Question

In: Accounting

Anthony, one of your cousins, is operating a very successful luxury nail salon called An-Toe-Nail. Other...

Anthony, one of your cousins, is operating a very successful luxury nail salon called An-Toe-Nail. Other than that, Anthony is also work part-time as a freelancer graphic designer.
In 2020, Anthony have the income from his designing job of $100k and the revenue from the An-Toe-Nail salon is $800k. During 2020, below are items that Anthony spend money on:

  • Anthony purchased a new car in Jan 2020 which cost $60k. The car is his main vehicle for the year which he will use to drive to and from work.
  • Employee salary: $300k in total, paying for 6 nail technicians, each $50k/year.
  • Utilities cost: $10k
  • Supplies (nail polishes, glitter, chemical, etc.): $10k
  • Nail salon equipment: $50k. Anthony told you that these equipment need to be purchased new every year for some reason. Since the nail salon is a luxury one, he spent twice the money to buy this luxury equipment (the similar but lower quality equipment only cost $25k).

Anthony asks for your help in figuring out his taxable income for 2020 before the standard deduction. As a tax expert, you understand that what he means was to help him calculate his AGI.

  1. What is Anthony Gross income in 2020? (Show calculation and explanation if needed)
  2. What is Anthony Deduction for AGI in 2020? Show calculation and explanation. Answer without explanation will result in no credit
  3. Provided that AGI = Total Gross income – Total Deduction for AGI. What is Anthony AGI for 2020?

Solutions

Expert Solution

Please Note that all amounts mentioned below are in $

Income From Business - 800K

+Income Form Free lancing Business - 100K

Total Gross Income - 900K - Answer to part A

Adjusted Gross Income(AGI)

Deductions available are ( along with the explanations)

Employee Salary - 300K (Revenue Expenditure)

Utility Cost - 10K (Revenue Expenditure)

Supplies - 10K (Revenue Expenditure)

Nail Equipment - 50K (Revenue Expenditure as the same is to be incurred every year. So the productivity of that Equipment is less than the year therefore not capitalised)

Car - 0K (Capital Expenditure and the same is to be capitalised and will be reflected in the Balance Sheet. Yes there would be an impact of Depreciation on the same but there is no Rate specified so assuming deprecition to be zero)

Total Deductions - 370K - Answer to part B

AGI - Gross Income - Deductions available

AGI - 900K - 370K = 530K - Answer to part C

ekkarill92 answered 1 year ago
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