Question

Problem 7-45 (LO. 7)

Xinran, who is married and files a joint return, owns a grocery store. In 2018, his gross sales were $276,000, and his operating expenses were $320,000. Other items on his 2018 return were as follows:

Nonbusiness capital gains (short-term) $20,000 Nonbusiness capital losses (long-term) 9,000 Itemized deductions 18,000 Ordinary nonbusiness income 8,000 Salary from part-time job 10,000

In 2019, Xinran provides the following information:

Net business income $60,000 Salary (spouse) 25,000 Interest income 2,000 Adjusted gross income $87,000 Less: Itemized deductions* Charitable contributions (cash) of $35,000, limited to 60% of AGI $35,000 Medical expenses of $9,100, limited to the amount in excess of 10% of AGI ($9,100 – $8,700) 400 Total itemized deductions $35,400

* The 2018 married filing jointly standard deduction is $24,000; Xinran's itemized deductions will exceed the 2019 standard deduction (after adjustment for inflation). The medical expense AGI floor is scheduled to increase to 10% in 2019.

Enter all amounts as positive numbers. However, use the minus sign to indicate a loss.

a. Compute Xinran's taxable income or loss for 2018.

If an amount is zero, enter "0". If required, use the minus sign to indicate a loss.

2018 Net business income/loss from grocery store $(44,000) Salary 10,000 Ordinary nonbusiness income 8,000 Net short-term capital gain $11,000 Adjusted gross income/loss $(15,000) Less: Standard deduction $24,000 Less: Deduction for qualified business income $________ Loss $________

Xinran's NOL for 2018 is $.________

b. Determine Xinran's taxable income for 2019.

2019 (1) Determine taxable income before application of the NOL: Net business income $60,000 Salary $25,000 Interest income $2,000 Adjusted gross income $87,000 Less: Itemized deductions $18,000 Less: Deduction for qualified business income: $_____ Grocery store Taxable income $______ (2) Determine the NOL deduction: 1. The NOL carryforward $_________, or 2. 80% of taxable income computed in step 1: $________ (3) Determine final taxable income: Net business income $60,000 Salary $25,000 Interest income $2,000 NOL deduction $______ Adjusted gross income $______ Less: Itemized deductions Charitable contributions $______ Medical expenses $______ Less: Deduction for qualified business income: Grocery store $______ Taxable income $______

Can you help me figure this out?

Answer 1

2018
Net business income/loss from grocery store	$(44,000)
Salary	10,000
Ordinary nonbusiness income	8,000
Net short-term capital gain	$11,000
Adjusted gross income/loss	$(15,000)
Less: Standard deduction	$24,000
Less: Deduction for qualified business income	$__0______
Loss (Itemized Deductions can not be claimed as they are less than the standard deducion)	$(39000)

b. Determine Xinran's taxable income for 2019.

Net Business Income $60000

Salary $25000

Interest Income $ 2000

  Total Income $87000

Less: Itemized Deduction (is not $18000) $35400

Deduction for Qualified Business Income $12000

(20% of $60000) -----------

$47400

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Grocery Store Taxable Income $39600

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Determine the NOL deduction

NOL Caried Forward $39000

80% of Taxable Income (80% X $39600) $31680

Lesser of the Two i.e., $31680

Determine final taxable income:

Net Business Income $60000

Salary $25000

Interest Income $ 2000

  Total Income $87000

Less NOL Deduction $31680

----------

Adjusted Gross Income $55320

Less Itemized Deductions

Charitable Contribution $35000

Medical Expenses $ 400

-----------

$35400

Less Deduction for Qualified Business $12000

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Grocery Store Taxable Income $ 7920

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