe’s net business income is $600,000 (net of the associated for AGI self-employment tax deduction), he pays wages of $100,000 to his employees, and he has $200,000 of qualified property (unadjusted basis).  Felipe’s taxable income before the deduction for qualified business income is $500,000. Assume he has no capital gains or qualified dividends.

a. Calculate Felipe’s deduction for qualified business income.

          b. How would your answer to (a) change if Felipe was an investment broker.  

Katie, a single taxpayer, is a shareholder in the S Corporation, Engineers One, a civil engineering company. This year, Katie’s share of net business income from Engineers One is $200,000 (net of the associated for AGI self-employment tax deduction). Assume that Katie’s allocation of wages paid by Engineers One to its employees is $300,000 and her allocation of Engineers One’s qualified property is $150,000 (unadjusted basis of equipment, all purchased within past three years). Assume Katie has no other business income and no capital gains or qualified dividends. Her taxable income before the deduction for qualified business income is $400,000.

a. Calculate Katie’s deduction for qualified business income.

b. Assume the same facts provided above, except Katie’s net business income from Engineers One is $400,000 (net of the associated for AGI self-employment tax deduction) and taxable income before the deduction for qualified business income is $350,000.

Roquan, a single taxpayer, is an attorney and practices as a sole proprietor. This year, Roquan had net business income of $90,000 from his law practice (net of the associated for AGI self-employment tax deduction). Assume that Roquan pays $40,000 wages to his employees, has $10,000 of property (unadjusted basis of equipment he purchased last year), and has no capital gains or qualified dividends. His taxable income before the deduction for qualified business income is $100,000.

a. Calculate Roquan’s deduction for qualified business income.

b. Assume the same facts provided above, except Roquan’s taxable income before the deduction for qualified business income is $300,000.

Amelie, a retired physician, is 66 years old. Determine her standard deduction in 2024 under the following scenarios.

a. Amelie is married to Roget, age 52, and they file married filing jointly.

b. Amelie is not married.

c. Amelie is not married and her 10-year-old granddaughter, Emma, lives with her. Amelie supports Emma and claims her as a dependent.

Jackson is 18 years old and has a dog-sitting business. Calculate the 2024 standard deduction Jackson will claim under the following independent circumstances.

a. Jackson reported $2,000 of earnings from his dog sitting and $300 in interest income from his savings account. Jackson’s parents claim him as a dependent.

b. Jackson reported $500 of earnings from his dog sitting and $2,000 in interest income from his savings account. Jackson’s parents claim him as a dependent.

c. Jackson reported $8,000 of earnings from his dog sitting and $3,000 in interest income. Jackson’s parents do not claim him as a dependent.

Stephanie is 12 years old and often assists neighbors on weekends by babysitting their children. Calculate the 2024 standard deduction Stephanie will claim under the following independent circumstances (assume that Stephanie’s parents will claim her as a dependent).

a. Stephanie reported $950 of earnings from her babysitting.

b. Stephanie reported $1,500 of earnings from her babysitting.

c. Stephanie reported $18,000 of earnings from her babysitting.

Simon lost $5,000 gambling this year on a trip to Las Vegas. In addition, he paid $2,000 to his broker for managing his $200,000 portfolio, and $1,500 to his accountant for preparing his tax return. In addition, Simon incurred $2,500 in transportation costs commuting back and forth from his home to his employer’s office, which were not reimbursed. Calculate the amount of these expenses that Simon is able to deduct (assuming he itemizes his deductions).

Trevor is a single individual who is a cash-method, calendar-year taxpayer. For each of the next two years (2024 and 2025), Trevor expects to report salary of $80,000, contribute $8,000 to charity, and pay $2,800 in state income taxes.

a. Estimate Trevor’s taxable income for 2024 and 2025 using the 2024 amounts for the standard deduction for both years.

b. Now assume that Trevor combines his anticipated charitable contributions for the next two years and makes the combined contribution in December of 2024. Estimate Trevor’s taxable income for each of the next two years using the 2024 amounts for the standard deduction. Reconcile the total taxable income to your solution to part (a).

c. Trevor plans to purchase a residence next year, and he estimates that additional property taxes and residential interest will cost $2,000 and $12,000, respectively, each year. Estimate Trevor’s taxable income for each of the next two years (2024 and 2025) using the 2024 amounts for the standard deduction and also assuming Trevor makes the charitable contribution of $8,000 and state tax payments of $2,800 in each year.

d. Assume the facts in part (c) but that Trevor makes the charitable contribution for 2025 in December of 2024. Estimate Trevor’s taxable income for 2024 and 2025 using the 2024 amounts for the standard deduction. Reconcile the total taxable income to your solution to part (c).

e. Explain the conditions in which the bunching strategy in part (d) will generate tax savings for Trevor.

In addition to cash contributions to charity, Dean decided to donate shares of stock and a portrait painted during the earlier part of the last century. Dean purchased the stock and the portrait many years ago as investments. Dean reported the following recipients in 2024:

Charity Property Cost FMV

State University Cash $ 15,000 $15,000

Red Cross Cash 14,500 14,500

State History Museum Antique painting 5,000 82,000

City Medical Center Dell stock 28,000 17,000

a. Determine the maximum amount of charitable deduction for each of these contributions ignoring the AGI ceiling on charitable contributions.

b. Assume that Dean’s AGI this year is $150,000. Determine Dean’s itemized deduction for his charitable contributions this year and any carryover.

c. Suppose Dean is a dealer in antique paintings, and he held the painting for sale before the contribution. What is Dean’s charitable contribution deduction for the painting in this situation?

d. Suppose that Dean’s objective with the donation to the museum was to finance expansion of the historical collection. Hence, Dean was not surprised when the museum announced the sale of the portrait because of its limited historical value. What is Dean’s charitable contribution deduction for the painting in this situation (ignoring AGI limitations)?

Calvin reviewed his canceled checks and receipts this year (2024) for charitable contributions, which included an antique painting and IBM stock. He has owned the IBM stock and the painting since 2005. Calculate Calvin’s charitable contribution deduction and carryover (if any) under the following circumstances.

a.              Calvin’s AGI is $100,000.

b.             Calvin’s AGI is $100,000, but the State Museum told Calvin that it plans to sell the painting.

c.              Calvin’s AGI is $50,000.

d.             Calvin’s AGI is $100,000 and Hobbs is a nonoperating private foundation.

e.              Calvin’s AGI is $100,000, but the painting is worth $10,000.

Determine the maximum amount of charitable deduction for each of these contributions ignoring the AGI ceiling on charitable contributions and assuming that the American Heart Association plans to sell the antique painting to fund its operations. Ray Ray has owned the painting and Coca-Cola stock since 1990.

Juanita paid $50,000 of interest on a mortgage on her home (loan of $1,000,000 at 5% interest rate to buy the residence in 2018; $1,200,000 original purchase price and value at purchase) and $6,500 of interest on a $100,000 home-equity loan on her home (loan proceeds were used to buy furniture). Juanita’s AGI is $600,000. How much interest expense can Juanita deduct as an itemized deduction?

This year, Major Healy paid $40,000 of interest on a mortgage on his home (he borrowed $800,000 to buy the residence in 2015; $900,000 original purchase price and value at purchase), $6,000 of interest on a $120,000 home-equity loan on his home (loan proceeds were used to buy antique cars), and $10,000 of interest on a mortgage on his vacation home (borrowed $200,000 to purchase the home in 2010). Major Healy’s AGI is $220,000. How much interest expense can Major Healy deduct as an itemized deduction?

This year Randy paid $28,000 of interest (Randy borrowed $450,000 to buy his residence, and it is currently worth $500,000). Randy also paid $2,500 of interest on his car loan and $4,200 of margin interest to his stockbroker (investment interest expense). How much of this interest expense can Randy deduct as an itemized deduction under the following circumstances?

Jack, who files married filing separately, has AGI of $45,000 and paid the following taxes this year. Calculate how much Jack can deduct for taxes as an itemized deduction this year.

Janyce, a single taxpayer, has AGI of $125,000 and paid the following taxes this year. Calculate how much Janyce can deduct for taxes as an itemized deduction this year.

Tim is a single, cash-method taxpayer with an AGI of $50,000. In April of this year Tim paid $1,020 with his state income tax return for the previous year. During the year, Tim had $5,400 of state income tax and $18,250 of federal income tax withheld from his salary. In addition, Tim made estimated payments of $1,360 and $1,900 for state and federal income taxes, respectively. Finally, Tim expects to receive a refund of $500 for state income taxes when he files his state tax return for this year in April next year. What is the amount of taxes that Tim can deduct as an itemized deduction?

Dan has AGI of $50,000 and paid the following taxes during this tax year. Calculate how much Dan can deduct for taxes as an itemized deduction this year.

Charles has AGI of $50,000 and has made the following payments related to (1) land he inherited from his deceased aunt and (2) a personal vacation taken last year. Calculate the amount of taxes Charles may include in his itemized deductions for the year under the following circumstances:

Doctor Bones prescribed physical therapy in a pool to treat Jack’s broken back. In response to this advice (and for no other reason), Jack built a swimming pool in his backyard and strictly limited use of the pool to physical therapy. Jack paid $25,000 to build the pool, but he wondered if this amount could be deducted as a medical expense. Determine if a capital expenditure such as the cost of a swimming pool qualifies for the medical expense deduction.

Tim is 45 years old and considering enrolling in an insurance program that provides for long-term care insurance. He is curious about whether the insurance premiums are deductible as a medical expense. If so, he wants to know the maximum amount that can be deducted in any year.

Simpson, age 45, is a single individual who is employed full time by Duff Corporation. This year Simpson reports AGI of $50,000 and has incurred the following medical expenses: