Use 2017 Federal income tax laws and regulations You must show all computations
ID: 2531811 • Letter: U
Question
Use 2017 Federal income tax laws and regulations
You must show all computations
James and Molly are married couples, both 62 years old and both retired from their respective companies last year. Both James and Molly rolled their employer retirement accounts over into self-directed individual retirement accounts. james is starting withdrawals from his account this year. They are planning to hold off on withdrawals from Molly's account until the required age of 701/2.
Their daughter jane has a child, a three year-old named Nancy. Molly and her husband are in the 25% tax bracket. When Nancy was born, the Powers set up a Crummey trust for her, which they funded with a tax-exempt joint gift of $20,000 and a subsequent gift of $8,000 the following year.
After spending the last six months traveling around Europe and the Caribbean, the Powers would like to settle down and establish a counseling service for high school students planning to enter college and for college students looking forward to entering the job market. They have discussed this with another couple with similar interests and backgrounds and jointly feel there is a large potential market in their metropolitan area. Net annual income from the counseling service is estimated at $60,000.
The Powers own their own home and a hillside vacation lodge in Vermont. The use the lodge infrequently, no more than a week or ten days per year, and manage the rental and maintenance of the property themselves. The Powers are interested in getting into their own business, having significant income, and in minimizing their tax burden.
Their anticipated financial information for 2017 is as follows:
Salary
$ 0
Taxable interest income
6,800
Tax-exempt interest
2,200
Dividend income
16,000
fame's IRA distribution
48,000
Rental income from lodge
3,300
Long-term capital gain
3,800
Short-term capital gain
1,260
Loss from oil and gas working interest
1,020
Lucy's trust income
2,100
Medical and dental expense
3,200
State and local income taxes
1,200
Real estate taxes (home)
2,300
Real estate taxes (lodge)
600
Mortgage interest (home)
7,000
Rental costs (lodge)
910
Carryover long-term capital
680
Gifts to charity
2,940
POWERS CASE APPLICATION QUESTIONS
1. Which of the following amounts is the
Powers' gross income? (MUST SHOW CALCULATIONS FOR EACH ANSWER)
A. $75,950
B. $77,290
C. $78,050
D. $78,090
E. $79,190
2. Which of the following amounts is the
Powers' adjusted gross income?
A. $70,650
B. $72,650
c. $74,650
D. $75,950
E. $78,050
3. Which of the following amounts is the
Powers' taxable income?
A. $54,610
B. $55,650
C. $58,560
D. $62,510
E. $68,050
Their anticipated financial information for 2017 is as follows:
Salary
$ 0
Taxable interest income
6,800
Tax-exempt interest
2,200
Dividend income
16,000
fame's IRA distribution
48,000
Rental income from lodge
3,300
Long-term capital gain
3,800
Short-term capital gain
1,260
Loss from oil and gas working interest
1,020
Lucy's trust income
2,100
Medical and dental expense
3,200
State and local income taxes
1,200
Real estate taxes (home)
2,300
Real estate taxes (lodge)
600
Mortgage interest (home)
7,000
Rental costs (lodge)
910
Carryover long-term capital
680
Gifts to charity
2,940
Explanation / Answer
Computation of Gross, Adjusted Gross and Taxable Income, Particulars Amount, $ Taxable interest income 6800 Tax-exempt interest 2200 Dividend income 16000 fame's IRA distribution 48000 Rental income from lodge 3300 Long-term capital gain 3800 Short-term capital Gain 1260 Loss from oil and gas working interest 1020 Lucy's trust income 2100 Medical and dental expense 3200 State and local income taxes 1200 Real estate taxes (home) 2300 Real estate taxes (lodge) 600 Mortgage interest (home) 7000 Rental costs (lodge) 910 Carryover long-term capital 680 Gifts to charity 2940 1 Powers Gross Income: Taxable interest income 6800 Tax-exempt interest 2200 Dividend income 16000 fame's IRA distribution 48000 Rental income from lodge 3300 Long-term capital gain 3800 Rental costs (lodge) -910 Option E 79190 2 Powers Adjusted Gross Income: Gross Income 79190 Medical and dental expense 1600 Gifts to charity 2940 Option C 74650 3 Taxable Income: Adjusted Gross Income 74650 State and local income taxes 1200 Real estate taxes (home) 2300 Real estate taxes (lodge) 600 Mortgage interest (home) 7000 Carryover long-term capital 680 Loss from oil and gas working interest 1020 Tax-exempt interest 2200 59650
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