nstructions : Choose the best multiple choice answer and explain why you chose t
ID: 2564297 • Letter: N
Question
nstructions : Choose the best multiple choice answer and explain why you chose the answer. MUST provide 2-3 sentence brief explanation and show all work. All sources must be noted.
PART A
Jan is single, had gross income of $38,000, and incurred the following expenses:
Charitable contribution
$4,500
Taxes and interest on home
11,000
Legal fees incurred in a tax dispute
2,000
Short Term Capital loss
5,000
Penalty on early withdrawal of savings
600
Her AGI is:
a.
$23,400.
b.
$32,500.
c.
$32,400.
d.
$34,400.
e.
$20,000.
PART B
Slim, a cash basis calendar year taxpayer, runs a bingo operation which is illegal under state law. During 2016, a bill designated H.R. 10 is introduced into the state legislature which, if enacted, would legitimize bingo games. In 2016, Salim had the following expenses:
Operating expenses in conducting bingo games
$153,000
Payoff money to state and local police
40,000
Newspaper ads supporting H.R. 9
4,000
Political contributions to legislators who support H.R. 9
8,000
Of these expenditures, Sam may deduct:
a.
$52,000.
b.
$195,000.
c.
$153,000.
d.
$183,000.
e.
None of the above.
Charitable contribution
$4,500
Taxes and interest on home
11,000
Legal fees incurred in a tax dispute
2,000
Short Term Capital loss
5,000
Penalty on early withdrawal of savings
600
Explanation / Answer
Solution A:
Option c is correct.
Janice’s AGI is calculated as follows:
Gross income $38,000
Deductions for AGI:
Short term capital loss (5,000)
Penalty on early withdrawal of savings (600)
AGI $32,400
Solution B:
Option c is correct.
Sam can deduct only the $153,000 of operating expenses
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