Sandra, anorthodontist, is single and has net earnings of $90,000 from herpracti
ID: 2770947 • Letter: S
Question
Sandra, anorthodontist, is single and has net earnings of $90,000 from herpractice. In addition, she collects antique books that she buys andsells at antique shows. She participates in six to eight weekendshows per year. Her income and expenses for the current year are asfollows:
Revenue from sale ofantique books $22,000
Expenses
Cost of goods sold 12,000
Show registrationcosts 3,000
Advertising 1,000
Dealer’s license-annualfee 5,00
Insurance 900
Depreciation ofdisplaycases 1,200
Sandra has no otheritems that would affect her AGI. Itemized deductions consisting oftaxes, interest, and charitable contributions are $19,000.Calculate Sandra’s taxable income if the antique bookactivity is classified as:
a. A hobby.
b. A business.
Explanation / Answer
Business: Schedule C*** Revenue 22000 lessCGS 12000 : GrossProfit 10000 : Expenses: Advertising 1000 registration costs 3000 licensefee 500 insurance 900 Deprcases 1200 6600 NetProfit 3400 : 1040 Income 90000 Sch C income*** : 3400 Total income and AGI : 93400 less: itemizeddeductions 19000 : exemption-personal 3500 : TaxableIncome 70900 Hobby When you receive income from a hobby, you mustinclude the gross income (whatever you got, without deducting anyexpenses against it, on "other income" line of your tax return. Theexpenses relating tothis income may only be taken if you itemize deductions, in whichcase they are taken as miscellaneous deductions subject to the 2percent limit. : 1040 Income 90000 otherincome 22000 : total income andAGI 112000 : reg itemizeddeductions 19000 hobby deductions subject to 2% AGI .02(112000)=2240 total expenses 18600 less 2240 misc deductions allowed 16360 : total itemizeddeductions 35360 : exemptionpersonal 3500 : taxableincome 73140Related Questions
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