Question

. Calculate Adjusted gross income for Sarah Smith based on the following information:

salary $200,000

child support received $20,000

capital loss $5,000

Interest on State of California bonds $20,000

Interest on Federal treasury bonds $10,000

Sole proprietorship net income $40,000

Qualified unreimbursed employee moving expense $ 10,000

Partnership loss $2,000

Unemployment compensation $20,000

Sarah received a gift of $10,000 from her father.

Contribution to Individual Retirement Account $1,000

Sarah's brother Samuel paid back a $10,000 loan from 2015

Contribution to health savings account $1,000

Penalty for early withdrawal from a timed savings account $1,000.

Rental income $20,000

Sarah found a ring with a fair market value of $2,000 on the bus.

Sarah won $1,000 in scratch of lotto

Sarah won $500 in a baking contest.

Sarah had qualified student loan interest of $1,000

Sarah received alimony of $40,000

Sarah received a legal settlement of $20,000 in payment for a broken ankle she incurred during a ferris wheel accident.

Sarah received life insurance payment of $100,000 due to the death of her great grandmother.

Sarah inherited $50,000 from her great aunt.

1. Prepare the tax formula

2. be able to calculate adjusted gross income.

Answer 1

Sol :

Computation of Adjusted Gross Inocme :

Particulars	Amount
Salary Income	$200,000
Child supoort Income - Not Taxable (Note-1)	$0
Capital Loss (Note-2)	-$3,000
Interest on State of California bonds	$20,000
Interest on Federal treasury bonds	$10,000
Sole proprietorship net income	$40,000
Less : Qualified unreimbursed employee moving expense (Note 3)	-$10,000
Less : Partnership loss	-$2,000
Gift received from Father - Non Taxable	$0
Deduction : Contribution to Individual Retirement Account	-$1,000
Loan repayment - Not a Income	$0
Deduction : Contribution to health savings account	-$1,000
Deduction : This penalty on your early withdrawal of savings can be deducted on your tax return.	-$1,000
Rental income	$20,000
Sarah found a ring with a fair market value taxed under miscellaneous Income	$2,000
Sarah won $1,000 in scratch of lotto(Note 4)	$1,000
Sarah won $500 in a baking contest(Note 4)	$500
Less : Student Interest Loan	-$1,000
Sarah received alimony- Taxable	$40,000
Sarah received legal Settlment- Tax Free	$0
Life Insurance Proceeds-Tax Free	$0
Inheretance-Tax Free	$0
Adjusted Gross Income	$314,500

Note-1 : If you receive child support, you don’t include the amount in your taxable income. You also can't count child support as earned income to qualify you for the Earned Income Credit.

Note 2: you can use a capital loss as an offset to ordinary income, up to $3,000 per year. (If you have more than $3,000, it will be carried forward to future tax years.)

Note -3: Reimbursements by your business to employees for moving expenses are considered fringe benefits. These benefits are taxable wages to the employee, and they must be included for federal income tax withholding.Business treats employee moving expenses as taxable wages for the employee, your business can still deduct the cost of these expenses as a business expense

Note -4 Taxpayers must also report the fair market value of merchandise or products won as a prize or award, as taxable income

Note : 5 The student loan interest deduction is a federal income tax deduction that allows you to subtract up to $2,500 in the interest you paid on qualified student loans from your taxable income.