Question

Carl and Renee have the following:

Total income of $149,222

Total deduction $44,500

Taxable income $104,722

With the above information Carl and Renee have a tax payable of $11,420

Carl restore mustangs in 2018 that is classified as a hobby. The hobby produced the following revenues and expenses.

Revenues	$13,000
Materials and supplies	$9,000
Utilities	$950
Advertising	$450
Depreciation (on tools and equipment)	$200

Compute carl and Renee's income tax payable (or refund due) (Hint: adjust their AGI and deductions from the primary information). Assume they did not make any addition payments of estimated income tax.

Answer 1

	Carl and Renee	Amount$
	Total Income	149,222
Less:	Total deductions	(44,500)
	Taxable Income (1)	104,722
	Tax Liability (2)	11,420
	Effective Tax Rate 3 =1/2	10.91%
	Income Statement of Mustangs restored in 2018
	Particulars	Amount $
	Revenue (A)	13,000
Less	Material and supplies	(9,000)
	Utilities	(950)
	Advertising	(450)
	Depreciation of tools and equipment	(200)
	Total deductions (B)	(10,600)
	Taxable Income = C= (A-B)	23,600
	Tax rate (as per above) - D	10.91%
	Tax liability E= C*D	2,575
	Total Tax payable (11,420+2,575)	13,995
	Assumptions
1	It is assumed that effective tax rate computed above of 10.91% based on Carl and Renee income is same for Mustangs
2	It is assumed that there are no disallowance from tax (IRS side) for Materials, utilities, advertising
3	It is assumed that tax basis of depreciation for tools and equipment is same as book depreciation